House of Commons - Defence Equipment 2009

Defence Equipment 2009 - Defence Committee Contents

3 Short examination of the Equipment Programme

Aim of the short examination of the Equipment Programme

74. During the Defence Procurement debate on 19 June 2008, the Minister for the Armed Forces announced that:

Our last planning round focused on the near-term issues facing the core equipment programme. We now need to take a closer look at our medium-term plans and concentrate them further on supporting operations, in line with our commitment in the national security strategy. That is why we are undertaking a short examination of the equipment programme to look at our planning assumptions over the next 10 years. The examination will take in the whole equipment programme, within the context of our basic defence policy. We are doing that because priorities can change, particularly as a result of our experience on operations.[115]

75. The Ministry of Defence Annual Report and Accounts 2007-2008 states that:

Following the conclusion of Planning Round 2008 we are moving ahead over the summer with a further examination of the Defence Equipment programme. We are determined to do more to support our people at home and on the frontline. To do that, we need better to prioritise our spending plans. The examination of the equipment programme will focus on two issues above all: bearing down on cost increases to equipment programmes; and rebalancing the equipment programme to better support the frontline. The examination will be focused on identifying potential savings to the equipment programme in order to support the frontline and our people at home better. Any decisions on specific programmes will be announced as they are made.[116]

Progress with the short examination

76. At our evidence session on 4 November 2008 for our Ministry of Defence Annual Report and Accounts 2007-08 inquiry, the MoD's Permanent Secretary, Sir Bill Jeffrey, told us that the short examination would be completed "within weeks rather than months" and before Christmas 2008.[117] The MoD's memorandum provided the following update:

As Sir Bill Jeffrey told the Committee on 4 November, we hope to resolve the remaining issues arising out of our examination of the equipment programme over the next few weeks. We expect its results to provide an important input to our 2009 planning round, which will be completed in Spring 2009, but Ministers have undertaken to inform Parliament of significant decisions affecting projects as soon as they are able to do so.[118]

77. The memorandum from the Defence Industries Council referred to the short examination and the need for speedy MoD decisions following the completion of the examination:

We understand MoD expects to report on the examination shortly and we are aware that individual companies have been asked to provide detailed inputs on possible consequences of programme decisions. We trust that the decisions to be taken are informed by these consultations, and that their industrial implications are understood fully. Industry would welcome an early read out of outcome of the examination and its implications for projects and programmes in the short term. Prolonged delays or paralysis in MoD decision making will have serious implications for the retention of industrial capabilities and company's investment planning.[119]

78. At our evidence session with industry representatives, Mike Turner set out his expectations of the outcome of the short examination:

All the companies have been asked a number of questions about the impact of this, that and the other. Clearly there is a concern about jobs in the current climate, not surprisingly, but the feeling we get is that programmes will be stretched out; some will clearly have more favourable funding than others. We do not see any major programme cancellations in the current climate. We think the equipment examination will come to a conclusion in the next few weeks, but there will be no major changes. As I say, some programme will be more favoured than others, but with limited funding available what we want to do is work transparently with MoD to make the best of the situation we are in until we can get to a new situation.[120]

Dr Sandy Wilson, Chairman of the Defence Manufacturers Association, considered that clarity about the future equipment programme would be a longer-term issue:

The other thing about the equipment examination is that I think the Secretary of State stated that it would provide the basis for going into PR O9, so I do not think the equipment examination should be viewed as giving all the answers. I think we will then go into a period of many months of continued debate about options and we will see clarity emerge through the year in PR O9.[121]

Statement on 11 December 2008

OVERVIEW

79. On 11 December 2008, the Secretary of State announced the "key conclusions" from the short examination of the equipment programme. The first part of the Written Ministerial Statement is reproduced below:

Since May 2008 the MoD has been examining its equipment programme. The aims of the examination were to adapt to the rising cost of high-end defence equipment and to provide more support for current operations. The key conclusions I am announcing today help us meet these objectives; other aspects will be taken forward through our regular planning round, which will conclude next March.

The work to date will bring the defence equipment programme more closely into balance. Inevitably this has required a reprioritisation of investment to ensure that we deliver those capabilities of the highest immediate urgency, while continuing to invest in capabilities needed to respond to future threats. We remain committed to doing more for our people, here and on the front line—improving their support and welfare, pay, medical care, rehabilitation services and accommodation.

Support to current operations remains our highest priority. Among the top priorities of our operational commanders are the provision of the right mix of protected patrol vehicles and additional helicopter capability. The recent announcement of nearly 700 more protected patrol vehicles for Afghanistan, at a cost of over £700 million, is evidence of our commitment to meet their requirements. In addition to our core budget, the Government will continue to fund the net additional costs of operations from the Treasury reserve. Since 2001 we have received nearly £10 billion, over and above the core defence budget.

As well as the protected mobility package, we have agreed with the Treasury a budget of a further £635 million in 2009-10 for other urgent operational requirements, with any expenditure over and above that being met initially by the reserve, but repaid by the defence budget after two years.[122]

80. The Statement states that "we undertook to inform Parliament about the major decisions emerging from our examination of the equipment programme as soon as we were able to do so".[123] The key programmes / capabilities referred to in the Statement were: FRES; helicopters, including Future Lynx; Future Carrier; and MARS. We examine each of these below.

FRES PROGRAMME

81. We have taken a close interest in the Future Rapid Effect System (FRES) programme. In our Report The Army's requirement for armoured vehicles: the FRES programme[124], published on 21 February 2007, we examined the progress on the FRES Utility Vehicle (UV) programme. In the Report we concluded that:

The MoD's attempts to meet its medium-weight vehicle requirement have been a sorry story of indecision, changing requirements and delay. It is high time the MoD decided where its priorities lay.[125]

In the Report we noted that "the expected In-Service Date for FRES has slipped from 2009 to "the early part of the next decade".[126]

82. We also examined the FRES programme in our Report Defence Equipment 2008.[127] At the evidence session on 29 January 2008, the MoD appeared very confident about the progress on the programme and expected the decision on the UV design to be announced "very soon".[128]

83. The MoD's memorandum provided the following update on the FRES UV programme:

On 8 May 2008, the MoD (Ministry of Defence) announced selection of PIRANHA V offered by General Dynamics (UK) Ltd as the preferred design for the FRES (Future Rapid Effect System) Utility Vehicle. Acknowledging that there were significant issues to be resolved during negotiations, the MoD took the step of making General Dynamics (UK) Ltd's preferred bidder status provisional. Their conversion to full preferred bidder status was dependent upon the agreement of acceptable commercial terms followed by the successful completion of a package of work on risk reduction. As PUS said at the HCDC evidence session on 4 November 2008 we are still discussing exactly how to pursue the relationship with GDUK.[129]

84. At our evidence session on 25 November 2008, we asked how the announcement at the end of October 2008 that 700 new armoured vehicles were to be procured impacted upon the FRES programme. CDM said that "there will still be a requirement for FRES; I am quite clear about that".[130] We asked if the MoD knew what its requirement for FRES was. CDM told us that "I think we are pretty clear we know what it is".[131]

85. Given the delays on the FRES UV programme, we have previously asked the MoD about the option of procuring a vehicle off-the-shelf to meet the requirement. We raised the issue again as to whether such a solution could provide the flexibility which the MoD needed. Dr Tyler said that:

What you do not want is buying a vehicle that, essentially, is role-specific or theatre-specific or operation-specific; what you want is a vehicle that has got the ability to be used across a whole range of applications and tailored according to the needs of that particular day by reconfiguration, adding new types of armour—hence the reason why you need weight margins—new types of electronic equipment in system and open architectures to fit different types of sensor. That is the sort of vehicle that you want for the future because you do not know what the future is going to be.[132]

He added that a vehicle such as Mastiff "does not come close to meeting the FRES requirement".[133]

86. CDM considered that the requirements for armoured vehicles for current operations and for future requirements were quite different:

What we have now is a current operation which requires armoured vehicles. In my view, we have done exactly the right thing, which is buy the armoured vehicles as UORs, virtually off the shelf, added to them, and so on, and put them into theatre. That is absolutely right. What we now need to do is make sure that there is a medium-weight armoured vehicle out there for the Army that we can buy which will meet a number of contingent operations. That is what we are now doing.[134]

87. The Written Ministerial Statement on 11 December 2008 announced the following regarding the FRES programme:

Our examination of the equipment programme has, separately, considered the balance of investment and priority in the army's armoured vehicle programme. We have concluded that, in the context of current operations, and bearing in mind the considerable recent investment in protected mobility, the highest priority should now be accorded to delivering the Warrior capability sustainment programme and the FRES scout vehicle as quickly as possible. Against that background, we have decided to restructure the FRES programme, giving priority to FRES scout over the FRES utility vehicle. Whilst this will mean a delay to the programme, we recognise the importance of the utility vehicle and are now looking at the best way to take this procurement forward. General Dynamics (UK) will have an opportunity to compete in any future utility vehicle competition.[135]

88. We found it extraordinary that, some seven months after announcing that General Dynamics UK (GDUK) had been selected as "preferred bidder status provisional" for the FRES Utility Vehicle, the MoD was now giving priority to the FRES Scout Vehicle. We sought clarification on what the specific issue had been on the FRES UV vehicle between the MoD and GDUK. The Minister for Defence Equipment and Support said that:

General Dynamics always made clear that they had a different concept than we did as to the role they wanted to play. We made clear that their concept was not ours and their concept was not the basis on which we were going to let the contract. They decided however to bid, making it quite clear that they had a different concept. The basic different concept, as you say, related to the fact that they wished to continue to have the intellectual property and they wished to be responsible, if they got the design contract, for the development and manufacturing, or at least to have a share in that.[136]

89. We could not understand why the MoD had allowed GDUK to bid if the company had set out its position regarding intellectual property on the vehicle. The Minister told us that:

What we did was we gave them provisional preferred bidder status, and we made it clear to them that we were making it provisional because confirmation of their status was entirely contingent on our agreeing on commercial terms that would be acceptable to us.[137]

90. The Minister emphasised that negotiations had taken place during the summer, but the two parties had failed to reach agreement:

Having postponed the commercial discussions, because that is the way the company wanted to play it (and we saw no reason why we should not play it that way, and everybody was being completely honest and transparent with everybody else) we then tried, in good faith, to see if we could reach agreement with them commercially in the course of the summer, and we failed to do that. Both sides, with no ill-will, in total transparency and with good faith decided then that we did not have a basis on which we could proceed commercially. That is the position we found ourselves in last month.[138]

91. We asked if the MoD was paying GDUK to keep its team together. The Minister said that "going forward we have not made any commitments at all […] we are considering how to proceed with the utility vehicle now".[139] He stressed that the MoD was committed to the UV programme and to providing "the British Army with a utility vehicle".[140] The Minister acknowledged that the programme:

will not come forward in the timescale which it was originally intended to do […] But we are not abandoning this project.[141]

92. Given the number of different armoured vehicles which have been procured for current operations and the different FRES vehicles which the MoD plans to procure, we asked about the MoD's strategy relating to armoured vehicles and, specifically, about the issue of coherency. To our astonishment, the Minister told us that "the coherence lies in having the widest possible suite of weapons for commanders in the field to choose from".[142] At our evidence session on 25 November 2008, Dr Tyler was asked if, as a result of the armoured vehicles procured as UORs, the vehicle fleet had become less cohesive and coherent. He told us that "yes, I think that is the case".[143] We suggested to the Minister that surely the widest suite of weapons destroys the coherence. The Minister outlined his understanding of coherence as follows:

Coherence is not something we pursue for its own sake, just for the sake of neatness and having a nice inventory that looks good on paper, coherence is what we want to have where the capabilities of the various vehicles are complementary so that you can move across a spectrum, going from heavier to lighter, going from greater firepower to less firepower, going from faster to not so fast, for difficult terrain, less difficult terrain, so that you have the widest possible scope for choosing the vehicle that you really need for that particular operation. That is what we are trying to give commanders in the field and that is what I mean by coherent so that each particular platform relates to the others in the sense that it is complementary, it is not if you like duplicating the capability of the other one, it is expanding the full range of capability available to us.[144]

93. General Figgures explained that, for the FRES family of vehicles, the MoD originally anticipated having one common chassis on which it would build "various subsystems to reflect the requirements for each function". However, further work had suggested that two chassis types were needed to:

achieve our commonality and the logistic coherence […] through having common subsystems and this would be part of a network-enabled capability […] so we would have the common network which would be implemented right across these 'FRES' vehicles although they would have different chassis systems. We would attempt to have common generators where appropriate, we would have common radios, we would have common electronic counter-measures, we would have where appropriate to reflect the function of the vehicles common subsystems in terms of sighting and so on. So that is how we were going to achieve it, although because the chassis did not look precisely the same did not mean that we were going to give up this original idea but we were going to optimise it, there were trades and balances in this.[145]

94. As to the question of whether the MoD knew what it required of FRES, General Figgures stressed that "capability (which I plan) is a relative notion; you cannot stand still in time because the enemy has a vote in this… the fact that our original view with respect to FRES was that perhaps it had to be proof against kinetic energy rounds in preference to chemical and improvised explosive devices. Our experience in Iraq and Afghanistan has demonstrated that we have got to shift that balance."[146]

95. The FRES programme has been a fiasco. In February 2007 we concluded that the MoD's attempts to meet its medium-weight vehicle requirement had been a sorry story of indecision, changing requirements and delay. Two years later the story is, incredibly, even worse. We find it extraordinary that, some seven months after announcing General Dynamics UK as the provisional preferred bidder for the FRES Utility Vehicle, the MoD has announced that priority is now to be given to the FRES Scout Vehicle. Whilst we recognise that the MoD's equipment requirements need to reflect changing threats, that is no excuse for the MoD's behaviour in this programme; they have wasted their and industry's time and money. The FRES Utility Vehicle programme was, from the outset, poorly conceived and managed. The MoD must work out what its requirements are for medium-weight armoured vehicles and identify lessons from the saga of the FRES Utility Vehicle programme. In its response to our Report, we expect the MoD to set out the cost to date of the FRES Utility Vehicle programme and how it plans to take forward this programme in the future.

HELICOPTERS AND THE FUTURE LYNX PROGRAMME

96. We have examined issues relating to helicopter support in our inquiries into current operations in Afghanistan and Iraq. At our evidence session on 25 November 2008, CDM told us that "helicopters—you can always use more helicopters".[147] The MoD's memorandum provides details of the current UK military helicopter fleets, including the current planned out-of-service dates, and the UK military helicopter fleets expected to be operating in 2020.[148] The Written Ministerial Statement on 11 December 2008 announced the following regarding UK military helicopters:

We have increased the number of helicopter airframes and hours available to our commanders in Afghanistan by around 60 per cent. over the past two years, and will make a further significant increase in helicopter capacity in Afghanistan over the next two years.

In addition to our planned battlefield helicopter procurements, we will be spending £70 million from the reserve to upgrade 12 Lynx Mark 9 helicopters with new engines, with the first aircraft available by the end of 2009. This will give commanders more helicopters able to operate effectively all year round in the hot and high altitude in Afghanistan, freeing up other aircraft for other tasks. Taken with the Chinook Mark 3 reversion, the additional planned Apache capability and the Merlins that we plan to move to Afghanistan once they have completed their mission in Iraq, this will deliver a significant increase in helicopter capability available to military commanders.

The new AgustaWestland Future Lynx helicopter will provide even greater operational capability when it comes into service, as planned, in 2014.[149]

97. We welcome the announcement made on 11 December 2008 that the MoD will be further increasing helicopter capacity in Afghanistan over the next two years. Given our continuing interest in helicopter support for current operations, we plan to monitor closely the progress in delivering the commitments set out in the announcement.

98. The announcement on 11 December 2008 provided little detail about the Future Lynx programme. The MoD's memorandum sets out the approved cost (£1.9 billion) and the approved in-service date (January 2014) at Main Gate. The current forecast cost has increased by some £10 million since Main Gate, but the current in-service date remains the same. The memorandum sets out the key events and decisions since the programme was approved:

June 2006—FLynx Contract awarded to AgustaWestland, along with the signing of the Strategic Partnering Agreement and the Business Transformation Incentivisation Arrangement.[150]

99. At our evidence session on 25 November 2008, we asked about the Future Lynx programme and whether an off-the-shelf solution would have provided the same capability at lower cost. CDM said that:

I do not actually agree with you that we could buy a helicopter which you could fly off the back of a ship and fly in the battlefield and have a common helicopter. I do not agree that we could buy that cheaper.[151]

100. We pressed CDM on the issue of whether Future Lynx was the ideal helicopter for the land environment. He considered it to be "exactly what is required".[152] We asked the Minister for Defence Equipment and Support whether Future Lynx was the solution which offered best value for money. He said that the programme was a "partnership programme",[153] and that under such an arrangement the contractor:

will work on reducing the risk, they will take some of the risk, we will take some of the risk, we will typically have a target price with incentives for doing better than that, penalties for doing worse than that, so that we share the risks right the way through.[154]

101. The Minister told us that he had looked at "competitive solutions". He had asked whether Future Lynx was needed and whether there was an off-the-shelf solution which could meet the requirement. The Minister had commissioned a small study to look at the US Black Hawk helicopter and was surprised by how expensive this solution would have been. From this work the Minister:

was persuaded that we needed the same helicopter, the same basic structure of helicopter for the naval and battlefield roles… [and] was persuaded that actually we did have a good deal.[155]

102. On the issue of the number of Future Lynx helicopters that would be procured, the Minister said that the MoD would be buying about 60. He could not provide us with details about the in-service date for Future Lynx as he said the programme had not passed Main Gate.[156] CDM confirmed that the programme had passed Main Gate, but the Minister then told us that the contract had not yet been placed.[157] We found this surprising given that the MoD's memorandum states that the contract was awarded in June 2006.[158] The Minister added that:

The point is that until we have gone through main gate we have not had the negotiations with the company, we have not fixed on the price, we have not fixed on the terms of the contract so we are in a very bad position in order to be able to say what it is. We are hoping it is 2014, January 2014.[159]

103. Later in the evidence session the Minister referred to Future Lynx as a programme which the MoD had "brought forward".[160] We were surprised by the Minister's statement given that Future Lynx was already in the Equipment Programme, and asked why the Minister had described it as a programme which had been brought forward. The Minister said that he had described it as such "for the simple reason that there was very considerable uncertainty about this programme, there were all kinds of rumours".[161] We pointed out that this uncertainty had been caused by the Government.

104. The MoD's confirmation that some 60 Future Lynx helicopters are to be procured is to be welcomed. However, in his evidence to the Committee, the Minister for Defence Equipment and Support was unsure as to whether the programme had passed the main investment decision or whether the contract had been signed. This may have been what caused him to say that the programme had been brought forward. We recognise that the Minister had taken up post only two months before the evidence session, but we do note that this was one of the programmes referred to in the Written Ministerial Statement of 11 December 2008. In its response to our report, we expect the MoD to provide us with the latest forecast cost and in-service date for the Future Lynx programme. It is also difficult to judge on the evidence currently available whether these numbers are sufficient to meet all battlefield and maritime needs.

105. On 5 November 2008, we announced our outline programme of inquiries for 2009, which includes an inquiry into current and future helicopter capability.[162]

FUTURE CARRIER

106. We have examined the progress on the Future Carrier programme on a regular basis. In our Report Future Carrier and Joint Combat Aircraft Programmes[163], published on 21 December 2005, we examined the progress in acquiring the two new aircraft carriers and considered that there was "a serious risk that the two carriers will not enter service in 2012 and 2015 as originally planned".[164] We also examined the progress on the Joint Combat Aircraft programme. Under this programme, the Joint Strike Fighter (JSF), a US-led programme, has been selected as the aircraft to operate from the new carriers. The two new aircraft carriers and the aircraft to operate from them are core elements of the "Carrier Strike" capability.[165]

107. We also examined the Future Carrier and JSF programmes in our Report Defence Equipment 2008[166] published on 27 March 2008. In this Report we concluded that:

Last July, the Secretary of State for Defence announced that the MoD would be placing orders for two aircraft carriers to enter service in 2014 and 2016. The manufacture contract has still not been signed and the MoD could not tell us why. Further delays to signing the contract run the risk of slippage to the forecast in-service dates and cost increases.

We were disappointed to learn that Joint Strike Fighter (JSF) aircraft will not be available to operate from the first new aircraft carrier when it is due in service in 2014. The MoD plans to keep the Harrier GR9 aircraft in service until around 2018 and to operate these aircraft from the new carriers. The MoD originally planned to buy up to 150 JSF aircraft. We would expect the number of JSF aircraft to be determined by what the UK needs for its defence capability.[167]

108. The MoD memorandum provides the following update on the Future Carrier programme:

3 July 2008—It was announced in Parliament that contracts valued at around £3bn had been placed with the newly-formed Joint Venture company (BVT) and the Aircraft Carrier Alliance for the construction of two 65,000 tonne aircraft carriers for the Royal Navy.

Sub-contracts (valued at approximately £400M) have been placed for the following:

(placed before contract signature) The modification of Rosyth dockyard, 80,000 Tonnes of Steel, Blown Fibre Optic Cable Plant, Reverse Osmosis Equipment, Aviation Fuel Systems Equipment, Manufacture of Aircraft Lifts.

(placed after contract signature) Highly Mechanised Weapons Handling System, Uptakes and Downtakes Systems, Air Traffic Control Software, Wholeship Pump Integration, Emergency Diesel Generators, Power and Propulsion Systems.[168]

An MoD Press Notice of 3 July 2008 states that "the carriers are expected to enter service in 2014 and 2016 respectively".[169]

109. The Written Ministerial Statement on 11 December 2008 announced the following regarding the Future Carrier programme:

We have concluded that there is scope for bringing more closely into line the introduction of the joint combat aircraft and the aircraft carrier. This is likely to mean delaying the in service date of the new carriers by one to two years. We are in close consultation with the Aircraft Carrier Alliance on how this might best be done. Construction is already under way and will continue, the programme will still provide stability for the core shipyard workforce, including 10,000 UK jobs.[170]

110. We asked why, only six months after announcing the award of the contracts for the Future Carrier and the expected in-service dates, the in-service dates were to be delayed. We also sought clarification as to when the two carriers were now expected to enter service and whether the lives of the current carriers would have to be extended to meet any potential capability gap. The Minister for Defence Equipment and Support provided a lengthy response to our questions:

for whatever reason, the particular dates involved in the contract which was signed last July were ones which, when I looked at them, I realised could actually be extended with no loss to the defence capability of the nation at all. If you like, it was a kind of free hit. We find ourselves under a certain amount of financial pressure. The last thing I wanted to do was to delay programmes which are really essential in the short term, either for operational reasons or for other reasons, but this was an opportunity in fact to re-profile our spending plans in a way which involved no defence costs, but simply made the delivery date of the carriers rather more rational, and reduced the gap between both the launching and the in-service date of the carriers and the arrival of the JSF aircraft to fly on them, so that is the decision we took. As you rightly say, what we are doing now is extending it by roughly one year. We have not come up with a formal in-service date yet but we will no doubt be doing that fairly shortly. We have said that we are delaying the first carrier, the Queen Elizabeth, by about one year, so instead of an in-service date of 2014, it will be 2015 and, without me stating what the formal in-service date is, if I add one to 14 I have come up with an unambiguous answer that no-one will contest. Equally, the second carrier, the Prince of Wales, would be extended again by approximately two years, that would have been from roughly 2016 to 2018. The second question you ask is what does that mean for the existing three carriers. The Invincible is already at some notice in fact; Ark Royal will probably be withdrawn from service before too long, in the course of the next few years, and we will need to have Illustrious certainly remain in-service until it is quite clear that the Queen Elizabeth has passed her sea trials and that her aircraft complement, whether they are still Harriers or JSFs at that stage, are fully worked up and operational. The object of investing in two carriers—let me be clear about this—is to make absolutely certain that the country at any one time can launch one of them with a proper force of aircraft on her, so that is the important thing, and that we will always achieve. We are looking again at the issue as to whether or not it is sensible to extend Illustrious's in-service period and, if so, whether that would involve cost of any kind or whether it would not, Illustrious's to provide a slightly greater degree of overlap. I am quite confident that things can be done and the central principle will be preserved and conserved and respected: that the country will always have at least one carrier with a full complement of aircraft which can be deployed in defence of the nation.[171]

111. We were surprised to hear that delaying the in-service dates for the two carriers would result in "no loss to the defence capability of the nation at all" and pressed the Minister on this point. He remained of the view that there would be "no costs in terms of our defence capability".[172]

112. We find it very strange that, only six months after awarding the contracts to build the carriers and announcing the in-service dates, the MoD has decided to delay the entry into service of the two new aircraft carriers, the first by one year and the second by two years. We do not share the view of the Minister for Defence Equipment and Support that the delays to the in-service dates will result in "no loss to the defence capability of the nation at all". In its response to our Report, we expect the MoD to set out its latest forecast of when the two carriers are expected to enter service.

113. The Minister could not provide us with an estimate of the cost of delaying the in-service dates for the two carriers. Industry had provided figures, but these were "purely internal estimates" and were "not robust".[173] On the cost of extending the life of HMS Illustrious, the Minister told us that:

In terms of any cost of continuing slightly longer with Illustrious, the point I made earlier on, that is not a matter which we have focused on yet and not a matter I think we need to focus on at this particular juncture.

We were surprised to hear that HMS Ark Royal was due to be paid off earlier, despite it being the newest of the three Invincible Class Carriers. The Minister's evidence would seem to indicate that for a period prior to the introduction of the new Carriers only one Invincible Class Carrier will be in service, which represents a significant reduction in capability.

114. We are concerned that the MoD could not provide us with an estimate of how much the decision to delay the in-service dates for the Future Carriers will cost, as the estimates that the MoD has been given were not considered robust. We would expect DE&S to have the ability to produce robust estimates, given that one of its key roles is to be an intelligent customer. There will also be a cost in extending the life of either one or both of the existing Carriers, but the Minister for Defence Equipment and Support did not apparently consider this a matter of any importance. We consider that, while the delay to the entry into service of the two carriers may provide some short-term savings, the Future Carrier programme is likely to cost substantially more in the long-term. In its response to our Report, we expect the MoD to provide us with details of the additional cost of delaying the entry into service of the two carriers—both the additional contractual costs relating to the Demonstration and Manufacture phase and the costs of extending the life of either one or both of the existing Carriers currently in service.

115. We asked how the delays to the in-service dates would be managed and the industrial implications of this. The Minister provided a lengthy response. He told us that there was "no question of completing the work on the existing schedule, and then just stopping everything and downing tools and everybody going away for six months' holiday; nothing of that sort, no".[174] According to the Minister, the decision to delay the in-service dates of the carriers "does not in any way cause any structural unemployment".[175] He assured us that there would be no job losses,[176] and that there would "not be any loss of specialist skills".[177] We asked if industry would be able to keep their teams together given that the programme was being stretched out. The Minister said that the industry teams will be kept together and that "the core skills will continue to be fully employed".[178]

116. The Minister once again claimed that there would be no defence costs to the nation:

I can repeat to you what we are trying to do is to produce a solution which makes sense in financial terms. It has no defence costs to the nation. We are not losing any defence capability. That is very important, and I have already made that point, and it also does not have industrial and employment costs.[179]

117. The Minister for Defence Equipment and Support has assured us that the decision to delay the in-service dates of the carriers will not result in any job losses or loss of specialist skills. We remain to be convinced and will be monitoring the programme closely, in particular, the industrial implications of the decision to delay the entry into service of the two carriers. We are also puzzled as to why this decision was made so soon after Main Gate. The timing suggests that the decision had nothing to do with the carrier programme itself but with easing problems with other programmes identified in the short examination of the equipment programme. We expect from the MoD clarification of this change to plans so soon after Main Gate in response to this Report.

JOINT STRIKE FIGHTER

118. In our Future Carrier and Joint Combat Aircraft Programmes inquiry, the MoD told us that "we anticipate buying up to 150 STOVL [Short Take Off and Landing] variants of the Joint Strike Fighter".[180] In our Defence Equipment 2008 inquiry we asked CDM how many JSF aircraft the MoD would be procuring. He told us that "it depends on what they cost".[181] At the time, the MoD did not know the unit costs or support costs for the JSF and CDM considered that "it would be foolish of me to suggest a number without knowing the price".[182] At our evidence session on 25 November 2008 we asked whether the MoD was any clearer about the unit cost of a JSF aircraft. CDM replied "No, I do not think I am, am I?". Dr Tyler added:

We have got transparent visibility of the costing models that are being used in the United States, and in the programme office there, on the unit price of JSF. The information is confidential because we have not yet signed any production contracts with the company, but what we do get visibility of is the way that that cost is tracking with time. At the moment, it is reasonably stable… [183]

119. Given that there was now some information on costs, we asked how many JSF aircraft the MoD was planning to buy. CDM told us that there "is still a decision-making process going on, we are looking at buying three, which are the Operational Test and Evaluation aircraft".[184] We asked how many would be acquired following the purchase of the three initial aircraft, but CDM said is was a case of waiting to see "what the Operational Test and Evaluation comes out with".[185] The MoD do not expect to make any commitments on the number of JSF it will buy until the "operational test and evaluation of JSF is complete in 2014".[186]

120. CDM did not believe that technology transfer, which would provide the UK with operational sovereignty, was an issue on the JSF programme. Technology was being transferred to the timescale that was originally agreed.[187]

121. There have been reports that there was uncertainty about the future of the STOVL JSF programme. CDM did not think there was any uncertainty and said that the MoD was "going through a series of milestones". He added that:

There is a programme to procure aircraft which goes out in the future. One of the great advantages of this procurement programme is that we do not have to buy them all up front to create an attrition reserve because we are a very small part of what the Americans are buying; we can buy them as we need them. So, I think, to say there is not a programme is not right. Decisions have not been made on the totality of the programme, would be fairer.[188]

122. The MoD was not looking at the option of marinised Typhoon aircraft to operate from the carriers, nor had the MoD being having discussions with the French about buying French aircraft to operate from the carriers.[189] We asked if the MoD would consider buying a non-STOVL version of JSF if the STOVL version was not available. Rear Admiral Lambert said that the "option that met the bill was STOVL". CDM told us that the "carriers are not fitted for, but could be fitted for, the carrier variant" of JSF, if the STOVL variant did not proceed.[190] Dr Tyler set out the position:

There is the conventional take-off variant; there is the carrier variant, which is for catapults and traps, and then there is the STOVL variant. Our choice is resolutely on the STOVL variant, and at the moment there is very, very strong support for that in the programme. Indeed, the STOVL part of the programme is going extremely well; it has already made several flights and it will be hovering for the first time very early next year. So, technically, that is absolutely on track. So our extant planning assumption is absolutely to buy the STOVL variants to go on the carrier. If there was some seismic change in the programme, like, for example, the Americans decided not to support the STOVL, then we may need to go back and revisit our planning assumptions, but there is no sign of that—in fact, to the contrary.[191]

The future carriers were large enough to take the carrier version of JSF and one of the MoD's assumptions on the carrier design was that the "flight deck needed to be of sufficient length that, should you wish to, you could convert".[192]

123. The Minister for Defence Equipment and Support told us that on the JSF programme "there is nothing specific that I am particularly worried about at the moment",[193] and that recent news "on that front is encouraging".[194]

124. We note that the MoD considers that the Joint Strike Fighter STOVL programme is progressing well and that it plans to procure three aircraft for Operational Test and Evaluation. We also note that the MoD considers that technology relating to the programme was being transferred to the timescale originally agreed. We plan to continue to monitor the progress of this key programme.

MARS PROGRAMMES

125. The Major Projects Report 2008 provides the following information about the Military Afloat Reach and Sustainability (MARS) programme:

The Military Afloat Reach and Sustainability system will provide afloat logistic support to UK and allied maritime task groups at sea and their amphibious components operating ashore. Although not strictly a one-for-one replacement programme, new vessels will incrementally replace much of the existing Royal Fleet Auxiliary flotilla, as ships enter and leave service respectively. The Military Afloat Reach and Sustainability capability is designed to support three distinct types of maritime task group: Carrier Strike, Littoral Manoeuvre and Maritime Security […] The Military Afloat Reach and Sustainability system will be in service until around 2047 and as such the solution will be designed to accommodate the requirements of current and known future force structures […] The capability to be provided is essential to the evolving logistic support needs of the Royal Navy. The proposed procurement profile of Military Afloat Reach and Sustainability ships has been matched to this need, the initial focus being on the double-hulled Fleet Tankers which are urgently required in order to comply with International Maritime environmental standards.[195]

126. The Written Ministerial Statement on 11 December 2008 announced that

We have also reviewed all the components of the MARS fleet auxiliary programme, and have concluded that there is scope for considering alternative approaches to its procurement which is likely to involve the deferral of the fleet tanker element.[196]

127. We note that the MoD is considering alternative procurement approaches to the Military Afloat Reach and Sustainability (MARS) programme and that this is likely to result in the deferral of the fleet tanker element of the programme. In its response to our Report, we expect the MoD to set out what impact the expected delays on the MARS programme will have on defence capabilities such as Carrier Strike. We also expect the MoD to set out how the delay to the MARS programme will affect its ability to comply with International Maritime Organisation environmental standards which require the phasing out of single hull tankers by 2010.

REBALANCING THE EQUIPMENT PROGRAMME BETTER TO SUPPORT THE FRONTLINE

128. The Ministry of Defence Annual Report and Accounts 2007-2008 states that:

The examination of the equipment programme will focus on two issues above all: bearing down on cost increases to equipment programmes; and rebalancing the equipment programme to better support the frontline.[197]

129. At our evidence session on 4 November 2008 for our Ministry of Defence Annual Report and Accounts 2007-08 inquiry, we asked about the issue of rebalancing the equipment programme to better support the frontline. Sir Bill Jeffrey said that the aim was "to try, if we possibly can, to balance the programme more towards the nearer-term operational priorities".[198]At our evidence session on 25 November 2008, we asked CDM what rebalancing the equipment programme actually meant. He said that it was:

To better support the frontline in current operations. The balance is always here. We have to support the frontline on current operations. We must not lose the seed corn for the future. Have we got the balance between those two correct?[199]

130. We asked what the rebalancing meant for the longer-term equipment programmes and the UK's ability to fight in future conflicts. CDM told us that:

That is what I am talking about: the seed corn for the future. We must not lose that seed corn for the future. We might not need as much equipment in a particular capability area now; but if we are going to need it in the future we must not lose it in totality. We have to keep that expertise going, the development, the research and the ability for soldiers, sailors and airmen to train in that capability area so we can use it in the future to the degree that we need to use it in the future.[200]

CDM added that the MoD needed to "guard very carefully the long-term. It is easy to spend all the money that we have got on current operations. We have to guard the long-term".[201]

131. We raised the issue of rebalancing at our evidence session on 16 December 2008. The Minister for Defence Equipment and Support said that the second objective of the short examination was:

to strike the right balance between the short-term, immediate operational needs that we face with the current threats that we are facing, and the longer term requirements for the broad capability for our Armed Forces that enables us to have reasonable certainty of being able to respond to a range of threats, none of which of course can be predicted at this point. We need to retain that essential element of flexibility and diversification of the means of response for the future, so we do not want to sacrifice that to the short term entirely. We have to strike a balance, which is why you notice that we are continuing with a whole range of programmes, including submarines, combat aircraft, air superiority aircraft, and so forth, which very obviously do not relate to the present needs of theatre, although we have made a number of adjustments which are particularly influenced by the immediate operational needs that we have. The FRES programme and the rebalancing within the FRES programme would be a good example of that.[202]

He considered that the short examination had "achieved its purpose" in relation to both its objectives.[203]

132. We asked the Minister why the programme had become unbalanced. He said that it was "simply because there are always financial pressures", which were a result of the costs associated with "operating at the frontiers of technology" and because "new requirements emerge".[204] We asked about the processes the MoD had in place to ensure that the equipment programme remained in balance. The Minister said that there were "several mechanisms", which included:

a commitment control regime at the present time to try and make sure that nobody signs off a cheque or signs a contract which has the effect potentially of threatening something which might have a higher priority in the programme later that year. We have introduced this new discipline and I think that is a sensible tool to have in any organisation.[205]

The Minister said that he had set up a new Committee which was looking at longer term priorities:

so that we are trying a little bit ahead of time now to see how our priorities might be evolving and what kind of new requirements we might be faced with…. We are trying to take that into account and look at some of the financial consequences of that a little bit earlier in the system than previously we were.[206]

133. The issue of rebalancing was raised at our evidence session with industry representatives on 18 November 2008. Mike Turner referred to the focus being, understandably, on the welfare of the Armed Forces and current operations. However industry was "concerned about the long term". He said that "we have a world class defence industrial base and only focusing on the short term and not the long term is of huge concern to us".[207]

134. The second objective of the short examination of the equipment programme was "rebalancing the equipment programme to better support the frontline". We note that the Minister for Defence Equipment and Support considers that this objective has been achieved. We consider that, while supporting current operations must be the priority, it is absolutely vital that the MoD continues to give sufficient attention to the longer-term equipment programme. We note that the Minister has set up a Committee to look at the longer-term priorities. The issue of keeping the equipment programme balanced is an issue we plan to monitor closely.

Status of the Equipment Programme

135. At our evidence session on 18 November 2008 with industry witnesses we heard concerns about the status of the equipment programme. Ian Godden told us that:

I think the limbo started last year. Whilst the UORs have been very successful and have continued throughout this period, with those exceptions, I certainly in my position feel that we have been in limbo since September 2007.[208]

Dr Wilson said that:

this problem of companies funding teams and capabilities over an extended period has been going on for the last 18 months quite significantly. I think many companies could point to very significant spend which has come off their bottom line in that period to keep teams going until MoD makes up its mind about what it actually wants to do.[209]

Mike Turner told us that:

but the rest of it, the Future Equipment Programme, is paralysed.[210]

136. At our evidence session on 25 November 2008 we put these concerns to MoD. CDM did not agree with the view that the future equipment programme was paralysed. He told us that:

We are continuing to spend an awful lot of money with British industry and worldwide industry, so I am not too sure quite where they get that from.[211]

I am absolutely not going to tell you which projects I am talking about, but we had 10 projects through the commitment control review last week, and nine went forward to be spent—to be continued. I refute what industry is saying absolutely.[212]

137. We note that industry and the MoD appear to have radically different views on the status of the equipment programme. Industry refers to the equipment programme being paralysed, yet the MoD claims to be spending substantial amounts of money with industry and denies industry's claims. We doubt that the announcements about the equipment programme on 11 December 2008 will provide industry with much clarity about the MoD's future requirements. There is an impression of another shoe waiting to drop. We plan to monitor this issue closely in the future.

138. The Written Ministerial Statement on 11 December 2008 announced that:

Any further significant changes to the equipment programme will be announced following the conclusion of the MoD's current planning round in March. While that work continues, I intend to control new commitments carefully to ensure we do not restrict our flexibility unnecessarily, though this will not be allowed to hold up support to current operations or our other highest priorities.[213]

139. We asked what sorts of announcements the MoD expected to make about equipment programmes following the completion of Planning Round 2009. The Minister said that:

We made that statement to provide, as I say, for the necessary flexibility and to recognise that these matters are uncertain and we have to continue to keep them under review, not because we have in mind any specific new, dramatic announcements.[214]

The Minister stressed that the exercise undertaken to review the equipment programme will not be the last and that the MoD would "continue to be alert and flexible and take the responsible decisions that we need to take at any one time".[215]

140. We note that any further major changes to the equipment programme will be announced in spring 2009 following the completion of Planning Round 09. We expect the MoD to keep Parliament informed of such changes as soon as they are known.

115 HC Deb, 19 June 2008, Col 1122 Back

116 Ministry of Defence Annual Report and Accounts 2007-2008, HC 850-I, p 135, para 224 Back

117 Defence Committee evidence session on 4 November 2008 for the MoD Annual Report and Accounts 2007-08 inquiry, Qq 113-114, available at www.parliament.uk/defcom Back

118 MoD's Supplementary Memorandum [ARA 03] for the MoD Annual Report and Accounts 2007-08 inquiry available at www.parliament.uk/defcom Back

119 Ev 76, para 4 Back

120 Q 11 Back

121 Q 15 Back

122 HC Deb, 11 December 2008, Cols 65-66WS Back

123 HC Deb, 11 December 2008, Col 66WS Back

124 Defence Committee, Seventh Report of Session 2006-07, The Army's requirement for armoured vehicles: the FRES programme, HC 159 Back

125 Defence Committee, Seventh Report of Session 2006-07, The Army's requirement for armoured vehicles: the FRES programme, HC 159, p 4 Back

126 ibid, p 3 Back