Select Committee on Work and Pensions Minutes of Evidence

Memorandum submitted by BAE SYSTEMS (SHP 6)

1  Summary

1.1  Clyde shipbuilding has been a discussion point for much of the last two decades as progressively through the last century the shipbuilding industry in the UK went into serious decline and the shipyards on the upper Clyde in Glasgow were reduced to two at Govan and Scotstoun. This was brought into sharp focus in 2001 when BAE SYSTEMS Marine announced 1,000 redundancies in its Clydeside shipyards as part of an overall restructuring and due to a shortfall of work in the near term.

1.2  The Clyde Shipyards Task Force was consequently established in July 2001 and conducted a comprehensive review with Ministers, the company, unions and other interested parties of the future for shipbuilding on the Clyde.

1.3  The report published January 2002 endorsed the company's strategy and commended much of the work in hand, despite the regrettable need to continue with the declared redundancy programme.

1.4  Since the Report BAE SYSTEMS Marine has continued to prosecute its declared strategy which aims to deliver a robust and profitable business and to stabilise employment at its Clydeside and Barrow shipyards. Key developments include:

—  Mitigating action has successfully reduced the overall number of potential redundancies to around 450, with further success in delaying the impact from Q4 2001 to Q1 & Q2 2002 for the most part.

—  Signature of the ITP for the first six T45 destroyers in February 2002 securing the base workload that forms the cornerstone of the 10 year strategy.

—  Implementation of the investment strategy which has seen £7m of money committed to date in 2002 with a number of the key facilities completed, or nearing completion.

—  Signature of the ALSL contract.

—  Successful delay to the impact of the remaining redundancies from Q4 2001 to Q2 2002.

1.5  Work continues on delivering the next steps of the strategy, including vigorous bidding activity in the export markets, supporting the future carrier prime contract organisations and implementing the various investment and development programmes that form the backbone of the strategy.

1.6  BAE SYSTEMS Marine is a valuable contributor to the Scottish economy and is on target to deliver its long-term strategy to stabilise its position for the foreseeable future.

2  Background

2.1  BAE SYSTEMS operates two shipyards on the Clyde at Scotstoun and Govan that form an integral part of the BAE SYSTEMS Marine three yards business (the other being in Barrow-in-Furness). In July 2001, BAE SYSTEMS announced the redundancy of 1,000 workers in order to bring its Clyde based workforce to a base figure of around 2,000. This action resulted in the Clyde Shipyards Task Force being set up, the membership of which included George Foulkes MP, Brian Wilson MP, Gordon Jackson MSP, and representatives from BAE SYSTEMS Marine, Clydeport, trade unions and STUC, employment service, Glasgow City Council, Scottish Engineering, Scottish Enterprise Glasgow. Wendy Alexander MSP, Minister for Enterprise, Transport and Lifelong Learning, chaired the Task Force.

2.2  The Clyde Shipyards Task Force Report published January 2002 contains full details of the findings, conclusions and recommendations. A brief summary is included here for information.

2.3  The Taskforce set out to determine:

—  How robust was the three yards strategy of BAE SYSTEMS?

—  What changes in the skills mix of the workforce would be necessary to meet the challenges of the future?

—  How might local communities be affected and what might be done to improve the environment and to offer support?

—  What might be done to reduce the numbers made redundant compulsorily, and how might any who find themselves unemployed be assisted back into work or training

2.4  Following a comprehensive six month review this taskforce reported in January 2002 with a series of conclusions and recommendations which can be summarised as:

2.5  On Strategy, which seeks to make the company more competitive in order to win more contracts in a changing and declining market, the BAE SYSTEMS strategy is considered coherent and robust. However this view is predicated upon a number of assumptions. Essentially, the company must strive to win further export orders, win a significant element of the aircraft carrier design and build role, and the MoD's programme should be met.

2.6  Key aspects of the strategy include:

—  Specialising as a warship and naval auxiliary shipbuilder with commercial contracts to be pursued that are compatible with warship capacity demands and where there is a sound business case;

—  Managing the three yards as one business;

—  Rationalising the scale of activity in employee numbers and undertaking a programme of demolition to cut overhead costs and to implement an associated programme of investment;

—  Identifying Govan as a steelwork centre of excellence;

—  Identifying Scotstoun as a centre of excellence for exporting, outfitting and designing, and launching the first Type 45 destroyer; and

—  Identifying Barrow as a centre of excellence for nuclear submarine and Type 45 assembly.

  2.7  On Skills the task force concluded from the comprehensive Training Needs Analysis that, while there are certain occupations at risk, there are opportunities for redeployment. There is also concern that skills shortages will become evident in the medium term since 20 per cent of the current Clyde workforce is over 56 years old.

2.8  In addition it was concluded that it is essential for the stability of the workforce to continue to secure flexibility agreements in order to avoid the debilitating effects of a hire-and-fire approach, the over use of temporary labour, and low productivity levels. The company and its workforce were commended on progress here. Significant advances have already been achieved in cross-skilling and flexibility, and advantages seem likely to be accrued from a new approach to the systematised integrated design of products (Concurrent Engineering).

2.9  On Community Regeneration & Land Use the task force is of the view that, within the context of the Structure Plan and the City Plan, opportunities to regenerate important sites and properties located around the yards should not be overlooked. There are several major developments and development proposals on the stocks for the upper Clyde including:

—  The digital media campus at Pacific Quay with proposals for 200,000 square metres of commercial space.

—  Braehead, which straddles the Glasgow/Renfrew boundary and which has already created 3,500 jobs and proposes a further 9,500 jobs in retail, leisure and commercial space.

—  The financial services district of Broomielaw; and Glasgow Harbour, a major development of housing, commerce, leisure and retail.

2.10  On Redundancy the constructive and responsible way in which negotiations have taken place was acknowledged and commends the work undertaken to mitigate the number of potential compulsory redundancies to approximately 450 (at time of the report). The progress made, and measures taken, including outplacement and employment services were commended.

3  Peripheral Employment and Expenditure

3.1  The peripheral workforce and expenditure that BAE SYSTEMS Marine supports ie., the local labour market and economy is also significant.

3.2  In 2001 BAE SYSTEMS Marine spent £25m on the Clyde in procuring goods and services from local suppliers and subcontractors. In addition the hotel and incidental expenditure in 2001 is estimated to be in excess of £1m. In order to manager the fluctuating labour demands we have employed the services of many agency and short term contract staff. An indicative average is shown below:





3.3  Additionally Marine brings significant business to the local economy through both short and long term visitors to the area.

4  Developments in Q1 2002

4.1  Since the Task Force report was issued in January the position surrounding the operation of the Clyde based elements of the BAE SYSTEMS Marine business has continued to develop. These include:

4.2  Future Strategy and Contracts

The company has been successful in securing key elements of its strategy in the first quarter of 2002.

4.3  Type 45

The signature in February of the ITP for the first batch of six T45 destroyers out of a potential complement of 12 was a major step in realising the future strategy of the company. This contract forms the base workload for the Marine business in the coming decade.

4.4  Future Carrier (CVF)

Negotiations for the future carrier continue the Prime Contract level, with the company engaged with both competing prime organisations. The Clyde operations remain central to the execution of the Marine CVF strategy. We have just entered into an agreement with the Clydeport Authority for the lease of a dry dock facility at Inchgreen in support of our bid to secure shipbuilding work on the Future Carrier programme.

4.5  Export

BAE SYSTEMS Export Shipbuilding business activities are continuing at a very busy level, in most regions of the world market, supported by BAE SYSTEMS Central Marketing team. Active prospects currently being pursued include three near term opportunities encompassing a range of products from sophisticated frigates to complex Offshore Patrol Vessels, and variants of successful existing BAE SYSTEMS designs. Comprehensive proposals have been submitted to those Customers of these near term prospects, technical discussions have taken place, and visits arranged of Customer delegations to view BAE SYSTEMS products and facilities together with further discussions of technical and commercial details. Proposals have also been submitted to other Customers, which are currently under consideration, which are for technology transfer prospects involving use of BAE SYSTEMS design and engineering expertise and resources to support the respective Customers' own warship construction activities. Efforts are also continuing as planned on a significant number of medium to long term prospects for high capability warships, with technical information being exchanged and discussions held on Customers' requirements, on several of the most attractive opportunities.

4.5.1  In April the Export Shipbuilding Business Unit received the Queen's Award for Enterprise in the International Trade category, in recognition of its outstanding achievement in the supply of warships to overseas markets.

4.6  ALSL Contract

The build of the first ship has commenced and the planning and mobilisation effort is well underway.

  4.7  Sea Systems Organisation

In January 2002 BAE SYSTEMS PLC announced a restructuring that placed Marine in the Sea Sector of the organisation. This structure offers a stronger foothold in the key sea systems markets than the previous organisation, and offers more synergies with the associated group companies than the previous Operations Group.

5  Investment Programme

5.1  The investment programme declared in 2001 is in the implementation phase, current status being:

5.2  Scotstoun

Total approved investment £2.2m.

5.3  Work Completed/In Progress

—  Medical Centre—Phase II

—  Joiners Manufacturing Facility—Centre of Excellence

—  Type 45 Office Accommodation—Phases I and II

—  Consolidation/New Office Accommodation—Customer Services Solutions (CSS)

—  Office Refurbishment—Engineering Staff

—  Resource Centre (Employee Counselling)

—  No 1 Dock—New Door

5.4  Work Forecast To Commence End 2002

—  Roll-on/Roll-off Quay

—  New Access Door/Roadway—Module Hall

5.5  Govan

Total approved investment £4.8m

5.6  Work Completed/In Progress

—  Steelwork Centre of Excellence (including amenities)—Fabrication Area

—  New Medical Centre

—  Resource Centre (Employee Counselling)

—  New Car Park/Boundary Fencing

—  New CCTV Security System

—  Main Gatehouse Improvements

5.7  Projects Approved (to commence—May 2002)

—  New Programme Office Complex

5.8  Work Forecast To Commence End 2002

—  Roll-on/Roll-off Quay

—  Refurbishment/Enhancement to 200 Ton Tower Crane

6  Redundancy

6.1  Since January the company has continued to strive to mitigate further job losses and has been successful in delaying the impact of the HR1 announced in July 2001. Against the original total of 1,000 by April 2002 the number of compulsory redundancies has been limited to 156 with a further 319 employees leaving through voluntary redundancy or through other means. A further 55 applications for voluntary redundancy are currently being considered. All efforts are being made to mitigate the outstanding balance of around 400 positions which are being constantly reviewed. Full details are contained in Annex.

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Prepared 15 July 2002