Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 40 - 59)

THURSDAY 25 APRIL 2002

SIR ROBERT WALMSLEY AND MR JOHN COLES

  40. In terms of the assembly of this ship, you say it will be huge. How many sites are there in the UK that could do a hook-up? Probably not Barrow.
  (Sir Robert Walmsley) You cannot do it at Barrow. Harland & Wolff have a dock that is big enough. There is one on the Clyde called Inch Green, a perfectly reasonable place to do the assembly, and there are docks in Birkenhead, Cammell Laird. The previous HMS Ark Royal was built in one. Her sister ship, HMS Eagle, was built at Harland & Wolff. I look at Mr Coles in case there is another one I have forgotten.
  (Mr Coles) Somebody might want to create one somewhere else.
  (Sir Robert Walmsley) I have not looked at docks at Rosyth which are built for battleships but they might be big enough.

Syd Rapson

  41. We could do it at Portsmouth.
  (Sir Robert Walmsley) I would stick to my three: the old Cammell Laird dock built a 50,000 tonne ship. Harland & Wolff built a 50,000 tonne ship and Inch Green, which is plenty big enough.

Mr Jones

  42. You would be a bit wary about putting it at Harland & Wolff because of its history.
  (Sir Robert Walmsley) If I said that I would just reduce the competition. I am wary about all of them.

  43. There must be a question mark over Harland & Wolff with its track record.
  (Sir Robert Walmsley) There is a question mark over Cammell Laird's facilities.

Syd Rapson

  44. Presumably from a shipbuilding point of view, the VSTOL would be cheaper because you do not have the catapults and all the other mechanical pieces for firing off the aircraft, but the aircraft must be more expensive as aircraft.
  (Sir Robert Walmsley) That is absolutely spot on.

  45. The Royal Marines in America are cutting back on the VSTOL selection and that is another complication but it is a balance you have to make. The cost of the ship in production for the traditional fixed wing fighter is greater but if you choose the other VSTOL Variant the cost of the aircraft is greater and probably they are evenly balanced, are they not?
  (Sir Robert Walmsley) I cannot say they are evenly balanced. What you have said sums up the situation exactly. There have been suggestions that training pilots for STOVL operations is a less time consuming and therefore much less expensive activity than training pilots for arrester gear landings and for catapult launch. It is really important that I succeed in getting across the message that we are trying to take the decisions on cost on a through life basis. That does not just include the costs in the shipyard or the costs in the aircraft. That includes the whole costs of operating the system.

  Syd Rapson: One of our members on the simulator in Washington learned in ten minutes for a very quick transition. You could not crash it but it is a tasty aircraft and I can see your point. Thank you.

Mr Roy

  46. PFI is a contentious and topical issue throughout the country in general but do you regard the roro programme as a successful PFI?
  (Sir Robert Walmsley) I give an unequivocal yes to that but, just in case you think I am a complacent chap who sits behind a desk all the time, I have to say that I am very conscious that we have not yet signed the PFI contract. I believe we are closing in on it. I do think that, within the next few weeks, we are going to sign the PFI contract. It is an absolute benchmark of innovative contracting. It has been an enormous effort on the part of those with whom we are trying to do a deal, as well as those in the Ministry of Defence who are trying to put together our side of it. Yes is the answer.

  47. We will hold you to the next few weeks.
  (Sir Robert Walmsley) That is fair.

  48. More specifically, do the current arrangements allow the PFI contractor to turn complaints about performance of the two Harland & Wolff ships back on the MoD as the supplier of the ships?
  (Sir Robert Walmsley) Yes, they would in theory, although we are very careful. Normally, we have overseers crawling over ships. We do not have that in this case. We have used Andrew Weir Shipping RoRo staff, which is AWSR, to supervise the construction at Harland & Wolff. I am quite happy that the quality at Harland & Wolff is now satisfactory. I spoke to the shipyard this morning to try to get a visual impression of what it looked like. The first ship has its upper works on. It looks like a ship. It has not got its funnel yet or its shaft or propeller but that is because they are late from the propeller and shaft manufacturers. The ship will be floated on 25 May. The planned completion date for the first ship at Harland & Wolff is easy to remember because it is Trafalgar Day, 21 October this year. Harland & Wolff as of this morning, the project manager told me, is quite confident it is going to deliver six weeks early on that contract date. Similarly with the second ship whose contracted date was the end of January. He expects to deliver it before the end of this calendar year. It has not been easy for Harland & Wolff. They had a bit of a gap and it has taken them a while to get going but they are under supervision by AWSR. They have very good cooperation going with the German design yard. There are always things that could go wrong, but I do not think they will.

  49. On Harland & Wolff, I am glad to hear that it will all be in front but what risks did you look at when you looked at Harland & Wolff and their position? What assessment of the risks involved did you make when you brought in AWSR as a contractor?
  (Sir Robert Walmsley) I try not to be too close on my answers at these committees because it does not help either of us but if I am cautious it is cautious in hinting at anything to do with the financial position of any of our contractors. I think that is inappropriate until the information is in the public domain. You would expect to look at the physical facilities at Harland & Wolff and whether they had the workforce capable of constructing the ship and whether the financial tensions in the company, which clearly was not having an easy time, would be such that they made absolutely certain with a total guarantee that any money we disbursed to them for the RoRo would be spent on the RoRo. I went personally to the shipyard. I know the guys who run it. I am comfortable with the workforce and we put arrangements in place to make sure the money paid into the shipyard was spent on the RoRos.

  50. Was there a social argument for value for money there as well?
  (Sir Robert Walmsley) Not in my value for money world, but if you think I am unconscious of those social arguments you would be wrong.

Mr Jones

  51. Harland & Wolff has been kept for years now because of a political decision.
  (Sir Robert Walmsley) I do not think that is fair. We have had some difficult experiences with them. Every now and then we forget and ask for more but this time will prove we will get good ships.

  52. This was supposed to be the new way of doing things with the PFI. It has been awarded to one of the notorious companies that has had problems with building ships for the Navy.
  (Sir Robert Walmsley) It was not us who picked Harland & Wolff.

  53. In terms of awarding the contract in the first place, it is the old adage of keeping Harland & Wolff for political reasons.
  (Sir Robert Walmsley) I do not think that is either right or fair. We have had fantastically tough competition for this strategic sealift service. I know you know all this but this was not a competition about building ships. That ran through it but the shipbuilding content of this is about 20 per cent of the value. The value was going to be provided by a shipping company that had the imagination to see how they could secure commercial deals on ships five and six which would offset the cost of the service to us. AWSR chose two shipyards and the reason they chose two shipyards was because they knew we wanted to get on with this. If they built them in two shipyards, they could provide the service sooner than if they chose to build all six ships in one shipyard. In a competition, you cannot have every yard in every consortium. AWSR picked Harland & Wolff. That may have been a good idea; it may not, but I believe the ships are going to be fine and I am absolutely satisfied in my own mind that it was not us who picked Harland & Wolff. It was AWSR.

  54. I accept that but it is good for political reasons, is it not? It can be seen that you have that Harland & Wolff shipyard. I thought we had finished those days but I am not convinced that we have.
  (Sir Robert Walmsley) I do not think there is something intrinsically wrong with things that are good for political reasons. What I do not accept is that the Harland & Wolff issue in any way conditioned the outcome of the competition. We were picking a shipping company. We picked AWSR. Their position was to build two ships at Harland & Wolff and four at somewhere that I know you would rather I did not mention, so I am not going to.

  55. In terms of the problems with the Harland & Wolff contract, did you look at any alternative routes of procurement and the possibility of the acquisition of second hand RoRos which was mooted at one time in the press?
  (Sir Robert Walmsley) We gave all the bidders the option to produce reconditioned ships if they wanted. They all went for new build, not surprisingly. This is a long term contract and the ships are going to have to last for a long time.

  56. When you had the problems at Harland & Wolff, did you consider—?
  (Sir Robert Walmsley) I am sorry; I misunderstood. When we had problems at Harland & Wolff, we considered everything. It was not a simple situation in which we found ourselves. Sitting at the back of this was the fact that we had had a proposition from AWSR which had proved very attractive for us because it had got the service quickly. If you start to consider bids from somewhere else, all that would have been thrown out of the window and there would then have been the question whether we had to reopen the whole competition. You just know that that is going to take a long time. We found ourselves looking at a proposition which we thought we could make work by a different way and deliver all the benefits of the AWSR bid. That is what Ministers decided to do and I feel very comfortable with that.

  57. In terms of the problem you had with Harland & Wolff's contract, has it added to the cost? Is it still going to be cheaper than the traditional method of procuring a RoRo? I accept that the build part is only a small part of the contract.
  (Sir Robert Walmsley) I have said already today in the context of shipbuilding in general that spreading orders around nearly always costs more money.

  58. Harland & Wolff has always cost more money in terms of over -runs on time. They have not exactly had a great track record, have they?
  (Sir Robert Walmsley) I had an argument with somebody in the next door room previously about that. Harland & Wolff dispute that. I agree they have never had a great track record for us but they disputed what was said previously about complicated oil field vessels. As of this morning, they are talking about being six weeks early on their contracted date of 21 October and six weeks early with the second ship.

  59. You are confident that you are going to get a product at the end which will work and last?
  (Sir Robert Walmsley) I am.


 
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