Draft Abro Trading Fund Order 2002

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Mr. Gray: I congratulate my hon. Friend the Member for New Forest, West (Mr. Swayne) on his elevation to greater things in the shape of the office that we know to exist but about which we never talk. I wish him well in that and pay tribute to his work in preparing for today's debate, which I inherited on Friday. His work on the matter prepared me extremely well for what I shall say shortly. It also means that he takes the blame for anything that I might get wrong.

I reassure the Minister that the Opposition welcome the establishment of the trading fund and we certainly do not seek to delay it or stop it in any way. It is a perfectly logical extension of the next steps agency status that the previous Conservative Government granted to the REME static workshops, as they then were, and to the ''competing for quality'' status that we went on to give the agency. It is a sensible and logical

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progression towards giving the organisation greater commercial freedom, accountability and transparency and we believe that it is a step in the right direction.

However, it will not surprise the Minister when I tell him that we have a number of important questions to ask about the way in which the agency operates. We seek to know whether the establishment of the trading fund under the order will improve ABRO's operation.

We are slightly concerned about the timing of the laying of the order before the House. I understand that the National Audit Office report into the operation of ABRO is due to be published shortly. Might it not have been more helpful to have delayed this debate until we had the NAO report before us? That might have made our debate better informed. The Minister may consider finding some opportunity to bring the matter of the operation of ABRO before the House again, after the NAO report has been published, so that we can examine how the agency is operating.

As I understand it, the main thrust of that report is that it seeks clarity, if there is such a thing in such an obscure and abstruse—no disrespect to ABRO, but it is not exactly on the front pages—area of Government, and about the way in which ABRO actually works and will work after the establishment of the trading fund.

The report could play a fundamental role, because ABRO has never had a clear corporate strategy. Nobody seems to know precisely what ABRO is for. The Minister needs to consider carefully how and whether the creation of the trading fund will help it to achieve that corporate direction. Perhaps he will take the opportunity to do so in his reply to this debate. It will be useful to have a ministerial diktat on what ABRO is for. I am certain that the new chief executive would welcome greater guidance than he seems to have.

I should like to offer the Minister a few suggestions as to what ABRO is for, and to consider how the trading fund might change that. We have just had an exchange about whether the Minister sees ABRO as a strategic supplier providing surge capacity at times of tension and conflict—I tried to keep my eyebrows under control. However, despite the Minister's careful explanation, I remain puzzled as to how an organisation that—I do not wish in any way to demean it—repairs vehicles and other equipment and, presumably, is used to reasonably full capacity during peacetime, can be asked to provide surge capacity in time of war. Merely replying, as the Minister did, that it is done by means of multi-skilling—people who are working on Challengers could transfer to Warriors or vice-versa—does not answer the fundamental question. How can an organisation that is being used reasonably to its capacity in a time of complete peace, such as we might have had two or three years ago, be used to provide surge capacity in a time of war, such as we have now? If the situation gets worse, how can we ask ABRO to provide that surge capacity unless there is spare capacity in times of peace? Multi-skilling does not answer the question.

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Perhaps I am being a little thick, so I would welcome the Minister's explanation. He seems to suffer from a lack of clarity with regard to whether it is required to provide surge capacity. I quote his very helpful answer to a parliamentary question yesterday. He said:

    ''The Army Base Repair Organisation (ABRO) does not maintain dedicated surge capacity for any specific equipments.''

He went on—in a classic piece of incomprehensible civil servant speak—to say:

    ''The requirement for military surge capability is protected by both the diversity of the Ministry of Defence work placed with ABRO and the working regime that ABRO has in place to meet this.''

If anybody here can understand that, they are cleverer than I. If the Minister can understand it, perhaps he would care to explain it to us. It seems to be gobbledygook. The first part is plain: ABRO does not maintain dedicated surge capacity. By happy coincidence, on the same day, in answer to a parliamentary question put down by my hon. Friend the Member for New Forest, West, the Minister said:

    ''ABRO provides . . . a unique surge capacity.''

That seemed to be what the Minister was talking about today. I fear that he will have to explain much more clearly whether ABRO's primary responsibility is to provide that surge capacity and, if so, how it does it unless there is a significant amount of capacity that is not used in peacetime, which can be brought into play during a period of war. A fog of mystery surrounds the question of surge capacity.

The truth is that we really do not seem to know whether ABRO is supposed to be a monopolistic supplier through the MOD or not. If it is, then surely it would have the capability to supply and repair all the equipment used by the Army. However, surge capacity for some equipment—I have given the example of military bridging—is already contracted out. If it is contracted out for military bridging, why should it not be for other things? I shall come back to that mixed thinking about ABRO's purpose. Why does ABRO employ a small army to do what could apparently be done easily by outside contractors?

If it is not a surge supplier, perhaps ABRO's purpose is as a competitive supplier to keep the industry on its toes; what is known in the trade as a comparator. Perhaps ABRO sets a sharp price to ensure that outside contractors keep their price down and that their pricing mechanisms are correct. Perhaps the trading fund will help us in that regard. However, if it is a comparator—I think of the privatised water industry, where the use of a comparator is important in some areas of contracting out—why is such a large proportion of its work allocated to it with no thought of competition? About 95 per cent. of its business is MOD business, and most of the business given to ABRO does not go out to open competition.

The Minister gave another helpful written answer yesterday. He should not answer so many questions so quickly; the answers can be used in so many ways. However, we are grateful to him; had he not done so, we would be upbraiding him. In his answer, he told us that

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    ''The following work was won by the Army Base Repair Organisation as a result of competitive bids''.—[Official Report, 25 February 2002; Vol. 380, c. 694-95W.]

He then listed them year by year: for 1998-1999, the figure was £11.987 million; for 1999-2000 it was £0.216 million; for 2000-2001 it rose a little to £4.749 million; and for 2001-2002—I suppose that the figures are not yet available—the figure was nil. That is a remarkably small part of ABRO's business, but we are not given any percentages.

In an interview with Agency Focus, the new chief executive of ABRO told us that only 8 per cent. of its total work load was secured competitively. He went on to say that

    ''over time, ABRO will have to be able to generate workload by winning competitive contracts even for the bulk of its MOD baseload. In the shorter term, it has a target, over the next five years''—

everything under new Labour has a target—

    ''to secure at least 30 per cent. of its MOD workload through competition with external suppliers—challenging indeed, given that today only 8 per cent. of its total workload is secured competitively.''

If that target is to rise from 8 to 30 per cent., how can the Minister say that ABRO should not be securing substantial commercial contracts? If it is to happen, it will have to be done with standard commercial contracts. It will have to act as a commercial operator. Are we or are we not going to see ABRO secure a significantly increased amount of competitively tendered business?

If it is meant to be a straightforward competition with the private sector, how will the Minister allay industry's concerns, which have been reported to me from a variety of sources, that such competition will entirely lack a level playing field? If there is to be a comparator, the private sector and ABRO will have to offer prices on an entirely level playing field. However, with resource accounting at the MOD in its infancy and with the NAO being concerned about the accuracy of resource accounting, how will the Government be able to ensure that the whole of ABRO's resources are costed on a whole-cost basis as if it were a private sector supplier?

For example, will ABRO's headquarters and other buildings be costed as if they were bought in the marketplace or as if it had built them? Will it compete with the private sector on an entirely level playing field, or will it be a preferred bidder as it is now? Will there be a form of cross-subsidy to assist ABRO in winning contracts, or will the Minister tell the industry today that he will seek to put ABRO in a position where it can compete with the industry on an absolutely level playing field? If he says that, he will have to give industry the precise figures showing how ABRO achieves the prices that it quotes for the business for which it tenders. The trading fund should help in that respect, but the Minister will have to address also some of the technical accounting matters in order to guarantee to the private sector that it is indeed a perfectly fair comparator.

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Prepared 26 February 2002