Submission to the Clerk of the Committee
on the Warship Support Modernisation Initiative (NWMI) from UCATT,
T&G, Prospect, PCS, AEEU and GMB (22 April 2002)
1. The Ministry of Defence Trade Unions
(the Unions) contend that the decision taken by the Secretary
of State for Defence (S of S) to contractorise the majority of
the three UK naval bases through `Partnering' arrangements with
the three dockyard companies is wrong. It is neither in the national
interest nor in the interests of the taxpayer.
2. It is not in the national interest because:
it will mean further fragmentation
of the delivery of services to the front line and a deterioration
of that service;
it will create monopoly suppliers
of these services to the fleet that will increase rather than
lower the costs;
it will lead to the misuse of shore
based service personnel in the generation of profit for a private
it is underpinned by contractual
arrangements shown by the D154 project to be extremely high risk;
the process has seriously damaged
the previously excellent industrial relations within the Ministry
of Defence (MOD).
3. It is not in the interests of the taxpayer
because it has come from a flawed process that did not provide
a sound basis for a Value for Money (VFM) judgement of the options
4. We believe the business case prepared
by the MOD and endorsed by S of S was not as robust as it should
have been. It did not fully reflect the entire picture and did
not allow for the preparation of a credible Public Sector Comparator.
5. MOD officials conducted the review favouring
the commercial solution over that of an in house solution with
the driver the need to extradite the MOD from the Dockyard Sales
Agreement and the allocated work programme. All else was secondary
including developments in the Warship Refit/Repair arena and the
Department's own financial position, which has changed dramatically
since the original studies concluded.
6. As a result the business case found in
favour of the MOD's desired outcome rather than the best outcome
for the MOD, the workforce or the taxpayer.
7. We believe that there are a number of
key questions needing exploration with the Chief Executive of
the Warship Support Agency (CE WSA) and others involved in both
the MWMI and the decision making process. We are disappointed
that S of S did not address them in response to the brief submitted
to S of S by the Unions on 12 February 2002 before he made his
decision, but welcome the opportunity to feed them in through
8. We believe that the key areas for questioning
fall into five main categories:
Process: including a comparison of
the resource allocation against each option being considered and
an examination of how this process provided a sound base for a
VFM judgement to be made (National Audit Office Report (NAO));
Evaluation: including how like was
not compared with like and how the proposals solved the overcapacity
Savings Levels: including an examination
of how the projected savings increased by 50 per cent;
Value for Money: including transition
and implementation costs, redundancy payments, use of service
personnel at discount rates, etc;
Implementation: including the lack
of an attempt at justification through consultation, nuclear safety
issues and affordability.
9. In our submission to S of S we asked
that he look at our assertions that the process favoured the company
and, specifically, to examine the following areas of MOD expenditure
within the process:
the costs of the Directors Strategic
Development and their support staff in each naval base;
the costs incurred by Naval Base
in support of the company proposals,
in preparing the NBC Benchmark
in working with the Unions on
the company costs on each site;
the costs of the Integrated Business
Team (IBT) permanent staff;
the costs of Price Waterhouse Coopers
and other consultants used.
10. We have not been made aware that such
an examination took place.
11. The question requires asking of MOD
whether or not there was a fair allocation of resources against
each of the options available that led to confidence in the decision
"The HCDC is interested in the process costs
that were targeted at each option. Can you clarify the extent
of the costs the department incurred throughout this process?
How much was spent supporting the company proposals, including
direct or indirect payments to the companies, and how much in
support of the in-house option, in-house to include the costs
of producing the management benchmark?"
Possible supplementary questions:
"How can this imbalance in the resource
allocation against each option lead to you being confident that
a sound Value for Money judgement has been reached? Surely the
preparation of an inadequate Public Sector Comparator (PSC) has
meant that the judgement is far from sound?"
"The companies appear to have had a risk
free journey through this process with the MOD underwriting the
costs of their bids. Does this not show a lack of commitment on
their part that they could actually undercut the existing naval
base costs let alone a sound PSC?"
"Why was it felt necessary, in the case
of BRDL at least, to fund their bid indirectly through the overheads
attached to MOD contracts as opposed to direct payment? How was
this monitored and controlled?"
12. The question also requires asking of
the role of the NAO in auditing the process and the secrecy behind
their report. We were informed at the time that the NAO had been
invited in a Non-Executive Director of the Warship Support Agency
(WSA) board to carry out an audit of the process and give the
board confidence in the outcome. When we asked for sight of this
at WSA and Defence Logistics Organisation (DLO) level it was refused.
When we asked at ministerial level it was refused because it was
"advice to Ministers".
13. The Unions are not happy with this and
neither should the HCDC be. It is suggested that a question along
the following lines be asked:
"The NAO were invited to audit the process
by the WSA Management Board. Did the report endorse the process
in total and class it as providing a sound basis for making a
value for money judgement? Can the HCDC have a copy of the report
as it will come into the public domain in the future NAO review
of the outcome?"
14. The Unions made it clear to S of S that
we did not believe that the BENCHMARK would stand scrutiny as
a PSC because it did not compare like with like. It was constructed
in a different format to that asked of the Companies and through
the constraints of time and resource and as discussed above, without
the depth of thought.
15. We were also concerned that evidence
showed that the Unions' proposals were given only a cursory examination.
16. The question to be asked on this issue
is how the MOD could evaluate the worth of two uniquely different
proposalsthe company proposals based on output specifications
and the TU alternative on a cash basis.
"As the company proposals were drafted against
output specifications and the Unions' alternative submitted on
a cash basis how can the MOD be confident that a competent evaluation
of these two very different approaches was made?"
Possible supplementary questions:
"The Unions submitted a 92 page document
and received a two page response. They are rightly concerned that
their positive alternative proposal wasn't properly evaluated.
Has there been a full evaluation of the proposals including findings
and costings? Can the Committee be furnished with copies?"
17. To try and counter the Dockyard Sales
Agreement link the Unions submitted an alternative partnering
proposal that also involved the Shipbuilding companies. There
is no indication that the MOD gave this proposal any serious thought.
It is worth requesting CE WSA to explain MOD's views of those
"The Unions tabled an alternative partnering
proposal as part of their submission. Could you explain why this
was ruled out and give a rough idea of how the costs measured
18. A major aim of the MWMI was to resolve
the over-capacity problem affecting the surface vessel refit environment.
The question has never been asked how this proposal achieves this.
As the main customer of the Dockyards, CE WSA has been heavily
involved in negotiations and discussions on this very issue and
should be the expert on it.
19. It has been made clear that the overcapacity
is in the number of dry docks in the country and that this is
to get worse as the navy moves to even more Reliability Centred
Maintenance carried out afloat in naval bases. This proposal simply
transfers staff from the public to the private sector and significantly
cuts their number but it does not address how the number of refit
facilities is to be reduced to resolve that overcapacity problem.
It should be interesting to hear the MOD view on that.
20. A probing question could be:
"A major plank of this initiative was aimed
at solving the overcapacity problem affecting surface vessel refit
facilities. Can you explain the extent of that problem i.e. how
many docks presently exist and how many does the MOD believe will
be needed to meet future fleet refit requirements?"
Possible supplementary question:
"How do the proposals in the MWMI address
the overcapacity issue?"
21. The lack of consultation on the decision
has left a significant number of grey areas. One in particular
being the assessment of risk against the two proposals. The trades
unions believe the risks against the company proposals were understated
and those against the Unions' proposals overstated. CE WSA should
be asked to explain how the risks in the Unions' and the companies'
proposals were evaluated. That the contract is based on a Target
Cost Incentive Fee arrangement the same as the D154 project at
Devonport is an indication that the risks against the company
should not be taken lightly as the MOD will foot the bill.
22. A possible question down this line could
"How were the risks against each proposal
assessed? Surely the Unions' proposals would have the minimum
of risk against the dangers inherent in the Companies' proposals.
If the company cannot make its target shareline and asks for more
money what option does the MOD have but to pay it or throw the
services of a naval base into turmoil?"
Possible supplementary question:
"The Unions' proposals must have offered
earlier even in-year savings at a lower risk. Why was this discounted?"
23. At the start of the process the figure
of £200 million was quoted as the expected savings from the
MWMI as opposed to paying the Dockyard Companies £30 million
compensation because of the requirements of the Dockyard Sales
Agreement. The final announcement states savings in the region
of £300 million now being expected.
24. We find that figure quite incredible
especially as, since the initiative started two years ago, there
have been actions taken with the allocated work programme that
should have reduced that figure. DML has been getting non-refit
related MOD contracts to offset gaps in the allocated work programme
and BRDL have been given the Frigate and Carrier refit orders.
DML and BRDL's allocated work programme runs out in 2003-07 respectively.
As the aim was to take work from the expensive allocated work
programme and put it out to tender it looks unlikely that events
since the MWMI was launched or the delay in taking it forward
should have resulted in increased savings. The MOD should be asked
to explain how these figures were arrived at.
25. Possible questions down this particular
"The HCDC is interested to know how, in
light of developments since the MWMI started that have reduced
the scope for savings from switching work from the allocated to
the un-allocated programmes, the projected savings of £200
million has become £300 million?"
26. Something that has not been made clear
is the apportioning of the savings. The announcement detailed
that "The savings compared to the baseline are over £300
million, approximately half from the renegotiation of the repair
programme, and the introduction of improved maintenance techniques,
and half from partnering at the Naval Bases".
27. It is worth pointing out that the naval
bases were at the forefront of pioneering the improved maintenance
techniques discussed above and we suspect that these are savings
that would have been made despite Partnering not because of it.
28. The MOD has been adamant to date that
the savings related to the Dockyard Sales Agreement are commercial
in confidence and cannot be released. This confidentiality should
not apply to the introduction of improved maintenance techniques
nor the naval base efficiencies. It is important that the MOD
explains publicly what is expected from each naval base in the
way of savings and how each proposal compared in these areas.
29. The main question to be asked on this
issue is for a breakdown of these projected savings in total and
against each naval base.
"What was the final breakdown of the two
proposals from a naval base efficiency perspective and what are
the differences in savings between the Naval Base benchmark, the
Companies' proposals and the Unions' alternative at each of the
Possible supplementary question:
"What level of savings are envisaged from
the introduction of improved maintenance techniques at each naval
base? Were these not savings that would have been made anyway
as the bases were already pioneering this type of engineering
30. The Unions are concerned that the business
case produced by the MWMI IBT did not paint the whole picture.
31. Negotiations are still ongoing regarding
the transition towards vesting day so the total costs are still
not known. The due diligence process is also ongoing. On the Clyde,
for example, this means a flood of contractors coming on site
to review the asset holdings and populate an asset management
database. This itself will be a significant cost but, on top of
that, BRDL will be unable to complete their final projections
until the due diligence process has been completed. Has the business
case taken account of these additional costs and possible outcomes?
32. The MOD and the companies are saying
that they cannot quantify the number of job losses that will result
yet redundancy payments will have been included in the business
cases. The Unions are concerned that the IBT may have assessed
the redundancy bill as cost neutral because that would not be
the case. The Unions' case did not forecast the amount of job
cuts being predicted in the Partnering proposals. Greater savings
would be gained from earlier implementation of job reductions
and not filling vacant posts. Equalising redundancy costs across
the two options would, therefore, give a skewed forecast of the
benefits from the company proposals in the business case.
33. The issue of the almost 300 gapped posts
transferring to the private companies across the three naval bases
also causes the Unions concern. The Unions' proposals called for
discussions on not filling gapped billets through a process of
restructuring and delayering. This would have meant instant savings
in this financial year. The MOD seems intent on transferring the
funding of these vacant posts to the private company. If true
this would build in additional costs from this financial year,
take staffing flexibility away from the MOD and allow the company
early gains in their quest for profit at the taxpayers expense.
34. The remaining MOD structure has not
yet been developed to relate to the company structures being set
up. This could result in the creation of more jobs in the intelligent
customer and contract-monitoring role. The business case should
have also included the costs of the MOD retained structures.
35. The provision of Service Personnel being
seconded to work for the company but the company being allowed
to charge a nominal sum for that work leaves the MOD holding the
major overhead related to service personnel while allowing the
company to distort the costs of work being carried out. The Unions
do not believe that will provide best value for money for the
36. Relevant questions on the Value for
Money issue include:
"As there are a number of outstanding issues
to be resolved to take forward Partnering in the naval bases.
Issues such as final negotiations on the in-scope/out of scope
posts; the outcome and cost of the due diligence process; the
funding of vacant posts being transferred and the structure of
the retained MOD areas all have cost implications. Until these
are resolved how can the department be confident in the business
Possible supplementary questions:
"When are the negotiations on which posts
are in and which out due to be completed?"
"How much longer is the due diligence phase
due to last and how much is it going to cost in total including
the costs of the contractors assisting in asset tracking?"
"It is understood that there are upwards
of two hundred vacant civilian posts across the three naval bases
being transferred to the private company."
"How is the transfer of these gapped posts
"Will the funding transfer? If so does that
not mean an immediate increase in costs to the MOD as the funding
of these posts can at present be flexed across budgets to cover
staffing contingencies and a reduction in flexibility for the
MOD staffing process?"
"Does it not also mean an immediate profit
to the private company?"
How is the use of service personnel seconded
to the private company expected to work under partnering?"
"Do you think that it is a good idea that
service men and women in shore billets will be expected to work
in a commercial environment to make profit for a private company?"
"What is the charging regime? Does that
not leave the overheads with MOD and allow the company to charge
deflated rates for contract work?"
Including the lack of an attempt as justification
through consultation, nuclear safety issues and affordability.
37. The Unions are angry that Min(AF) has
exercised his prerogative not to consult on the decision. The
MWMI process has severely damaged the industrial relations in
the department and continued failure to properly consult and justify
the decision will simply compound the growing mistrust of staff
in their employers.
38. There are also concerns about how the
Nuclear Industries Inspectorate (NII) requirement for direct control
by the Nuclear Authorisees, the NBCs, which will necessarily be
diluted under the proposed partnering arrangements, will be met.
The department is working on the assumption that the NII and their
own regulator CNNTRP will endorse the proposals. That endorsement
has not yet been received.
39. Finally there is the affordability issue.
The WSA as part of the DLO and wider MOD has serious underfunding
problems in FY02/03. It is thought that the Partnering proposals
will require significant investment in years one and possibly
two. A number of important Business Change initiatives have been
cancelled because of that underfunding yet this initiative that
could be extremely expensive to implement carries on. The question
has to be asked why? Why, when the MOD was presented with a low
risk, value for money, public sector alternative does it insist
on taking forward the high risk, expensive to implement private
40. There are a number of questions that
can be asked on value for money:
"Why is the MOD so unsure of the decision
that it refuses to consult on how it was arrived at?"
"Does the MOD understand the damage this
process has done to industrial relations across the whole department?"
"Where does Partnering go if the nuclear
regulators believe that the fragmentation of the naval bases threatens
the nuclear command and control links and does not give the proposals
"Is it not the case that the Partnering
option will cost money in the first year at least and in subsequent
years redundancy costs will mitigate against any savings?"
"Why, when the MOD was presented with a
low risk, value for money, public sector alternative does it insist
on taking forward the high risk, expensive to implement private
41. As service personnel and some civilians
can be seconded to the company and the company are now talking
about seconding staff back into the MOD during slack periods staff
are asking why anyone has to be TUPE transferred. Secondment would
allow the same processes to be taken on under Partnering but would
allow a process of staff transfer that would benefit all parties.
"The issue of secondment rather than TUPE
transfer was raised by the trades unions but met with opposition
from the companies. Did the MOD give secondment serious consideration
and why was it discarded as an option?"
42. The Unions raised the staffing problems
identified under the conclusions of the Maritime Logistics Sustainability
study with S of S. i.e. there would be insufficient staff left
in the MOD to sustain that support. Has this been considered in
the evaluation process?
"As the Maritime Logistics Sustainability
study concluded that there would be insufficient staff left in
the MOD to sustain maritime logistics support should Partnering
including transfer of staff to the private companies be taken
forward why is it the recommended way forward?"
43. The Unions also raised with the S of
S the longer term issue of maintaining the intelligent customer
capability otherwise referred to as the corporate knowledge base
as well as a skilled workforce. With the use of naval personnel
to supplement the civilian workforce employed by the companies
during times of tension and/or a transition to war situation service
personnel may well be required for front line duties. Given the
reliance by the companies on a service aspect to their staffing
resource, the Unions believe this poses potential difficulties
in maintaining support to the fleet at a crucial time. This is
especially important given the move to Reliability Centred Maintenance
regimes. Similarly the requirement for a skilled workforce becomes
even more crucial in terms of ensuring quality of repair and refit
work, but it is evident that at least one of the dockyard companies
has experienced a severe skills shortage in the last year or two.
Possible questions arising from these points are as follows:
"What provisions will there be to supplement
the companies' civilian workforce during times of tension and
transition to war with the potential for service personnel seconded
to the companies being required for front-line duties?"
"Are there provisions within the contractual
undertakings between the companies and the MOD to ensure that
the companies maintain a skilled workforce including the training
"How is it intended to maintain the intelligent
customer capability to ensure continuing value for money and delivery
of quality during the initial period of the contracts and beyond
in the event they are extended for a further term?"