WEDNESDAY 8 MAY 2002

__________

Members present:

Mr Bruce George, in the Chair
Mr David Crausby
Mr Mike Hancock
Mr Gerald Howarth
Mr Kevan Jones
Jim Knight
Syd Rapson
Mr Frank Roy
Rachel Squire

__________

LORD BACH, Minister for Defence Procurement, SIR ROBERT WALMSLEY KCB, Chief of Defence Procurement, AIR MARSHAL SIR JOCK STIRRUP, KCB, AFC, Deputy Chief of the Defence Staff (Equipment Capability) and MR JOHN COLES, Chief Executive, Warship Support Agency, Ministry of Defence, examined.

Chairman

  1. Welcome, gentlemen. Sir Jock, twice in a fortnight may be too much for you! This is a most glittering array of talent that we have seen in this Committee for some time and rivals tonight's match with Manchester United. We have high-profiled, high-salaried stars and well-known suspects sitting behind you and to your right. You may not all wish to answer all the questions, but as you represent different elements of the procurement process, it may be apt to hear more than one person speak on a question. Perhaps I shall address questions to you, Lord Bach, and then you can work out who wants to hide under the table and who wishes to be forthcoming. We have people who are pretty forthcoming. I propose to continue until at least a quarter to one. Lord Bach, welcome to your first and hopefully not your last meeting with the Defence Committee. Would you like to say anything by way of introduction?
  2. (Lord Bach) I am looking forward to the next two and a quarter hours - or will it be six hours! I am slightly apprehensive. It is rather like going to a fair and taking a ride that one has not been on before. One has a sense of anticipation and is interested to see what the ride is actually like.

  3. As at Alton Towers, I suspect that you are well strapped in.
  4. (Lord Bach) Thank you for that warning. I do not think that I need to introduce any of those with me today. I look forward to doing my best to answer your questions.

  5. We shall start with some questions on private finance initiatives. When we requested information from the MoD we requested information on five programmes that would fall within the framework of PFIs. I want to explore a couple of those. Your heavy equipment transporter programme is the first and, so far, the only PFI that uses sponsored reserves, although you have others in the pipeline that are likely to use them. What have you learnt from this "pathfinder" programme about the use of sponsored reserves? Have your experiences shaped the way in which you are implementing the other PFIs?
  6. (Lord Bach) As far as PFI is concerned, at the Ministry of Defence we look at it in a pragmatic way on all occasions. Whenever it delivers us better value for money than a conventional procurement, we shall take that option. As you know, Chairman, we have taken it already in 42 projects, bringing some 2 billion of private sector investment into defence. We are looking at it over another 40 projects that would bring in much more in the way of private sector investment - up to 12 billion. Your question is about sponsored reserves. In regard to sponsored reserves, it is early days. As you know sponsored reserves will undertake substantially the same tasks for the MoD in peacetime under service contract arrangements as they do in operations. When the department requires those tasks to be performed on operations, sponsored reserves like other reserve forces, are, of course, subject to military law and discipline and wear the uniform of the service in which they serve. In that respect they are materially different from contractor staff who work in support of operations. We have no single blueprint of training that sponsored reserves must have. It will depend upon the particular role that they play. At the minimum they are likely to receive training on military organisation, conduct, ethos, discipline and perhaps basic small arms training for self-defence. The point of using sponsored reserves is to enable them to continue to do the same job that they do in peacetime and if that is right we do not think that a large amount of additional military training will be necessary. I want to make it clear to the Committee that we are feeling our way on this. On the HET (heavy equipment transport) PFI project, for which a contract was placed in December last year, the service does not commence until July 2003 with full service achieved, we hope, in July 2004. Either I or my successor, or my successor's successor will be in a better position to tell the Committee how sponsored reserves have worked at a future meeting of this Committee.

  7. How are you able to go completely over to contractor staff operating the Ro-Ro ships and heavy equipment transporters, when you still need RAF crews to fly the strategic tanker aircraft?
  8. (Lord Bach) As far as the tanker aircraft is concerned, it is a project that is quite a long way back, particularly from the last one you asked me about, the HET. To begin with we shall have a mixed manpower of which at least 75 per cent will be RAF crews and 25 per cent may be sponsored reserves. That will be ground crew and pilots as well. We think that that is a sensible strategy to begin with, to see how it works. One of the crucial things that we are trying to do is to remain flexible in the way in which we introduce the concept of sponsored reserves and the way in which we run each of our PFI projects. That will mean doing different things in different cases. We think that it is appropriate, certainly so far as FSTAs are concerned, and our initial thinking is - I repeat that it is important to remember that no final decisions have been taken about FSTA yet - that a combination of service and sponsored reserves is the best way to go.

  9. On the strategic tanker programme, your helpful memorandum notes that an "air transport" element will be included in the programme if it looks to be cheaper than current civil aircraft chartering arrangements. How will third-party income be generated by the contractor if this PFI is confined to a fuel-carrying role?
  10. (Lord Bach) I shall ask Sir Robert to answer that question.

    (Sir Robert Walmsley) I do not think that there is any question that third-party revenue would be confined to a fuel tanking role. The aircraft are, of course, intrinsically capable of carrying freight because they are tankers. There is a large volume inside, the internal volume of the aircraft, that is not full of fuel. We hope that the competing private contracting consortia would seek to enter into arrangements to carry freight or passengers. It does not take long to put the seats back on one of those aircraft and to use it for passenger transport. That is the essence of the competition of course. If they are willing to take that risk, they will produce a better value-for-money solution for us.

    Jim Knight

  11. On the balance of contractor staff and sponsored reserves as opposed to pilots, can you be clearer? I accept that you need flexibility as you bring forward the projects in deciding that balance, but what are the criteria when you do decide? In strategic tanker aircraft the indication is that there will be more RAF than contractor staff, whereas for the others it is more contractor staff than RAF. How is that balancing decision made.
  12. (Lord Bach) On a case by case basis. Mr Knight, you are right in the sense that there would be more service than contractor staff to begin with, but that is to begin with. We do not know whether that balance would stay the same as FSTA came on line and we had a few years' experience of it. In the case of Ro-Ros and HET, the designation of sponsored reserves does not mean that we see people being put into dangerous situations. The services being provided are not intrinsically military in their nature and can be met by the private sector. As far as FSTA is concerned, we feel that at least to begin with it is important, as a matter of reassurance as well, to the outside world that there is a fairly large quantity of service people.

  13. The principal factor in the judgment that you take is the extent to which they would be involved in combat or close to combat?
  14. (Lord Bach) That is one of the major factors. As you know, the closer we get to operational necessity, the less inclined we are to use PFI.

    Chairman

  15. What about when you get a bit closer to the frontline?
  16. (Lord Bach) It is a matter of judgment. We felt with, for example, the combat vehicle project that, for a number of reasons, it was best to procure by conventional methods and that was clearly close to the frontline. Our present thinking on FSTA is that it is the other side of that. As I have tried to make clear in my answers already, we have made no final decision on that. We think we have the situation about right so far.

    Mr Hancock

  17. On what do you base those judgments? You say that it is a closely-called decision. What tips you down one side or the other? The closeness to the frontline cannot be the only criteria.
  18. (Lord Bach) No, it certainly is not, but it is certainly one of the factors. All the time we are seeking to demonstrate value for money. That is the broad concept. I think I have already said that. By way of example, as far as the combat support vehicle is concerned, we thought that there was limited scope for third-party revenue, which is also an important feature for two reasons. Firstly, there is the dispersal of those particular vehicles when they are on operations, which means that it can be hard for a contractor to use them for third-party purposes. They are specialist vehicles. So we take on board a number of considerations on each occasion; for example, if there is a limited scope for innovation, as there often is if one is very close to the operation. There may be limited scope for sponsored reserves if you are very close to the operation. Those are factors that we also take into consideration when deciding. Maybe Sir Jock Stirrup can take the matter further.

    Chairman: We shall come on to that later.

    Syd Rapson

  19. I suppose I should declare an interest. I want to ask questions about Skynet 5 and, of course, Astrium in Portsmouth and in Stevenage has enhanced its profile somewhat having been selected for it. On Skynet 5, PFI will supplement and eventually replace the existing ageing Skynet 4 system. It will rely on only two satellites, as opposed to three before, and some spare capacity will be going to the commercial sector for communications. Although you are insured under Skynet 5 with the two satellites, under the previous system there were three, which assumes that two were necessary and one was a back-up. What does the Skynet 5 programme offer you that you would not get from a straightforward commercial contract for satellite capacity as and when you need it?
  20. (Lord Bach) I shall ask Sir Robert to deal with the numbers. First, we are very pleased indeed with the way in which the Skynet 5 competition has been carried out in what has resulted. We believe that Skynet 5 will provide satellite communications to our Armed Forces in much the most efficient and cost-effective way. I remind the Committee that the total throughput of Skynet 5 is about two-and-a-half times greater than the present Skynet 4 system. One of the great advantages of the private finance initiative here is that we shall deal with the usage made of Skynet 5 by the contractor for our purposes, rather than having to pay for the full programme irrespective of future actual use. On the issue of why we need only two rather than the three satellites that are presently required for Skynet 4, I shall turn to Sir Robert.

    (Sir Robert Walmsley) It is simply a matter of geographical coverage. We have always just needed two. Against the possibility that one was lost on launch - the single most likely cause of total loss - or did not deploy or work properly when placed in orbit, we thought that it was sensible to construct three satellites. Having constructed three, it made sense to launch three rather than just leave it in a cupboard on the ground, wasting away. We looked carefully at the possibility of insuring ourselves against loss on launch as we did in the days when we did it as a conventional procurement for Skynet 4. The difficulty was that it is all very well someone giving you back all the money when the satellite has blown up, but that does not actually replace the communications capacity that you need. With a relatively short-lived satellite system as Skynet 4, with a design life of something like six years, you would have to launch the second of the three Skynet 4 satellites very early in order to ensure time to build the third one with the insurance money and launch it to take over the services if the second one blew up. I know that sounds unbelievably complicated, but that is the way it is. With Skynet 5 the satellite life is closer to 15 years. The arrangement is - a big risk for the private finance provider - that he builds the two and takes out an insurance policy as to whether they both successfully achieve orbital performance. He launches the second satellite soon enough to give himself time to assemble all the bits - he will probably have quite a few of them - so that he can launch that to take over from Skynet 4 stage two satellites in good time to ensure a seamless provision of operational capability. That is how it works. That does, of course, save quite a bit of money. It is important to emphasise that the calculations that we have done show a robust 6 per cent saving on this private finance solution as compared with the conventional procurement because of the third-party capacity use. There are plenty of military customers out there who want to buy it. They can all afford the terminals that will fit in a suitcase or a trunk, but they cannot afford the satellites, although they would like a piece of one. The consortium is ready to sell that to them.

  21. So the commercial risk is being covered by the company that is going to be the back up. The severe cost if they lost a satellite will enable them to be prepared to replace it immediately, rather than suffer massive costs?
  22. (Sir Robert Walmsley) Exactly. I return to the point that we are not just interested in the money. We have to have a robust mechanism to provide the communications. There is no satisfaction in having the money in the bank, but not having the satellite. We need the communications and we are quite satisfied that this arrangement will provide a seamless transfer from Skynet 4 to Skynet 5.

  23. At times of busy demand for capacity, there needs to be extra drawn from commercial satellite services. When operations are in the headlines, we have seen how capacity is often quickly snapped up by television firms grasping at the headlines. How is Paradigm going to be able to guarantee that your satellite traffic demands will always be met?
  24. (Sir Robert Walmsley) Their contract provides for retaining clauses - if that is not too simplistic an explanation of something that is undoubtedly extremely complicated - to have access to commercial capacity.

  25. It is in the contract?
  26. (Sir Robert Walmsley) We have not signed the contract yet, but it will be in when we have signed it. This is a really robust arrangement. The United States is quite happy to rely on commercial satellite support for military operations. We should be too. We should not just confine ourselves to military satellites for all our traffic.

  27. 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?
  28. (Lord Bach) Yes, we shall be playing a part.

  29. Are you advancing with that at all in preparation? The allies will already be locked in.
  30. (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.

  31. 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?
  32. (Lord Bach) I am also someone with local government experience.

    Jim Knight

  33. You are also a lawyer.
  34. (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

  35. 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?
  36. (Lord Bach) The initial service provision is expected to start in 2005. On your question about full operational capability, that will be in 2008.

  37. 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?
  38. (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.

  39. 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 Syd, 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.
  40. (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 Oakhammer. 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 Oakhammer. 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.

    Chairman

  41. 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: Astol, 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 Astol. 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.
  42. (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.

    Mr Roy

  43. 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?
  44. (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.

  45. That is a secondary service. The privatised staff are a secondary service. They are not in the frontline of fighting fires, Minister.
  46. (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.

  47. 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?
  48. (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.

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

  51. 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.
  52. (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.

  53. Do you accept that?
  54. (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.

  55. It is new for the vast majority. We would have fire services that primarily were there to make a profit.
  56. (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.

  57. 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?
  58. (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.

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

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

  63. Do you think it should be considered at the same time? Obviously, in today's world we have expeditionary forces out all the time.
  64. (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.

  65. 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?
  66. (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 sponsored 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.

  67. It would be possible theoretically?
  68. (Air Marshal Sir Jock Stirrup) It would be possible theoretically to look at a contractor on deployed operations or a sponsored reserves arrangement under a PFI for all kinds of services.

    Chairman

  69. It would be helpful, Minister, if you could send us more considered brief on this matter. As you can tell from the questions and from people expressing their views outside, it is a very emotive issue. Has there been any attempt to try to squeeze more efficiency out of existing fire service arrangements prior to considering a PFI? There are other examples - we shall talk about those later - where the trade unions felt that they had not been given the opportunity to provide for greater efficiency. Is that something that you are considering.
  70. (Lord Bach) Many years ago there was an intention to make the fire service more efficient as applied to the three services. Alas, that does not seem to have been carried out in full then. As part of the consultation and examination that we are carrying out now on this potential PFI, we shall consider whether we can make the present system more efficient and more efficient than any PFI would be.

    Rachel Squire

  71. Minister, either now or perhaps in a written response, can you clarify whether under existing arrangements any private airfield fire support services are engaged for airports and landing fields where we have aircraft that carry weapons? Under the existing arrangements, are private firms used where there are aircraft landing and taking off carrying weapons?
  72. (Lord Bach) As you anticipated in your question, I do not know the answer. It is a good question and I shall make sure that there is a response.

    (Air Marshal Sir Jock Stirrup) I think we should come back to you on the details. Certainly at Valley, for example - one of the airports that the Minister mentioned earlier - aircraft land with training weapons and there are practice camps that have live weapons. We shall return with the detail.

    Jim Knight

  73. At Kabul airport the airport support appeared to be a multi-national arrangement, but the fire support was British and had fantastic kit. I am interested in that kind of operation. If we start to go down the PFI route and find that sending contractors out to somewhere like Kabul is too difficult, shall we start to go down a specialisation road where we end up using other countries' services, where they have retained airport support services and we cannot do it because we have privatised it?
  74. (Lord Bach) Mr Roy, with respect to Mr Knight, touched on that as well. The question around that comment is an important one and one to which we need to have a clear answer. I have not had the advantage, as you have, Mr Knight, of going to Kabul yet. That is not a bad example at all. I think it is relevant to the question to say that we often use foreign airfields, not necessarily in the circumstances of Kabul at present, and we often rely on a host nation's fire service. We always rely on host nation fire services to ensure that our aircraft are protected. That seems to work pretty well. On your actual point, we shall come back to you.

    Chairman: It is a sensitive area.

    Mr Hancock

  75. If I could have got in, I would have asked one question on that subject. We have spent 20 minutes on it but you did not give one good reason why you should do it. I was rather surprised at that. Perhaps I can move you back to the PFI situation. In an earlier answer you spoke about some of the PFIs and I want to return to my first question about the tankers. I would be interested to know whether you know of any civilian tankers that are currently flying. I do not think that there are any. Presumably tankers will have service crews flying them and frequently they have to fly through hostile anti-aircraft flak and missiles, so the crew would be in harm's way. I was interested to see the way in which you dismissed that issue fairly quickly.
  76. (Lord Bach) If you had asked the question that you were not able to ask, I would have answered that the reason for what we are looking at in terms of the fire service is that we are looking for best value as always. We want best value for our forces. That is how I would have answered that point. On FSTA and the point you made about the dangers involved, that is one of the reasons why we are using sponsored reserves as well as aircrew. Sponsored reserves are what we have said they are. They are people who, when in uniform, are under military discipline and have some experience. It may be that a number of them will turn out to be those who in the past were full-time servicemen. That is why we would use them under a PFI system, rather than a mere employee of a contractor who had no service experience.

  77. How do you know that they are available?
  78. (Lord Bach) As I understand it, it is part of the agreement reached with the contracting company that there will be sponsored reserves available at all times if and when the RAF need the planes.

  79. They are prepared to fly tankers through hostile terrain?
  80. (Lord Bach) Yes.

    Mr Howarth

  81. What happens if some of the civilian crews say, "Sorry, from what I have read about this and seen on television, I do not want to be involved"? The contractor will not be in the position of a commanding officer who can say, "You will be deployed".
  82. (Lord Bach) I think any sponsored reserve who said that would have a question or two to answer. Of course, I have already stressed that there will also be service aircrews as well to begin with, making up three-quarters of any crew.

    (Air Marshal Sir Jock Stirrup) That questions the whole essence of sponsored reserves. That is the reason why they are sponsored reserves. If they are needed on military operations, they will be called up. They will be military personnel, subject to military discipline and military law. That is the point about having sponsored reserves.

    Mr Hancock

  83. Who will call them up? Will it be the company or the RAF?
  84. (Air Marshal Sir Jock Stirrup) We will; the Government will. On the point about availability of crews, I do not know of any civilian tank crews flying around, but I know quite a lot of civilian crews flying around who used to be tank crews. I think there are quite a lot of people out there who have the skills. Training would be an issue for the contractor as well. With regard to flying into hostile territory, it is absolutely right that that would be necessary at times. We have a tanker captain who, not long ago, was awarded the Distinguished Flying Cross. As the Minister says, that is precisely the reason why we need sponsored reserves as part of this overall contract.

  85. I was also surprised by the suggestion that you made about being in harm's way and that normally these operations would not take people into harm's way. I thought that that was rich coming 20 years after the sinking of the Atlantic Conveyer. Presumably, that crew did not believe, when they sailed from the UK, that they would be in the firing line and sunk. There is a question about relying on PFI to supply your Armed Forces when they are undoubtedly on occasions going to be seriously in harm's way and there is the question of whether you can guarantee that they will perform.
  86. (Lord Bach) I go back to the answer that has just been given. That is why in certain PFIs we are insisting on sponsored reserves, in the same way that the Americans do. They use many reservists themselves. That is why in those PFIs where we are occasionally close to danger we shall use sponsored reserves; for example, people who are reservists and have some experience and knowledge of how the Armed Forces work.

  87. Going back to what you said about the combat support vehicles, I accept the reasons why you abandoned that. Why did it take you three years to make that decision if it was such an easy one to make?
  88. (Lord Bach) I would rather make the right decision, even if it takes longer, than make the wrong decision so that I do not have to face a question like that. We are trying to get it right.

  89. What were you doing for three years? If the contractors were telling you that there was too much of a third market opportunity, what were you doing for three years? Why did it take that long to come to the conclusion? I would imagine that the service personnel were telling you that from day one.
  90. (Sir Robert Walmsley) I never think there is a good answer to why we did not do the right thing sooner. I can assure you that the team were working very hard to try to bring the PFI to a conclusion. As you do that, you work with the companies and discuss matters with them, and quite often you are told in PFIs that something will not work but that could be someone just positioning themselves in the competition. So you do not take everything at face value. A number of issues slowly became clearer as we engaged with the companies, particularly on specifying the military features of the vehicles which actually started to look more specialised the longer we ran the procurement. It is never easy to decide that you have not been pursuing a course that will lead to the right result. We decided that and some of the companies were rather surprised and others were absolutely sure that we had done the right thing. So we faced a range of opinions. I personally wrote to the chief executive of all the bidders and some wrote back and said, "Thank goodness you have done the right thing", and others wrote back and said, "We are rather disappointed; we thought that that could have worked". There was a range of opinion.

  91. How many were you talking to?
  92. (Sir Robert Walmsley) I honestly cannot remember. I think it was three or four prime contractor consortia, each employing lots of companies. Another interesting feature that we may all remember clearly, was in regard to the wheeled tankers, of which I think we needed about 500. They look like petrol tankers, except that on a detailed inspection they do not. We also thought that there would be a good market in the civilian, commercial world for those vehicles. September 2000 taught us all a lot about the elasticity of the petroleum products supply arrangements in this country. It quite quickly became clear that the commercial market does not want tankers some of the time, but it wants absolute access to commercial tanking transport fleets, 24 hours a day, seven days a week. The idea that one could defray that by turning up sometimes with a notice of withdrawal began to look more fanciful than it had when we had been at the whirling eyeball, PFI stage, 12 months early.

  93. Was the crisis that we faced here when fuel prices escalated and there was trouble at the various terminals partly responsible for that shift? I think the timing was about the same.
  94. (Sir Robert Walmsley) Yes, the timing was about the same. That is why I can remember it so clearly. It was in September 2000 that we went through this. It was not the price of fuel; it was simply that vehicles were more specialist than we had understood.

  95. Was it the fact that the Government would have wanted 500 specialist fuel vehicles available for their use and not having to rely on civilian tankers if there was an ongoing protest at fuel terminals? They wanted the nation to have a supply of tankers available to deliver fuel if the need arose.
  96. (Sir Robert Walmsley) I am sorry, I misunderstood the question. I can absolutely emphatically state that at no stage in my consideration - I was the first chief executive in line - was such a point put to me.

  97. That decision was solely made on the commercial viability of the product and the constructors ability to continue with the PFI, and had nothing to do with any Government interference at all?
  98. (Sir Robert Walmsley) Absolutely.

  99. Fine. What other ones are you thinking about pulling away from PFI? What other projects are you currently reviewing or looking at with a mind to changing any plans for PFIs?
  100. (Lord Bach) I think to answer your question directly would be foolish in the extreme. We are looking at all the projects that we possibly have in mind for PFI over a period of time. Some are nearing decisions, others are further away and to pick out individual ones now I do not honestly think would help this Committee very much in its deliberations and it certainly would not help us in what we are trying to do.

  101. When you read the various reports on procurement issues which have been done by the NAO, one of their criticisms is the length of time it takes within the MoD to make a decision when there is a move afoot. I do not know how much it cost the MoD in the three years it took you to make a decision on the Combat Support Vehicles, how much money was spent in that process which was non-recoverable. I am interested to know whether the full process on PFIs is going to be speeded up, so you start with the idea, "We are going to do this", you realise it is not going to work and you are out and you are back to the old style of tendering process. I want to know whether or not lessons have been learnt and you have speeded that process up, consequently saving yourselves a lot of time and money.
  102. (Lord Bach) Well, we are always trying to get it better and faster too. Of course we are trying to do that, but I think to pick out individual items as to what you were doing in individual projects is not at all helpful.

  103. Would it be possible for you to do us a note on the ones where you have done it as opposed to the ones you are considering?
  104. (Sir Robert Walmsley) I can tell you now that the two we gave up were these cargo vehicles, something like 9,000 vehicles, and, as I have prostrated myself in front of this Committee I think perhaps on a day you were not here, survey vessels for the Royal Navy. Those are two I can recall very clearly and the formal position of course with all the others is until they pass their main-gate decision point, it would be something for Ministers to approve and for people like me to try to bring them to the point of decision. Until they have passed that, they are not past it, so to speak. They are not approved until they are approved. All the ones we have got in play at the moment represent, in our judgment today, viable PFI propositions, but the proof will be in the eating.

    Mr Jones

  105. Could I just continue the question in terms of PFI and its links with the front line. You actually said that the aim was to take PFI as close to the front line as possible, and then you just used the words "best value" and you used the words, "which offer better value for money" and "which are appropriate". What do you mean by "are appropriate"? What would be inappropriate?
  106. (Lord Bach) What - in terms of deciding what we should use for PFI or not?

  107. Yes, in relation to the front-line activities.
  108. (Lord Bach) I am going to ask Sir Robert to start off and then I am going to come in on this.

    (Sir Robert Walmsley) I think characterising a military capability as a provision of a service, by which I mean training people and similar because that is the provision of a service, providing a hosepipe in the sky is right at the other end of the spectrum, that is the air tanker process, and providing you can specify what you want the thing to do in terms of a service, you have to think very carefully about whether or not you can PFI it. I used to have a very simple rule which is that if it does not move, you can always PFI it. If it moves a bit near the front line, you can think about it and if it is in the front line, you should not do it. That is sort of something you can explain to thousands of people and they can get it.

  109. Well, I am sorry, I might be a bit slow because I do not get that! In terms of, for example, a fire service which I think Mr Knight raised with you, the issue about whether, for example, in deployed operations in Afghanistan, would it be appropriate to have a private PFI delivery fire service which is a front-line operation?
  110. (Sir Robert Walmsley) I think what I said was that if it moves, you have to think about it carefully, but if it is in the front line, and a nuclear-powered ship would be a nonsense, in my view, as a PFI proposition, and one reason was you could ----

  111. Why?
  112. (Sir Robert Walmsley) You could not specify it as a service. What on earth did you want from it? This thing is full of sailors, but what service are they providing? You do not know and you cannot really specify what service they are providing.

  113. It might be a cargo ship powered by nuclear in the Arctic, and that is legitimate.
  114. (Sir Robert Walmsley) I meant a nuclear-powered warship. There are no non-warship nuclear-powered vessels in service today that I am aware of. There have been.

  115. There have been certainly.
  116. (Sir Robert Walmsley) And they all fluffed it.

  117. In terms of an operation, are you talking about the delivery of fuel, for example? Obviously in a combat situation where you have got fuel being delivered in any operations, is that PFI-able on your criteria?
  118. (Sir Robert Walmsley) Well, I think we have explained that it did not work, so we tried it and it did not work. I say that is something which is going near the front line, it was worth exploring, industry thought it could work and as we looked into it more and more deeply, we decided it could not and I think we were right to stop, so the answer is we tried it and we did not make it work.

  119. So is that an example of one which you actually pulled?
  120. (Sir Robert Walmsley) Yes.

  121. I am not very clear yet as to what you mean by front line.
  122. (Sir Robert Walmsley) Fighting.

  123. I am aware of that, but I mean in terms of where the PFI line is drawn. In terms of, for example, again the last point about fire services, would that be an appropriate use of PFI, a private company, or let's give another example of catering facilities?
  124. (Sir Robert Walmsley) There is no way I would contradict what the Minister said on the fire service.

  125. Let's change it slightly and let's say, for example, catering services in Afghanistan or anywhere else where there are operations.
  126. (Sir Robert Walmsley) What I was trying to say was if they are not in the front line, but they are deployable, you need to think about whether PFI could be made to work. If they never move out of the United Kingdom and they are brick buildings, it is pretty obvious it is PFI. If it is right in the front line and involves fighting, how do you specify that as a service? You cannot, so we should not waste time trying to pretend that things like nuclear-powered submarines could be provided by a PFI.

  127. Catering?
  128. (Sir Robert Walmsley) Well, I just said we would need to think about it and look at it in detail. The Minister opened this morning by explaining the fact that ----

  129. Wait a minute and answer the question rather than actually trying to avoid answering it. The fact of the matter is I accept what you are saying in terms of catering facilities and things which never move out of this country. For example, you know when you have deployed forces abroad, a large element of extra support in there is catering. Would you, for example, envisage a situation where you could deploy forces abroad and the catering was provided under a PFI?
  130. (Sir Robert Walmsley) It would depend what they are deployed for. It is quite clear to me that static forces deployed in buildings in countries, for instance, the United Nations forces in Cyprus, there is nothing wrong with relying on contractors. If you are going to say that the Royal Marines currently deployed in south-eastern Afghanistan today can have a PFI contractor climbing up the mountain and providing them with bacon and eggs, then I find that preposterous.

  131. Well, let's go back to Bagram air base which Jim Knight mentioned. What about providing breakfasts at Bagram?
  132. (Sir Robert Walmsley) I just cannot answer it because it depends on the circumstances at Bagram today. My own instincts are that we would think pretty carefully about that. Cooks, as is well known in the Army, are still capable of firing rifles and defending themselves. The idea of private contractors being near fighting I think is pretty dodgy.

    (Lord Bach) Yes, I share that view and I think Sir Jock wanted to come in.

    (Air Marshal Sir Jock Stirrup) Well, I just say that it is a complex issue and it is to do with geography and distance. I might also say to you that it is to do with time. To take your specific question about caterers, we absolutely have to have some uniformed caterers to look after these people in those sorts of circumstances and we have done a lot of work on that in the past, on the numbers required, but we do not need them all to be uniformed caterers. So, for example, you could deploy regular servicemen at the start of an operation, but as it then becomes enduring, then you could replace them with some kind of contract, perhaps in theatre, and move them elsewhere to where they are needed and that is precisely what we have done.

  133. So the answer is yes.
  134. (Air Marshal Sir Jock Stirrup) The answer is yes, in some circumstances.

    Chairman

  135. I think it is really a political issue. We have heard Sir Jock and we have heard Sir Robert and we have heard about his gut instincts which are usually quite good, but it is not a decision to be made by Sir Robert Walmsley or Sir Jock Stirrup; it is a political decision. As this issue is going to crop up time and time and time again, I think it would be very helpful, Minister, if you could drop us a rather detailed note as to what you consider to be sort of value for money, appropriate, what you consider the battlefield to be, what you consider the distinction should be between those who are engaged in combat and those who are not engaged in combat. It seems to me that in the Thirty Years War, you could see pretty clearly who was fighting and who was not, but in this modern era of war or non-war, because we have not declared war for a hell of a long time now, it is very indistinct and it seems to me that if it is indistinct, then this gives opportunities for those who wish to see the private finance initiative process pushed further the opportunity of so doing. Now, I know you cannot give the definitive answer, but certainly as there have been a number of private finance initiatives where it has been questioned as to whether the private sector is relevant for this programme, I think it would be immensely helpful - don't provide it now - if you could please give it some thought and perhaps you could tell us the guidelines that you are operating to and instructions you have given to Sir Robert et al as to what is acceptable for the private sector to be involved in and what is not
  136. (Lord Bach) I think you are absolutely right, Chairman, that this is a political question, although I am not sure that I am convinced there is not a definitive answer to it, if that is not nonsense, and I do not think it is. I think guidelines is probably the best that can be done and we have to take each case on its merits. You know clearly on the one side what is inappropriate, I think everyone would, and we want on the other side what is clearly appropriate, but it is that middle ground ----

  137. Which is quite large.
  138. (Lord Bach) ---- which may be larger than most middle grounds in this particular case, so I agree with you.

  139. Absolutely, so if you don't mind, it would be really helpful to us.
  140. (Lord Bach) I hope it will be helpful and we trust and intend it to be helpful and we will certainly do it, but I am not sure that it will clear up all the questions.

  141. And then also, if you don't mind, you can tell us what value for money means because when you deal with military matters, I can think that a lot of things cannot be addressed in terms of value for money because fighting a war, defending your national territory is not always amenable to an accountant's rationale.
  142. (Lord Bach) Well, I would like to say something on that, if I may. Value for money does not just mean, even if its name implies, that all you think about is, to use an old-fashioned phrase, pounds, shillings and pence. It means value. It means you have to look in the round to see what is the best value for British Armed Forces in a particular state and I do not want this Committee to have the impression that all we are concerned about, which is clearly not accurate, that all we are concerned about is what pounds, shillings and pence we are going to have to spend. It is not true.

    Mr Jones: Can I pick you up on that point, and I do look forward to this explanation and it will obviously be some great, huge tome in terms of explanation because what we have so far had is as clear as mud. In terms of value for money, and you have said it is not just about pounds, shillings and pence, there has obviously got to be a crossover between the Armed Forces providing the service and obviously the interface with a private contractor. If I can give you one example, catering again, but don't get the impression that I am actually obsessed by catering -----

    Chairman: I might be, but Kevan Jones is not!

    Mr Jones

  143. Can I mention one incident which occurred last summer when Jim Knight and I were on HMS Ark Royal and one of the issues which we asked a senior officer there about was to ask him what were the main problems. He was saying that the real problem is not recruitment, but retention. I think Jim asked him what area of retention and he was talking about cooks and I said, "Well, what is the real problem with cooks?" and he said, "Well, we train them, and we can keep them for so long, but we cannot keep them after a certain period of time because you cannot rotate between ship and shore, as they used to, because on shore a lot of the caterers are now PFI". Is that not an example where on the accountant's bottom line you might be saving money, but it is actually costing you more because you are losing people from the Armed Forces and having then to retrain them?
  144. (Lord Bach) It might be an example of that, yes.

    (Air Marshal Sir Jock Stirrup) I think I can give a pretty direct answer to that which is that that was precisely the situation, going back to my previous experience, that we found in the Air Force and, as a result, what we have done is recruited more service chefs and redressed the balance between servicemen and civilians for precisely that reason.

  145. That could occur in other areas though, could it not, where if for operational purposes you need to rotate people, you limit yourself by PFI? Should that not be something that is taken into account before actually deciding whether you have a PFI contract?
  146. (Air Marshal Sir Jock Stirrup) It is, it is.

  147. Well, it has not been in the Navy, has it?
  148. (Air Marshal Sir Jock Stirrup) Well, if I can just go back to one point that was raised earlier about the criteria for deciding the balance between sponsored reserves and regulars, one of the issues, for example, is that sponsored reserves servicing tankers will only be used to go and service tankers on deployment. Regular servicemen who service tankers can be called to go and do other deployments elsewhere, other enduring deployments, and the smaller the corps of regulars, then the greater the burden on them, and that is an important factor and is one of the criteria, one of many, which was used to inform the initial judgment on the balance between sponsored reserves and regulars, so it is taken into account.

  149. So has it been changed in the Navy?
  150. (Air Marshal Sir Jock Stirrup) I would not want to answer and could not answer for the Navy.

  151. Could I move on to another question which is really about the charges which are levied in terms of PFI services. To what extent are they actually limiting your flexibility in terms of budget at the MoD and have the Treasury had any thoughts on this in terms of tying up your budget for many years hence?
  152. (Sir Robert Walmsley) We are very conscious of course of the fact that we could be potentially locking up a large part of the defence budget, and that is now part of the MoD's annual accounts process to look at how much of our future budget is locked up in existing contractual commitments. I think we are very sensitive to the issue and our new financial procedures at the Ministry of Defence require us to keep score.

  153. So what is that score in terms of the percentage of budget that you have tied up?
  154. (Sir Robert Walmsley) Well, it is clearly increasing as we push through these private finance deals, but a very big one like the Future Strategic Tanker Aircraft will have quite a significant effect on that. That is going to be, if we get it into a private finance deal, somewhere around 12-15 billion over, I think it is, 27 years, some enormous period of time, so you can work out that that means that it is about 3 to 4 per cent of the defence budget on that contract alone. We will not do it unless it is better value than doing it by the conventional method.

  155. I accept that, but does it not actually limit your flexibility in being able to manage your budget if you have got a large percentage of your budget tied up in contracts, and not just for that?
  156. (Sir Robert Walmsley) That is absolutely right and that is why part of the sophistication of these private finance projects is not to lock in the same level of MoD demand at the end of the contract period as you start out with at the beginning. That is part of the competition.

  157. So have you set yourself a certain percentage of budget that you would not go over?
  158. (Sir Robert Walmsley) No.

  159. Have you got any indication of what it will actually be, the budget?
  160. (Sir Robert Walmsley) Well, I have told you the situation on Future Strategic Tanker Aircraft.

  161. Well, that merely doubles ----
  162. (Sir Robert Walmsley) That would double effectively our PFI commitment in the MoD, more than double it actually.

  163. But have you actually made a projection of what it could be if you actually followed through all the PFIs which you have got and those stopped?
  164. (Sir Robert Walmsley) No.

  165. Why not?
  166. (Sir Robert Walmsley) I think at the moment the position is that we are talking about a very small proportion of the defence budget. We will keep a score of what the commitment is and if the Government become concerned about it, it is clearly the sort of thing where we would then say, "Well, no, that is a step too far".

    (Lord Bach) You have to look at the alternative as well of course. If we were to have conventional procurement on each and every one of these items, then also that would have an enormous influence on the future programme.

  167. I accept that, that the defence budget and defence policy, perhaps the difference in certain areas is that you might get major changes in what you actually want to do and if you have got the majority of the budget tied up in a certain way, it limits what you can do in terms of flexibility.
  168. (Lord Bach) But you can also have the budget tied up, if I may say so, if you procure in the conventional way because then you have year by year what it is you have to spend on that particular piece of equipment and it is tied up and tied up. Both are sums which are tied up unfortunately.

  169. Would it be possible for you to send us some analysis of the percentage of budget and how you see it going?
  170. (Lord Bach) I think, if we may, Chairman, as part of the paper that you have asked for as a result of Mr Jones's and your own questions, we will try and include something on that.

    Chairman

  171. Thank you, but you are not out of the woods yet. There are six more areas which are equally contentious one of which is of course the Sea Harrier. We had an opportunity very recently with Sir Jock and I am not sure whether he is going to stand by exactly what he said in question 192, and Mr Howarth will pose the questions, but as we have so many other things to discuss, I do not want questions on the Sea Harrier to go on for more than ten minutes.
  172. (Lord Bach) Well, Chairman, I am absolutely happy to answer questions on Sea Harrier. It does not entirely take me by surprise, but at the same time you had a pretty good go at this last time, or rather Mr Howarth and Mr Rapson to a lesser extent had, and I think "go" is the right word, at the Air Marshal. My own view is that he answered extraordinarily well and I stand by what I have read he said, and that has embarrassed him. Of course we are absolutely in your hands as to how much time or how little we spend on this.

  173. Well, what he said was that if we had more money, we would keep them, and the question is whether ----
  174. (Lord Bach) That is one of the things he said.

  175. ---- more money should be made available and I will say what I have said a thousand times in the last 20 years, that more money needs to be made available so that the Ministry of Defence can have the defence policy, the human policy that I think everyone on this Committee believes it should have. We will have not a re-run of the arguments, but perhaps ten minutes on a rather different dimension with Mr Howarth having hot-footed it from the debate on Sea Harriers earlier.
  176. (Lord Bach) It seems to be topic of the day today, Mr Chairman.

    Chairman: Well, there are a lot more.

    Mr Howarth

  177. I suspect, Minister, it may well be a continuing topic of the day because, as you know, from today's Daily Telegraph there is concern and the headline says, "Sea Harrier's demise puts Britain's fleet in peril for six years". This is a very serious matter. If I may say in parenthesis that I think all of us on this Committee were extremely impressed with Sir Jock last week. He came, as it were, on his own and he is new in the job, so what we are going to be doing is concentrating on one or two aspects following up from last week. Last week he did say to us that he would prefer to keep the Sea Harrier and its air defence capability. Your colleague, the Minister of State, Adam Ingram, admitted there would be a risk associated with the withdrawal of that aircraft and Sir Jock said that he envisaged that we would be going into offensive operations with allies or partners, but it is clear that if we wanted to mount another Falklands campaign, we would be unable to do so. Now, as the Chairman was saying also, and I am sure you have seen the transcript of what happened last week, Sir Jock told us that to upgrade the FA2, the Sea Harrier, would be extremely costly. Can we, therefore, explore this a bit further. Adam Ingram told the House recently that taken together, the withdrawal of the Sea Harrier and the upgrading of the Harrier GR7 to GR9 would produce a net saving for the MoD of 109 million. That is the net figure and I understand it is arrived at after taking into account the cost of upgrading the Harrier GR7 to GR9 as standard.
  178. (Lord Bach) No, you are wrong about that.

  179. Can you tell us what the gross figures are?
  180. (Lord Bach) You are wrong about that, if I may say so. I will take a little time to explain this and I am grateful for the question. The 109 million net saving is the combined result of two main work strands that contribute to the revised strategy of the JFSH. With the first work strand, about 135 million is saved by a composite measure to withdraw the Sea Harrier from service and to facilitate an increased CVS commitment by the GR7 to become the GR9 force during the transition to an all-GR force. Savings arise principally from the withdrawal of the Sea Harrier commencing in 2004 with the commensurate reduction in aircraft support costs, the avoidance of unnecessary infrastructure work at RAF bases, and you will recall that Cottismore and Wittering were both designated to be the air bases before the cancellation, and the cancellation of upgrade programmes on the FA2, on the Sea Harrier. These savings are offset by some expenditure on the GR7 aircraft and also by modifications to the Invincible-class carriers and improved logistic support to a GR7 force, both the embarked and land-based operations. Now, the net effect is a baseline saving of 135 million reduced to 109 million when the extra cost, the 26 million, associated with the GR7 to GR9 upgrade programmes are taken into account. That is the upgrade programme which means that those planes can be on ships and on aircraft carriers, not, if I may say so, the cost of the GR7 to GR9 upgrade that would involve the integration of the Pegasus engine providing improved performance and other upgrades as well. Now, I hope that is clear. It involves some part of upgrading GR7 so that it can be on aircraft carriers, but it is not the figure for the total upgrading of the GR7 to GR9. Sorry to have taken a long time, but it is important to get this on the record.

  181. So what you are saying is to make the GR7 carrier-capable, in other words, to provide the modifications necessary to deploy the aircraft from a carrier, is going to cost 26 million?
  182. (Lord Bach) Part of the 26 million, if you heard me right, comes from that. There are also some modifications to the carriers which no doubt is relevant to the GR7s going on the carriers and improved logistic support to the GR7/9 force.

    (Air Marshal Sir Jock Stirrup) Could I just clarify one point because it is important. These things are not required to make the GR7 deployable on a carrier. As we know, the GR7s have deployed on carriers and operated from carriers. These are improvements to enable it to do it better.

  183. I am sorry, I did not quite understand. The Minister has just told us that it is in order to enable the aircraft to be deployed on a carrier and you are saying it is not true.
  184. (Air Marshal Sir Jock Stirrup) Improvements to the aircraft to enable it to be employed from the carrier better.

  185. Can you explain how, what sort of improvements?
  186. (Air Marshal Sir Jock Stirrup) The improvements, I have not got a list, but we can let you have the details of that, if you like. I am sorry, but I just had to be clear because what you were saying was suggesting that we could not deploy on a carrier now which of course is not true.

  187. So the truth is we are not going to have an air defence capability, as Sir Jock accepted last week, and there will be a reduced capability when the Type-45 comes in. Why not keep the Sea Harriers, some of which air frames are relatively new, being only three years old? Why not keep the existing Sea Harrier, even with its reduced capability in hot weather conditions in force in order to provide that defence capability to enable us to mount independent offensive operations?
  188. (Lord Bach) Because we have had to make a decision as to how best to use our limited resources.

  189. So it all boils down to money in the end.
  190. (Lord Bach) Let me answer your question before you interrupt. I understand the Select Committee is not a partisan session in the sense that across the floor of the House of Commons might be a partisan session, Mr Chairman, where frontbenchers on either side of course can bandy words of this kind in a way that I do not think is normal in a Select Committee.

    Mr Howarth: But we do have robust questioning, Minister, I can assure you.

    Chairman

  191. We are offensive to everybody, Minister!
  192. (Lord Bach) It is mainly because I come from the other place, Mr Chairman.

    Mr Howarth

  193. But if you had heard Kevan Jones last week, Minister, I look positively wimpish by comparison.
  194. (Lord Bach) I think Mr Jones, Mr Chairman, unless he has been promoted very recently, is a backbencher, and I think that is a distinction that I am trying to bring to your attention here.

    Chairman: Yes, we are aware of that.

    Mr Howarth

  195. Can I just tell you that the arrangements which we apply in this House are a matter for this House and not for yourself and your House, Minister.
  196. (Lord Bach) That is precisely right and that is why I addressed my remark via the Chair.

    Chairman

  197. Well, we have made our political points, so let's get back to the seriousness at hand and let the Minister respond to Mr Howarth.
  198. (Lord Bach) Well, let me make it quite clear, and this is what Sir Jock was saying last week, and forgive me if I am repeating to some extent what he said, that the role of the Royal Navy carriers is not primarily now to defend the fleet, but it is in line with the expeditionary doctrine that underpins our defence policy, much more about the ability to project power a distance, precisely the point Sir Jock made. The Sea Harrier makes little contribution to this frankly. The GR7 makes a much more substantial one and will make an even greater one when it is upgraded to GR9. That is the first point. Secondly, and again at the risk of repetition, air defence is based on a layered system. Of course Sea Harrier has traditionally provided the outer layer, but there are inner layers, which seem to be forgotten in this argument, provided by the Sea Dart, for example, equipped Type-42 Destroyer and point defence systems on frigates Types 22 and 23 as well as more passive defence systems. The nature of the threat to the fleet has evolved over time and I have to say that reference to the Falklands War is about as misleading as any reference could be, and I say so, I hope, in the gentle spirit of Members of the House of Lords who speak to each other. The position today could not be much more different than that of 1982 when there was a small attachment of Royal Marines stationed in the Falkland Islands, no military airfield. Today, as I think the Committee will know, we maintain a modern and capable garrison on the islands which can be reinforced rapidly by air from the UK should the need arise, so can we put the Falklands please on one side if we are debating this issue seriously. Now, the nature of the threat to the fleet has evolved over time. Clearly Sea Harrier provided a useful defence against attacking aircraft, but in general terms it offers no protection against sea-skimming missiles launched from ships, from submarines, from land or from aircraft standing off from distance and that is something that those who attack this decision have never tried to answer. The real issue here is that Sea Harrier does not help against sea-skimming missiles from wherever they are launched. Now, that sea-skimming missile is now assessed to be the primary threat to maritime assets. That is what the upgraded Sea Dart and existing Sea Wolf, Goalkeeper and Vulcan Phalanx systems are designed to address. It is also of course what the PAAMS system, the Type-45, will be designed to tackle when that platform comes into service. I want to emphasise that the Chiefs of Staff have signed up to this proposal, and they would not have signed up to it if there was any prospect of it substantially undermining the defence of the fleet, and will allow resources, as I began this answer, to be concentrated on enhancing our ability to project power. I end, if I may, Chairman, by saying this: that upgrading Sea Harrier would be very expensive and technically very risky. It would also take a great deal of time and if we were to upgrade Sea Harrier it would mean that those Sea Harriers that were being upgraded would be out of service at the time they were being upgraded and certainly would reduce the value for money to be derived from the investment. We have had to make choice, we think we have made the right choice and I have tried to explain, perhaps taking rather too much of the Committee's time, why we have made that decision.

  199. No, I think we should be looking carefully at what your colleague said earlier this morning in the House and looking carefully at what you have said, but I think the Government still has a lot of selling to do, not of assets because enough of those have been sold, but some of the arguments and if there is anything, Minister, when you look at what your colleagues have said, what you have said to us and what Sir Jock said, I think it would be quite helpful, and sorry to impose more work on your staff, but I think it would be best for the best and the fullest picture to be painted, otherwise people will retain a degree of scepticism. The comments on Sea Dart, I am not sure how effective Sea Dart is or necessarily the Type-42, and I think the argument which you gave about the Falklands, I do not think the arguments made are about the Falklands campaign, but about the vulnerabilities that were exposed during the Falklands in terms of defending ships. That was the argument of not going back out to the Falklands and fighting against the Argentinians who at this stage are not in any shape to take on anybody, but it is the concept of ship defence.
  200. (Lord Bach) Chairman, on Sea Dart I wonder if Sir Jock could just say a word because of course this was mentioned in the article in the Daily Telegraph which was referred to this morning and we think there may have been an inaccuracy about that.

    (Air Marshal Sir Jock Stirrup) Chairman, yes, this morning I spent an hour with somebody who had just come from commanding a Type-42 Destroyer, having seen this article, because quite clearly I wanted to make sure that we had got our capabilities right, as I described to you last week. His view, his very clear view is that the article is over-alarmist and in many areas extremely misleading. The Sea Dart is a capable missile and will continue to be a capable missile. Like all weapon systems, it has weaknesses particularly against the most modern systems and particularly when faced with a high-density threat environment where a great many threats are coming in at the same time, but certainly against the most prevalent threats it is likely to face, it is still extremely capable and of course we are upgrading it with an improved infra-red fuse to improve its ability at low level.

    Mr Hancock

  201. You mentioned, Minister, about the Type-45 coming in. I would be interested to know what missile system you think will be on the Type-42, and we know what will be on the Type-45, to deal with the close-range, sea-skimming missiles.
  202. (Lord Bach) As I understand it, the PAAMS system.

  203. That is already used.
  204. (Lord Bach) Sorry, that was not your question. You said when it does come in, what will it be.

  205. There is a gap, as we established last week, between the Sea Harrier going out of service to defend ships at sea and the Type-45 with a fully operational system, and we were told - what were the words you used, Sir Jock, last week about it - progressive?
  206. (Air Marshal Sir Jock Stirrup) The incremental capability.

  207. Of the system.
  208. (Air Marshal Sir Jock Stirrup) But it will come into service in 2007 with an operational PAAMS missile system.

  209. Which is capable of knocking down a sea-skimming, short-range missile?
  210. (Air Marshal Sir Jock Stirrup) It is important again to stress that air defence is about layers and that the PAAMS can take on such missiles at certain ranges. As it gets closer, there are short-range missiles and there are short-range guns as well as passive defence systems, so we rely on all of them together, not just one.

    Mr Howarth

  211. These are extremely important issues. Sir Jock has told us that he would prefer to keep the Sea Harrier in operation. The Minister, your colleague, has admitted there is a risk in the policy that the Government has adopted. You, Minister, if I may say, have sought today to belittle the role of the Sea Harrier and say, "Well, actually it does not really do that much of a good job anyway and, therefore, we are not losing very much". You have repeated the argument that Sir Jock put forward last week which is a good argument about the projection of offensive air power, but what the Sea Harrier does is to provide airborne maritime defence. Are you telling us that in the intervening period before the Type-45 comes in with its PAAMS missile system mature or otherwise, are you telling us there is no longer any need or there will not be a need for that period of time for an airborne, early warning for maritime expeditionary forces? In other words, you will deploy your GR7s and GR9s with their ground-attack capability, but should there be incoming attack aircraft, there will be no airborne air defence capability beyond the Sea Dart?
  212. (Lord Bach) First of all, to reply to your question, Sir Jock and Mr Ingram may have said what they did about the issue being one of in an ideal world it would be better if these choices did not have to be made. I have not said anything that is against that, but we do not live in an ideal world and if your Party, when your Party are in government again, you will once again understand that.

  213. This is not a partisan issue.
  214. (Lord Bach) I am sorry, it seems to me, Mr Chairman, that it is and that is why I have to take it on head-on. I do not want to be aggressive and I hope I am not being. It is a fair question and I have got to answer it, but it is essential that we make choices and those choices, if they are real choices, always involve taking difficult decisions. This is one of those difficult decisions, but we think we have it right. To suggest that there is no defence merely because the Sea Harrier goes out of service by 2006 - and remember, it is not going out of service until 2004 and right through to 2006 - is to just fail to accept that this is just one part of the layered defence system of which there are many, many others. It is also worth pointing out, I think, and perhaps just reminding the Committee that of course we might be on our own, it is possible, but it is much more likely, is it not, given where things stand now, that we are going to be part of a coalition force and that there will be allies who will be able to assist us if we need assisting and it may well be that we would not. So I think the danger in this argument is that the argument pro-Sea Harrier, which, please, don't get me wrong, is and has been a fine aircraft, it has done sterling service, but its time frankly, given that we have to make choices, may be up over the course of the next few years and to suggest that somehow we are going to leave British ships unprotected in any real way is actually a travesty of what is going to happen.

    Chairman

  215. Thank you, and I just have a question, before Mr Rapson, to put to Sir Robert. Can you guarantee, Sir Robert, that Type-45 plus PAAMS is going to be available for January 1st 2007? I think that was the first date mentioned.
  216. (Sir Robert Walmsley) It was, but unfortunately it is November 2007 and I cannot of course guarantee the future. There are a few technical points I would just like to add which are worth mentioning. Type-45 is currently scheduled to have two different sorts of missiles installed in the 48 missile silo, being the AZTEC-30s, which are longer range than AZTEC-15s, which are shorter range, and both part of the PAAMS systems giving a choice. You do not need to fire a long-range missile at close-range targets. The second point is that Sea Dart was designed and is optimised, but currently being modified to make it more capable, designed and optimised for attacking aircraft and of course if you have got an aircraft carrier at sea, even I can remember that when I was in the Navy, Destroyer holds a position maybe 100 miles up-threat from the carrier and the Sea Dart radar, the radar in the Type-42 Destroyer, can see aircraft up to 200 miles away, unless they are sea-skimming, so this is an immense distance we are covering by a proper positioning of the ships and a Sea Dart missile system is really capable of keeping out aircraft, but it has much more difficulty against sea-skimming missiles and that is what the infra-red fuse coming in from this July will improve its performance against. I just want to give the impression that when you are defending a carrier, you do not do it by putting all the assets around the carrier like six-year-old schoolboys playing football, but you spread it out across the ocean so that actually the Destroyer can provide, with the Sea Dart missile system, real defence.

    Syd Rapson

  217. Can I thank the Minister as well because the thought of us going to war at this stage frightens me to death, so I welcome you putting that into context. Can I speak as a professional who has spent a lifetime upgrading aircraft to fit new equipment and can I press the question again. Sir Jock said last week when we asked him that it would be massive to try and upgrade the GR7s and GR9s to have the Blue Vixen Radar and AMRAAM, that it would be costly, it would be lengthy and by the time we have finished the modifications, the new Joint Strike Fighter would be available. Now, I take it that is a totally honest answer to the questions, but, being a sceptic as I am, I do not believe it, in the nicest possible sense. The Sea Harrier airframe is slightly smaller than the GR7s and Royal Air Force aircraft and the larger aircraft, and we are going to operate them with the new Pegasus engines, but is it really a mammoth task to put Blue Vixen Radar and AMRAAM on the upgraded GR aircraft? You say it is, but I would like to press it, even if you cannot tell me today, whether we can be sure of the costs of that upgrade. If it is impossible, we accept that, and if it is going to take too long, we can accept that, but I just want to press to see whether these are real stories you are going to give as the Minister which are true and we cannot upgrade because if we have the GR aircraft with its ground-attack capability, with Blue Vixen Radar and AMRAAM as well, it makes them much more effective in the long run for deployment and will be useful for our forces when we have got Joint Strike Fighter as well. No doubt somebody will want to buy them at twice the price as they are buying the present Sea Harriers. Now, I am sorry it is a long-winded question, but it is really pressing the reality of the answers given as to whether it is that costly and lengthy to upgrade the GR aircraft to cover the two weak points that we see with radar and missiles.
  218. (Lord Bach) The only comment that I am going to make is that everything I am told is true of course.

    (Sir Robert Walmsley) The technical feasibility of this depends very much on having the weights, space and power margins already in the aircraft and I have no doubt that anything can be done, but it will be enormously difficult. Part of the reason for that is that apart from where the pilot actually sits, and here I would defer to Sir Jock, the most valuable place in the aircraft just about is the nose where all your forward-looking sensors are sitting and in the GR9 it is the forward-looking infra-red that occupies that space. You need all that space to put in a Blue Vixen Radar, so as soon as you start to put in a Blue Vixen Radar, you are competing then for (?), which is designed to give it such a powerful ground-attack capability. That will require a lot of aircraft re-engineering, will add weight, will add to the aircraft's outline shape and we will probably then send it into a whole lot of safety trials at Boscombe Down to prove that the aircraft is still safe in all possible configurations for launching weapons, et cetera, et cetera. I am absolutely clear that the feasibility of this would have to be proved in a study, but that study would, as usual, say, "Yes, it is feasible. It would cost an immense amount of money, take an enormous amount of time and will result in an aircraft that is not as good at its primary role as it is today".

    Rachel Squire

  219. I think in the discussion we have just had, clearly some of the general issues on that are not confined to a seaborne piece of equipment and they are not confined only to the United Kingdom's defence capability. That brings me on to the issues raised by equipping NATO because I think all of us recognise that the nature of the threat that NATO is dealing with has changed considerably over the last 12/13 years and also all the NATO allies have learnt the hard way what shortforms exist in NATO's capability, particularly amongst European allies, so can I ask you, Minister, when you are considering and shaping what the Ministry of Defence's equipment requirements should be, what priority, if any, you give to the projects that would improve Europe's prospects of advancing both the Helsinki Headline Goal and indeed NATO's own Defence Capabilities Initiative?
  220. (Lord Bach) Well, thank you for the question. As far as the Defence Capabilities Initiative is concerned, we think we have made some good progress nationally in implementing it. We already possess a good PGM capability which we are enhancing, Storm Shadow and Brimstone, heavy lift, the C-17s at present, with provision for A400M, and we are also procuring ASTOR, as you know, which has come up in discussions today, and to enhance our ISTAR collection effort. What we are keen to do is to get partner nations to do the same. We do not think that the Initiative, which is now of course coming to an end, has been the overwhelming success we had hoped, to be frank with the Committee, and we need a credible follow-up, and I will tell you what our thinking is about a follow-up, if I may, in a minute, to be launched at the Prague Summit this November, mutually reinforcing the EU Headline Goal which you have referred to. We think that the new Initiative ought to focus on of course inter-operability and include elements on communications, on transport, on enablers, to name but a few. What have we learnt from our experience of the Defence Capabilities Initiative? What we think we have learnt and what we think the next phase must concentrate on is: first, it must be relevant to the fight against terrorism and NATO must ensure that its capabilities contain those necessary to deal with terrorists as well as other threats; it must take account, as you have already said, of the Headline Goal; thirdly, we must maintain as high a public profile as possible because I think we have got a job to do to present a clear strategy to ensure public support and understanding for the Initiative as was and we are going to put in its place; and most important of all is to focus on a limited range of key, clear, achievable targets with top-level ministerial ownership. That is some of our thinking at the present time. We are thinking of what kind of follow-on there should be from the DCI and we do want to see, if I may say so, it being rather more successful than the DCI has been in ensuring that NATO has the equipment that it needs to face not just the issues of the past, but what it faces now with terrorism.

  221. You keep picking up on the point about the follow-on from the DCI and some of your other remarks about inter-operability, transport, communication and so on. The NATO's Secretary General, in his usual forthright style, recently said that there is recognition that there are countries that can do some things better than others and I wonder, Minister, whether you think the time has come, particularly as we approach the Prague Summit, to take forward a debating NATO on greater role specialisation and identify that some NATO countries and allies are perhaps better able and better equipped to concentrate on certain specific areas and improve NATO's defence capability in those areas.
  222. (Lord Bach) Yes, I would certainly go along with that. The Secretary of State has taken, as you know, a keen interest in this and has led for Britain as far as this is concerned and there is no doubt that we would like to see the new DCI, if I can call it that, focus much more on what each NATO country can do and, by that, we include of course those countries that may come into NATO as a result of Prague, so the answer to your question in short is yes.

  223. Has there already been some discussion on those areas amongst the NATO allies?
  224. (Lord Bach) I would be very surprised if there had not been, as you say, led by the Secretary General, the ex-Secretary of State for Defence, who must have been before this Committee on a number of occasions in the past. I am sure there has been discussion and I am equally sure there has been discussion among Defence Ministers from NATO, existing NATO Members, and, I dare say, with those who may join NATO in the none-too-distant future.

    Mr Howarth

  225. Minister, can I ask you another question relating not to the Sea Harrier, but to the GR9. I just heard in the last few minutes that the Harrier IPT Leader, presumably your team, Sir Robert, has told Rolls Royce that the original 30 GR9s selected for upgrade into the Pegasus engines will be the only ones to have the upgraded engine and that the decision has been made that the remaining 40 will not have the upgraded Pegasus engine. Where does that leave our fleet of commonality given that you are now going to have two GR9 aircraft, one type with the GR9A rating with the upgraded engine and 40 without?
  226. (Lord Bach) Mr Howarth, those answering questions here have some advantages, but also have some disadvantages. We do not have our mobiles going and we are not able to leave and come as of course Members of the Committee are allowed to do so, so obviously I am not in a position to answer your question in the way that you would like me to. Maybe Sir Robert has some background knowledge.

    (Sir Robert Walmsley) First of all, I should not deny responsibility because that would be silly, but the IPT Leader is an aircraft that is "mature" in the jargon and therefore it is hosted by the Defence Logistic Organisation, so it is way past when I would have a primary interest.

  227. It is not a decision for you or the Minister to take whether this aircraft should be upgraded or not?
  228. (Sir Robert Walmsley) It is certainly not a decision for me. All the decisions are taken by Ministers, as you well know.

  229. I am trying to be helpful to the Minister. I am trying not to give him a hard time.
  230. (Sir Robert Walmsley) I am not passing the buck but explaining that, of course, Ministers have an interest in such decisions. There are perfectly sensible answers to that question. You know that this new engine is hugely important for operations in hot countries. We only have (more's the pity) relatively small aircraft carriers at the moment and you know perfectly well you cannot put all our GR7s or GR9s on our two serviceable carriers. 40 does not sound a completely stupid number but it was not my decision and that is just a comment.

  231. It will mean that we will not have what was designed to be a commonalty of fleet with 70 aircraft with the same engine. We will have 30 with the one engine which has enhanced capability and 40 aircraft with engines with a more limited capability.
  232. (Sir Robert Walmsley) That is true but of course any modification programme takes a while to execute. We are thoroughly used in the Ministry of Defence to coping with different configurations inside one fleet while the modification is brought into complete service. You only have to look at the Tornado GR4 and how long that has taken to evolve from the GR1. It is not as nice as having a common fleet but we know how to do it.

  233. Is it a cost-cutting measure?
  234. (Sir Robert Walmsley) I have no idea but it would be a cost saving.

    Chairman

  235. When you are all in a position to tell us then please write a letter as soon as you can.
  236. (Lord Bach) Certainly, Chairman.

    Rachel Squire

  237. Just coming back to the broad range of NATO's equipment requirements now and in the future, I also meant to ask - and I believe Sir Jock Stirrup is due to give a lecture that might touch on some of this shortly - about what consideration has been given in the new DCI or whatever of 11 September and the new chapter of the Strategic Defence Review that is currently in the process of being written and the questions that certainly 11 September raises about the equipment needs to tackle and deal with international terrorism even more effectively than at present?
  238. (Lord Bach) As you know, the Department is right in the middle of deciding what should be in the extra chapter to the Strategic Defence Review and, of course, the reason for the extra chapter is really 11 September and the world after 11 September. If Sir Jock is giving the lecture perhaps he can give a précis now.

    (Air Marshal Sir Jock Stirrup) I would need to know to whom I was giving the lecture; I was not aware of it.

  239. I may be wrong. It is the whole issue of doing a critical review of equipment needs in view of 11 September as well as a whole variety of issues.
  240. (Lord Bach) The fault is mine. Of course, as I understand it, the extra chapter is likely to include comments about equipment need following 11 September and that will of course link in with what we were saying earlier about the need for the Defence Capability Initiative to take account across NATO of the world as it is after 11 September in terms of equipment.

    (Air Marshal Sir Jock Stirrup) We will clearly encompass the outcome of the new chapter, when we know it, in our equipment planning process.

    Chairman: We would prefer to have the Sir Robert Walmsley of Germany answering the next questions but in the absence of such a person we will have a deal with you, Sir Robert, because we are going to have some questions on the A440M.

    Jim Knight

  241. I regret we will not have the time to explore this subject as deeply as I would have liked. Obviously it follows seamlessly on from discussions on the Defence Capability Initiative and the Helsinki goals to talk about A440M and whether or not the theory of our European partners all pooling in together is matched with the reality of the sort of commitment in defence budgets and so on that we would like to see, and I am sure everyone in the room would like to see. What is the latest position on Germany's difficulties in signing up to its full A400M commitment? At what point will you call it a day with the A400M and go with the solution on which the RAF seems to lobby us constantly which is to hang on to their lovely C-17 which they seem to love and want to tell us how much they love at every opportunity.
  242. (Lord Bach) Let me start on this but you are right to mention Sir Robert in this context because he has been involved in the, some might say, protracted discussions about A400M for a long period. Just a word of caution before we get too excited about this. This is seven or eight countries, depending whether you count Luxembourg which is part of the Belgium order, in joint co-operation on what I believe will be an absolutely outstanding aircraft. It would be ridiculous to suppose that such an aircraft can come into being without there being difficulties at all stages. There is bound to be; it is in the nature of the beast, I would argue. I do not think the Committee or anybody else outside should get too excited about the fact that it has taken rather longer than we would have liked. As we understand it, there is no question about this, the Germans are committed to the A400M project and we are expecting that the contract will be signed or will come into effect in the very near future. As we sit here today that is our expectation.

  243. Your memorandum suggested March 2002. I recall that has been and gone. Is there any indication as to when that financial commitment might come from the Germans?
  244. (Lord Bach) The financial commitment has come from the Germans and has satisfied the other partners, which is why the other partners are in the process of signing up to the agreement that has been reached. I would hope that we would be able to put into effect the contract very soon indeed now. Of course, I cannot resist the comment that one of the reasons for the hold up is under the German system their Bundestag Committee which is perhaps in some ways almost equivalent to the HCD but perhaps not the exact equivalent of the Select Committee, has considerable power ---

    Chairman

  245. --- We would like those powers, if you could do anything for us!
  246. (Lord Bach) --- which although this Committee has huge powers, it does not at the moment have. There may be some envy, I do not know, but that is a point just worth making. My serious point is this: We are absolutely committed to the A400M. We think it is going to work out and what we have needed, what everyone has needed, what we all need on these collaborative measures is one quality and that is patience.

  247. I have been very patient. I remember waiting for the Future Large Aircraft. I was very slim and had a lot of hair in those days and we seem to be no closer. Patience is something which I am afraid has been running out. I do not know what the German word for commitment is. What is it, Sir Robert? Does it begin with a K or a C? The Germans said they wanted 72, now the number has been pared down.
  248. (Lord Bach) Their number is still 73.

  249. 73? Are they going to sign up to 73, Sir Robert?
  250. (Sir Robert Walmsley) Can I say something about the timetable because I do not want you to think because I was joking that there is no German word for commitment that we do not in the MoD at official level and of course at ministerial level take the urgency of this project extremely seriously. It is also fair to say it is not just Germany who have not signed unequivocally. There are two other countries we have to get into the corral, which simply underlines the difficulty of getting a seven or eight country partnership under way. As to timetable, I think the question was "and when will you decide that enough is enough?" or words to that effect. You underlined that, Chairman, in your remarks by talking about the urgency of satisfying this requirement and getting the show on the road. The alternative to the A400M is the C-17. I think everybody is aware of that. It is my job to make sure that I have in my back pocket a financial proposal that we could quickly convert to a contract at a known price for two C-17s. I have that arrangement in place and it remains valid for some time to come. The C-17 aircraft can be procured essentially off the production line. I am sure we could come to an agreement with the United States Airforce and I am in absolutely no doubt whatsoever that we can bring C-17s in on the date required by the Royal Air Force for the A400M. That should be almost beyond dispute because it took us a year to get the first four from the moment the decision was announced and it is many years from now before the A400M is due to come into operational service in the Airforce. We have got the back door covered against the A400M collapsing. The much more difficult decision of course is how long do you continue waiting. What I would say to that, Chairman, is announcing a deadline in public is simply backing yourself into a corner when we, the United Kingdom, then have to agree to other people's conditions. There may well be, as you can imagine, tiny residual work share issues just between some other nation's pen and the paper beneath it. We are not going to back ourselves into a date deadline so that we then have to give some of our work share to another nation. That would be an example of how foolish I think it is to announce a date. So long as I have got this backstop offer in my pocket I do not feel I am running the Royal Air Force a risk of failing to provide the aircraft they require.

    Jim Knight

  251. In terms of the capability of European partners do your counterparts have that deal ready so we are not the only ones with this capability as we seem to be at the moment?
  252. (Lord Bach) Of course I do not know the answer to that question. I am clear that we have the most mature back pocket offer in place. We along with France and Belgium were the ones who wanted this competition between the C-17 and A400M which is why we got this offer. We took it to a degree of maturity because of the seven to nine year lease of the C-17s, which the other two nations did not. As far as I know, the then five countries (because Italy was then involved) did not pursue alternative procurement fall back arrangements. I am quite clear that they will be thinking in their own minds, "What on earth are we going to do if the A400M does not work", because with eight countries it is not solely within one nation's control to make the project work.

  253. With all of the prevarication there seems to have been with all partners on this project about how many they want and what they want and so on, it would appear that the perspective in the price has gone up in that time. To what extent has this forced you to delay the United Kingdom in-service date and the level of capability it will have in the first few years of operation? We are led to believe that some of the capability will not be there until a little later.
  254. (Sir Robert Walmsley) That is true but that is completely separate from the delay. The price has gone down a little bit but what we require is specialist national add-ons. I honestly cannot remember the detail but it is a tiny proportion of the aircraft. I think we have made some sensible economies to say we will not do all that on day one. It is back to the evolutionary acquisition principle - get the plane into service, learn what it can do and improve it steadily through its life.

  255. I am very pleased to hear your comments and I know that workers at Filton and Broughton will be delighted. I hope that the MoD can be brought round to being pleased as well since the excellent performance we have had of the C-17. For our part are we in the United Kingdom absolutely firm about the number of aircraft we need? How can you be sure how many we need if you have not yet worked out its concept of employment in the RAF, as we have been told. In your memorandum it says: "No decision has yet been taken on the exact make up of the A400M fleet. The concept of employment is currently being developed."
  256. (Lord Bach) I do not think any concept of employment that is being still developed necessarily means that we do not know how many of these aircraft we will actually need. We have said for some time now, well before I ever came to the Ministry of Defence, that 25 was the number that we needed as part of our capability requirement.

    (Air Marshal Sir Jock Stirrup) The concept of employment is more to do with what tasks you are going to use it for, where it is going to go, and to an extent that will drive the requirement for special equipment and capabilities on the aircraft itself, not the aircraft numbers.

    Chairman

  257. I hope the A400M proceeds. It was this Committee that proposed a long long time ago that we should go down the half Lockheed and half the European option. I still hope that part of the deal will be feasible but a point may well come, which I hope it does not, when some very, very serious decisions are going to have to be made because we went through that process, Minister, over the Eurofighter which because of delays added very considerably to the cost and the prime concern is not in my view the Europeanisation or the Americanisation of it, it is not even employment, it is what the Royal Air Force requires and I hope that the various companies and countries engaged in procuring the A400M will make their decisions in time for the Air Force to get this heavy lift aircraft it requires.
  258. (Lord Bach) Can I agree with you, Chairman. It is absolutely about capability; it is not about anything else in our view.

    Jim Knight

  259. Can you let us have a note on why the competition for the engines was relaunched and whether there was any link with the Italians withdrawing and so on?
  260. (Sir Robert Walmsley) I do not think I can. I absolutely do not mean that in an obstructive sense. The decision to relaunch the competition for the engine was a matter for the private contractor. If I get involved in that then I have got my fingers deep in a mangle which I do not want to be anywhere near.

    Jim Knight: You need them clean to get in your back pocket, I know.

    Chairman

  261. Mr Jim Crausby on BVRAAM and Meteor. A nice easy one for you, Minister! Why did you take this job, that is what I would like to know? Why did you take it on such a ridiculously low salary? You should be Minister of State. Pass that on to the Prime Minister please!
  262. (Lord Bach) I do not know if I can tell the Chairman of the Select Committee that sounds a bit like a kiss of death!

    Mr Crausby

  263. The plan was to sign a contract for the BVRAAM missile for Eurofighter in mid-2001, the MoD selected BMDA's Meteor in May 2000, so what is the hold-up to getting the Meteor contract signed?
  264. (Lord Bach) Again a very good question, if I may say so. I am going to start off my response by saying, very similar to the response I made on A400M, when in this case six nations collaborate it is very unlikely - impossible - there will not be difficulties with signatures including some delay. The reason why it has not been signed yet is because your German equivalent, or something like it in the German Bundestag, has some decision-making powers in relation to when and if the German Government signs first the MOU, which they said they do not want them to sign until the contract is ready. As I understand it, the draft contract is absolutely ready. It is now up to this Bundestag committee to give the go ahead because, as I understand it, the German Government has renewed its commitment to Meteor and we are waiting to get that German MOU signature as urgently as you are and we want to get it before the Federal election recess, which will take place in the summer leading up to the September elections. So the next couple of months are absolutely critical and we are putting on what pressure we can on the German Government in order to get this signed and Meteor on the road. Of course, the amount of pressure that one foreign government can put on another country's Parliament is strictly limited and can be jolly counter-productive unless you are careful. But that is the reason why this MOU, which has been signed by all other countries, and the contract that will follow from it has not been signed. If I have got that wrong or if there is something that needs to be added to that, again Sir Robert has been very closely involved with this project.

    (Sir Robert Walmsley) I could add any detail you want but that is the story, that is exactly how the situation is.

  265. Can we proceed without the Germans on board?
  266. (Sir Robert Walmsley) No.

  267. What would the alternative be if the Germans do not sign?
  268. (Sir Robert Walmsley) I think I have to make it absolutely clear - and I hope that somebody from Germany reads this - this project will not succeed without Germany. This project is really important to the air-to-air combat capability of Eurofighter. We look to Germany for this just as we looked to them for the plane itself to co-operate with us as they have done on the aircraft.

    Chairman: Why I have concern about this is that I and other Members of Parliament went out to the Bundestag two or three ago to plead with the German Bundestag Defence Committee to sign up for a Eurofighter which was causing enormous problems. When we finally got into the Defence Committee they had made the decision, yes, we will sign but we are very concerned about BVRAAM and the whole of the argument was not talking about Eurofighter but BVRAAM. They said to us very strenuously it was a European aircraft and a European missile, and that it was a political decision that was in some ways a risky decision, and therefore if you find it difficult to legislate you should contact us so maybe we can go out and argue to our Defence Committee colleagues why every effort must be made to get this signed up. Certainly I would be prepared to do that. Maybe we can enter into correspondence over this.

    Mr Crausby

  269. How much will the delay that has already occurred push back the missile's in-service date?
  270. (Lord Bach) It is not just the delays that have pushed back the current ISD, there has also been some slower than expected progress on contract negotiations generally. I have to say that. I do not think it would be fair just to put all the blame, if that is the appropriate word, on one of the partners in this particular enterprise.

    (Sir Robert Walmsley) That is absolutely fair. Let me make quite clear that part of the reason the draft contract was not available until 29 April was we were trying to strike a very tough bargain with the company. They put the prices up at the back end of last year. We have negotiated that increase away. All that takes time and while that is going on work share is beginning to escape from one country into another and all that needs to be put back. All these things take time. There is nothing unusual about the Meteor story but when we set the in-service date at the time the Government took the decision just about two years ago we made an allowance for some of these very protracted negotiations. I am very happy to say that when we set the in-service date we did not set some stupidly aggressive date which was really setting us up for a fall before we had started the programme. I still think there is a good chance we will meet the in-service date we set ourselves two years ago because we set that at a 90 per cent confidence of achieving it which added several years to the schedule provided by the contractor.

  271. On the question of taking the programme forward, what lessons have you learned from the problems that were associated last year in accepting ASRAAM?
  272. (Lord Bach) As I understand it, we have used in our negotiations with the company on Meteor much that we picked up from the difficulties that this Committee has discussed concerning ASRAAM, which I am very happy to say are now something of the past and ASRAAM has moved on very well during the course of the last few months, so we have learned from that. In particular, Sir Robert?

    (Sir Robert Walmsley) Two particular points, first of all we need to set very clear acceptance criteria. The ASRAAM arguments went on and on because we said to the company you are not complying with the contract and they said to us yes we are. There was an ambiguity buried in the contract which sounds trivial about the way we modelled various aspects of missile performance. The first thing to say is be very clear about the acceptance criteria before we go on to the programme. The second thing which is a much softer issue (but I think almost more important) is that we need to involve the operational evaluation unit of the Royal Air Force and their pilots very early to give us real feedback as to what it feels like to the pilot to be armed with this missile. There are a number of issues that came out of that.

    Chairman

  273. We have one question on Nimrod MRA4. We will have to write to you, Minister, there are so many questions we have to ask you and we need to spend the next 15 minutes talking about ammunition, and then we will have to move on to make sure Mr Coles' presence here was worthwhile.
  274. (Mr Coles) I am quite happy to defer!

    Chairman: I am sure he would like to be silent but we are going to get him before he leaves.

    Mr Howarth

  275. Gentlemen, why have you reduced the number of Nimrod MRA4 fleet needed from 21 to 18 aircraft? Do you believe that will make it easier for BAE Systems to bring the programme back on track? What will you do with the 360 million that apparently you are going to save on running costs as a result of this cut-back? Perhaps you will let us know what procurement costs you are going to save as well.
  276. (Lord Bach) Procurement costs are roughly a 50 million saving.

  277. Why are you reducing from 21 to 18?
  278. (Lord Bach) We are reducing because we think that is the capability that is necessary now, for two particular reasons. Firstly, there are fewer submarines in the Atlantic ocean than there used to be in the days of the Cold War and we think because of that the task that Nimrod will perform is not as difficult as the task that Nimrod would have performed if the Cold War were still on and the Atlantic was teaming with submarines. Secondly, because of the capabilities of Nimrod itself, we think that it can do the tasks that we feel it is necessary for it to do with fewer aircraft than the 21 that were originally proposed. Jock might want to add to that.

    (Air Marshal Sir Jock Stirrup) Our experience as the programme has gone on is that the availability of the aircraft is likely to be higher than we had first anticipated so we will be able to generate more operational capability from a given fleet so a slightly smaller fleet should enable us to generate the required capability in terms of aircraft in the air.

  279. In other words, you are impressed that its performance looks like exceeding that which you originally expected?
  280. (Air Marshal Sir Jock Stirrup) We have always been enthusiastic about the capability that the aircraft would deliver. We have just been very anxious to see it delivered.

    Chairman: More to follow but through Consignia or whatever it is called. Some questions now on ammunition.

    Mr Jones

  281. The previous Committee did a report on the closure of Royal Ordinance Bishopton and the effect on United Kingdom capacity for the manufacturing of ammunition. Can I ask three questions and I will ask them altogether. First of all, what role does the MoD have in monitoring or approving the rationalisations that are taking place and have taken place since then? What would the effects be of the potential closure of RAF Bridgewater on the supply of high explosives and where would we actually procure them from? The final question is related to the partnership agreement between the MoD and Royal Ordinance which was to indicate to Royal Ordinance the needs of the MoD. Has it not, in fact, just led to the Royal Ordinance (or BAE Systems, their owners) being able to decide which plants they wish to close over a period of time?
  282. (Lord Bach) Let me try and answer those parts of the question I can. As you know, Mr Jones, I have taken quite a personal interest in Royal Ordinance since arriving at the Department and since these matters came into the public arena again a few months ago. Of course, we are kept informed about Royal Ordinance's decisions in relation to plants, but we are not involved in any direct sense in the review nor do we play any part in the commercial decisions that they take and that was what was written into the partnership agreement in 1999. That is the answer to your first question.

  283. I will come back with one supplementary.
  284. (Lord Bach) Secondly, of course, it is very reassuring, and must be to you in particular, the recent decision that has been taken as a result of an agreement between the trade unions and Royal Ordinance as far as the Berkeley plant is concerned. I think that does show that Royal Ordinance is not just in the business, as I think may have been suggested by part of your question, of closing down plant after plant after plant.

  285. Can I come back on that. Yes, that is obviously good news but I would not hold my breath to wait to see whether the investment promised by BA Systems materialises. I understand that the unions were told last week that they have got to get on to their MPs to lobby the MoD to ensure that they get the orders and supply they need. What is going on here? If we have got this agreement in which you have quite clearly laid out what your needs are, why should BAE Systems be thinking they are not clear on what your needs are, or is it just a bit of spin from BAE Systems to cover the fact they are going to close places like Berkeley?
  286. (Lord Bach) I have done my best not to duck questions but I really think that is a question for BAE Systems and perhaps for the trade unions. I have tried to explain what our relationship is.

  287. In your mind is it quite clear that BAE Systems know what the future requirements are of the MoD?
  288. (Lord Bach) Yes I think so.

    (Sir Robert Walmsley) It is some years since we drew up the partnership agreement. It involved a range of requirements. We did not specify 200,321 shells, but we said there would be a requirement within a certain range. The importance of that, of course, was to set the price for pieces of ammunition and having set that price and given a long term agreement they were then able to invest. The first thing I would say to your third question, which I know is jumping the gun a little, is what this partnership has done is given the RO the possibility of a real future. They have never had a long term contract before and they said to us, "If we can have a long term contract with you, we can invest in our facilities and if we can invest then we can export and that way we have a business." It was the first big partnership deal put together. I think it is very good for both parties. Of course they want to know whether they are going to come in within the range and of course they want to pressurise us to order at the top of the range not the bottom, but we will do what is right for the MoD within the terms of the partnership agreement.

  289. For once I will have to agree with you, Sir Robert. From the MoD's point of view you think the partnership agreement in place as it is should be able to give a long-term future for the ammunitions manufacturers in Royal Ordinance in the United Kingdom?
  290. (Lord Bach) If I may just follow on, before Sir Robert comes back on that. We do not think there would have been any future for the Royal Ordinance in the United Kingdom if we had not entered into such an agreement or something like it towards the end of 1999. We think the position was that bad.

    (Sir Robert Walmsley) They told us that.

  291. They were crying wolf a little bit?
  292. (Sir Robert Walmsley) I do not think it was crying wolf.

  293. If they are crying wolf now, they are crying wolf too often?
  294. (Sir Robert Walmsley) That is just life. The over capacity in the ammunitions industry around the world is a problem for every country that takes defence seriously. The way you manage past that, including national partnership agreements, and in some cases government-funded factories or government-owned factories, can lead to them paying far too much to maintain employment which is effectively a tax on defence if you do not get this right. We think we have got this right.

  295. Can I have an answer to the question about the high explosives and Bridgewater.
  296. (Lord Bach) Can I try and give an answer to that. As we understand it, the company's factory at Bridgewater which, as you say, manufactures high explosives, has been running at a loss for several years. As you know, we are committed to the introduction of insensitive munitions. In response to the fact that is MoD policy, the company are proposing to introduce the appropriate technology based at their Glascoed plant. With a name like mine I ought to be able to pronounce a word like that! So it has argued the case for the retention of Bridgewater. As I understand it, the trade unions proposed to the company Bridgewater as a site of this investment in insensitive munitions policy and as a consequence of that proposal discussions are still continuing with a result not due until June. That is really as we understand the position at the present time, but I emphasise that these decisions are not for us.

  297. I appreciate the point you are making there. If Bridgewater does close I understand BAE Systems have acquired quite a large outfit in the United States in Tennessee. Would you have any problems in this type of equipment supplied from Tennessee?
  298. (Lord Bach) I do not know the actual answer to that but I would imagine the answer would be probably not.

    (Sir Robert Walmsley) With the sole qualification that it would have to be offered at a good price because this issue of security of supply very much depends on a diversity of sources. I would feel very uncomfortable if we were uniquely dependent on any offshore source of supply. I am not at all uncomfortable if I can depend on 11 sources of supply, which was the case the last time I looked at missile propellant. Keeping an overview of the world's supplier situation is a very important part of the MoD's approach to this problem. Striking agreements with the governments in which these supply capabilities are resident is another part of it and we are doing that. We have got agreement with the United States on security of supply which we are beginning to mature. We are maturing an agreement with five other nations in Europe. That is all part of the equation but I like diversity. That is why I like to know there are lots of places in the world that can provide us with this stuff.

    Mr Crausby

  299. Three years ago when our predecessor Committee examined ammunition supply they were told that the MoD were "validating the assumptions" underlying your calculations of war stock levels. Have you brought that to a conclusion? What was the result? Most importantly, does the MoD now hold sufficient ammunitions stocks against its war stock requirements?
  300. (Lord Bach) The answer to the last question is yes we do, we do hold sufficient stocks. As far as your first question is concerned, as far as that review is concerned, frankly, I am ignorant, I do not know the answer to that question. I do not know whether any of my colleagues know but we will certainly write to the Committee with the answer. I am sorry we do not have the answer to that.

    Chairman

  301. Because we had some difficulties when we did the inquiry on the Bishopton closure ---
  302. (Lord Bach) --- Which I read.

  303. We have five minutes. You are obviously having lunch with somebody, Minister.
  304. (Lord Bach) No, is that an offer?

    Chairman: We just have a few minutes.

    Rachel Squire

  305. Can I say I think myself and some of my colleagues would certainly be happy to offer the Minister lunch if he gave us the Warship Support Modernisation Initiative.
  306. (Lord Bach) Sorry, I am doing something else!

  307. Can I thank you for giving me the opportunity and apologise that I was unfortunate enough to miss the evidence from Sir Robert Walmsley and Mr Coles two weeks ago due to an urgent meeting with the Minister for Energy over the closure of Scotland's only deep coal mine which is in my constituency along with Rosyth Dockyard, so I declare an interest that I have always taken a keen interest in issues affecting the dockyards and naval bases' future. I understand that at the Committee hearing on 25 April Mr Coles stated that the view was you only needed three naval bases and just one dockyard to accommodate the current warship refit workload, or two dockyard in order to maintain competition. Given your comments earlier about over-capacity, if with falling demand for naval refit work there is insufficient room in the market for all three current dockyards would you like to say if you have a view on which should close or is it something that you will allow the market to sort out?
  308. (Lord Bach) My short answer to that is the market will sort it out but I want to make the point that our view is that Rosyth, the one to which you particularly referred, has built up an extraordinarily high reputation for major refits - and I am looking to Mr Coles , in the last few years.

    (Mr Coles) That is right.

    (Lord Bach) It may well be, I know not, that none of them will close.

  309. Do you think leaving it to competition is sufficient given the strategic interests represented by the dockyards and naval bases?
  310. (Lord Bach) I think the market will have a say in this, but there is also a hold that we still have on the strategic importance of these various dockyards spread as they are around the United Kingdom. I will let Mr Coles answer.

    (Mr Coles) What I think I said to the Committee was that we could do it in one or we could do it in five but we have three naval bases. When pressed I said of course for competition you need at least two. In the time-frame we are talking about now there is enough work for all four sites - sites not dockyards - Carport, Faslane, Rosyth, Portsmouth and Devonport. In the medium term there is work for all four sites. Secondly, of course, they can supplement the work they get from the Ministry of Defence by competition through bringing work in themselves. That has been done very constructively at Portsmouth, at Devonport and at Rosyth. In the end it is a combination of how much work is available from us and how much they can bring in from repair and indeed in some cases in construction, so in the end it must be the market forces that determine it but in the short term there is enough work around to fill all four sites with some work from the private sector.

  311. Can I then go on to ask Mr Coles this: I believe you also said that the major savings from the Warship Support Modernisation Initiative were expected to arise in Scotland. We have Faslane on the West Coast and Rosyth on the East Coast. Given they are on two different sides of the country, how do you think those savings can be achieved and given the changes and the savings that I would argue have certainly been achieved already at the dockyard, are most of the savings seen to be coming in the future from Faslane?
  312. (Mr Coles) The whole Warship Modernisation Initiative is quite a large package. Half the savings come from traditional ship repair and the other half from restructuring and partnering within the naval bases. For the naval base element the largest element of that is the proposed partnering on the Clyde and therefore it does not affect the site specifically.

    Syd Rapson

  313. The trade unions are now settling down after the decision and the reduction in threat of action. They are clearly not happy but they are accepting the sensible way it is going. Have you been able to debrief them on the rationale behind the choice of the Warship Support Modernisation Initiative and what has been their reaction to it?
  314. (Lord Bach) The debrief takes place tomorrow. That is not coincidental, if I may say so, which our appearance today. You know obviously about the joint statement of intent the company signed along with the MoD on this issue was described, as you have implied, by one of the unions as a breakthrough. So the full debrief will take place tomorrow and we will see what the reaction is. We think that this joint statement of intent and the wording that is used in it is of great significance. I do not think that is something that has escaped the attention of the, how shall I put it, very acute leaders of the trade unions involved in this particular issue.

    Chairman

  315. Will you keep us informed so that we can judge the reaction of the reaction to the reaction?
  316. (Lord Bach) Yes.

  317. If you can work that out, we would like to be kept informed.

(Lord Bach) Certainly.

Chairman: Thank you, gentlemen, so very much. Obviously, Minister, you enjoyed your occasional spat which maybe you were not permitted to do. I am sure we will give you future opportunities to flex your muscles. Certainly, as Mr Howarth is able to bring the experience of a front bench spokesman to our proceedings, maybe a rota could be devised amongst MoD Ministers that Ministers should be allowed to join the Committee too and maybe if the constitutional arguments can be overcome you might serve a counter balance to the Tory front bench. Lastly a tradition that has been growing up in this Committee is before you are allowed to leave you must leave your briefing book behind so that we are able to have the full flavour of your presentation even though time prevented us from exploring all the arguments. Thank you all very much. We shall meet again.