Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 300 - 319)



  300. Part of the rationale for the PFI is that the cost for the contractor can be off-set by third-party revenues. Will you be playing a part in encouraging allies to use spare Skynet 5 capacity?
  (Lord Bach) Yes, we shall be playing a part.

  301. Are you advancing with that at all in preparation? The allies will already be locked in.
  (Lord Bach) By way of example, we are aware that by the end of 2004 NATO needs to supplement its ageing satellites. It would be foolish to pretend that it has escaped the attention of Paradigm and the UK MoD that this successful Skynet 5 may be a strong contender for any competition that there was for that NATO satellite, by way of example. That will be relatively soon as well.

  302. Being a former local government person, I am a little sceptical. I know the significance is not the same, but whenever a contract is drawn up with a private individual, we normally lose out as a local authority, because the legal side of the local authority is not robust enough to ensure protection. The situation may not be exactly the same, but when Government deal with powerful private sector companies, contract details will be difficult to enforce when the crunch comes. If we lose a satellite, you say that the Skynet 5 operators will be able to have one ready to go up and we shall not pay the penalty. Are we sure that the MoD has sufficient power to get another satellite up in the air immediately, or shall we be left arguing over contract details for a long period of time, leaving us exposed?
  (Lord Bach) I am also someone with local government experience.

Jim Knight

  303. You are also a lawyer.
  (Lord Bach) I try to keep that quiet. That is not fair! If I may say so, I share your concern about how local government sometimes works in this regard. I shall ask Sir Robert to answer your question. I think Ministers are content that we are robust enough in the MoD. We have looked at this particular contract so closely for a long period of time that your fears can be allayed.
  (Sir Robert Walmsley) The big distinction, it seems to me, is that in this case it is not the Ministry of Defence—the Government component - going out to look for third-party customers, but the communications service supplier looking for third-party customers. It is a commercial company, it has taken a risk to acquire third-party customers and it is incentivised. It is a straight commercial deal by a commercial company. To underpin the point about what we are doing to help allies to take advantage of this third-party commercial opportunity, we have a number of memoranda of understanding in place with allies already. They want to know that their information will be looked after properly when it is travelling over the commercial military satellite service. We are doing our bit on the government side to facilitate commercial deals between our supplier, Paradigm, and other allied governments. The point about NATO is that having invested all the money to develop a Skynet 5 satellite effectively, Paradigm will have defrayed all the non-recurring costs of that satellite design, so it should be able to offer that design of satellite very competitively to NATO when NATO wants to replace its existing satellite. That is how it works.

  Syd Rapson: I do not wish to sound too sceptical, because I believe that Astrium is a very good company, but I would say that as it is a major player in my constituency.

Mr Hancock

  304. Firstly, when do you expect the system to be fully operational? Secondly, how much have you paid towards the spare capacity that will now be sold on by the supplier?
  (Lord Bach) The initial service provision is expected to start in 2005. On your question about full operational capability, that will be in 2008.

  305. If there was a failure, what would cover the shortfall from Skynet 4 to Skynet 5, bearing in mind the time frame and the short life capability of Skynet 4?
  (Sir Robert Walmsley) The first point is that in approaching this PFI, clearly everybody's demand for communications is increasing every year, so the demand for communications capacity from Skynet 5 will be very much greater at the end of its life than at the beginning of its life. Quite naturally at the beginning of its life, Skynet 4 was adequate. That is why Skynet 4 is doing the job today. That is why I go back to the complicated story about launching the second Skynet 5 satellite early enough to ensure that there is time to build a third one if the second one goes wrong and to have it in place so that you can do a transition from Skynet 4. There is plenty of capacity at the beginning of Skynet 5 life on Skynet 4. On Skynet 4's life, despite my rather brave story about the design life being only six years, our experience, after launching six of these satellites, is that they look as though they will last up to 10 years. By launching Skynet 5 early enough, taking account of the possibility of failure of the first or second satellite, I am absolutely confident that there is plenty of life left in Skynet 4 to provide a seamless transition.

  306. Who paid for the space capacity available? How do you test the PFI price against what you would have paid if you had done this yourselves? I am at a loss. Like you and Mr Rapson, I am from local government and I have seen PFIs being massaged in such a way that you believe that you are unbelievably lucky that these people came to you with this offer, when the reality is that you have been taken to the cleaners.
  (Sir Robert Walmsley) There are two components to the answer. First, we had a competition so we took the best of the two. Although we have done an informal debrief, we shall not do the formal debrief with the losing contractor until the contract is signed, which I expect to be this autumn. So I am not in a position to explain why we preferred one bid to the other, except that there was a clear value-for-money benefit to us. Second, the public sector comparator is looked at very carefully by lots of people and we are very satisfied that it is extremely robust. It is pretty aggressive actually, because you do not want to make silly assumptions about what constitutes value for money under a PFI. One reason why this PFI worked is that we kept the option open, as the Minister described earlier, of going to a conventional procurement until quite late on. We helped to fund the technical studies of both consortia so they were not having to put in a big premium for risk. I think we acquired two very competitive bids for the space segment, and very sensibly the company said, "Could we please take over the terminals?", that is the terminals on the ground, on ships and the main station at Oakhanger. They wanted to make sure that they had all the components of the system under their control. That allowed them to make extremely sensible efficiencies at the boundaries between the terminals and the space segment and the ground station at Oakhanger. I think it is excellent. It is a 6 per cent saving against the public sector comparator.
  (Lord Bach) As I understand it, the public sector comparator here was a particularly aggressive one, and rather more so than normal. That was the advice that I received.


  307. Minister, one of the problems that we have with fiercely contested bids is that this Committee is not part of the decision-making process. We should have a right to see why a decision was made. I know we have two requests in the pipeline: ASTOR, which is now about four years old and BVRAAM, which is about two or three years old. It would be helpful if at some stage we could have those debriefings and perhaps one on this subject. It is relevant for us, if we are not part of the decision-making process, to see the factors taken into account when a final decision is made. We have had a chat with Sir Robert about that starting off with ASTORl. I am sure that you were in local government in those far off days. I recall the Prime Minister being debriefed after the unsuccessful candidates were debriefed. I assume that at this stage they will have been debriefed.
  (Lord Bach) Perhaps I can say—I do not need to chat to Sir Robert on that—that of course we ought to find a way of debriefing this Committee, or those Members of it who want to be debriefed on particular projects at an earlier stage sometimes than the Committee timetable allows. We shall try to find a way of doing that in the same way as you and I discussed that there should be more regular meetings between the department and the Committee on a regular basis at the Ministry of Defence. You will remember that discussion. As far as equipment decisions are concerned, as best as we can, given commercial confidence and so on, I see a need to ensure that Members of this Committee are debriefed.

  308. On the airfield support services project, you will know that on the Floor of the House it has been described as a privatisation too far by a great many Members. Why do you consider that it is safe to put airfield fire services into the hands of a private company whose primary task is to make a profit?
  (Lord Bach) No decisions have been reached about the airfield support services project as a whole, or the fire services that are one part of that potential project. As you know, the project goes far beyond fire services and will incorporate a wide range of essential services at MoD airfields, including clearance and runway control. I should point out, having made the point that no decision has been made and that we are interested to hear the Committee's view on this issue, that private sector involvement in fire services is not actually new. Current services, as I understand it and as I am advised, are provided by a mixture of service, civilian and contractors' staff.

  309. That is a secondary service. The privatised staff are a secondary service. They are not in the frontline of fighting fires, Minister.
  (Lord Bach) The advice that I received was that the fire service at RAF Cranwell, which is a college and a place where training is carried out, is run by a private company, Huntings and at RAF Valley, which Members of the Committee will know well as being the Hawk airfield, another private company runs the fire service. There is no defence fire service presence at those two airfields. That is not an answer to whether we should or should not do this. I read the debate carefully that the Member for Selby succeeded in, in November last year and it is powerful stuff. In particularly, Mr Grogan made a powerful speech. I have to say that we shall look at this potential PFI, as I said at the start of these proceedings, in an entirely pragmatic way and value for money will be the key. I want to emphasise how early we are in the valuation stage. I also want to emphasise that the comments you have to make to us, whether here or outside, will be taken into consideration.

  310. You have to be pragmatic and obviously safety should be the first priority. Are you aware whether the Americans have made it known that they would not find it acceptable for their aircraft to be based at airfields where privatised companies are used?
  (Lord Bach) I have not heard that. I have not made a comparative study with the Americans. Perhaps we need to do that before we make any decisions.

  311. The Americans have made no comment one way or the other?
  (Lord Bach) I am not sure that we have asked them at this stage. I do not want to mislead you.

  312. Keeping it general, if you think that it is worth considering privatising the fire services, would that mean that it is also worth considering privatising local authority fire services? If you think that it is good enough for one sector, do you think that it is good enough for another? I understand that that is not your remit. That is a fear of a lot of Members, that if it is to be done in airfields why not do it with all the fire services.
  (Lord Bach) You know that I shall say it is not in my remit. I have enough difficult questions to answer this morning without moving elsewhere, but it is a fair point.

  313. Do you accept that?
  (Lord Bach) It is a fair point and one that we shall consider. However, I have to point out again that to privatise the fire services would not be doing something that is absolutely new in terms of fire protection at airfields.

  314. It is new for the vast majority. We would have fire services that primarily were there to make a profit.
  (Lord Bach) Our concern is that we get the most efficient and the best value for money on our airfields in whatever services are provided. As always we are looking for the capability. That is our concern. If the best way to do that is to enter into some PFI arrangement in relation to arrangements on airfields, whether or not that includes fire services, that is a course that we may take. If it is not, we shall not take that course.

  315. I understand what you are saying. If you are saying that there is a possibility of using privatised companies, some privatised companies are very good and safety would be a priority for them as well, but what would happen abroad where we would have the pathfinder? For airfields abroad, would we take on the local privatised companies?
  (Lord Bach) As I understand it, certainly at present it is service aircrews who look after the fire service abroad. We do not have private arrangements.

  316. What about where the expeditionary forces may be? What would we do there?
  (Lord Bach) I am sure that that is looked after by the services' fire service.

  317. Would that be done by a private company as well?
  (Lord Bach) That is not something that we have considered at this stage.

  318. Do you think it should be considered at the same time? Obviously, in today's world we have expeditionary forces out all the time.
  (Lord Bach) At the moment we are looking at the airfield support services project which is basically British, but also it includes other world-wide sites. There are 105 sites, 28 of which are not airfields. My answers have been in regard to airfields in this country.

  319. Does that include the combat areas, for example, where we have forces abroad? Are you saying that if it is good enough for the airfields here, that the privatised companies will go to the combat areas?
  (Lord Bach) That will be part of our consideration on this project. Absolutely no decisions have been taken.
  (Air Marshal Sir Jock Stirrup) Perhaps I can add to the Minister's point. On the point raised by Mr Roy about overseas operations, my concern is capability and ensuring that it is delivered. Although it is not part of this particular project at the moment, the hypothesis that we are putting is no different from a lot of other areas where we looked at contractors on deployed operations, or in the case that we were discussing earlier with PFI contracts under a reserves operation. All of that would be possible theoretically. Although it is not part of this contract at the moment, we would not rule it out.

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