House of Commons Committee of Public Accounts
Carrier Strike: the 2012 reversion decision
Eighteenth Report of Session 2013–14
Report, together with formal minutes, oral and written evidence
Ordered by the House of Commons to be printed 10 July 2013
HC 113 Published on 3 September 2013 by authority of the House of Commons London: The Stationery Office Limited £10.00
Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine ‘‘the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit’’ (Standing Order No 148).
Current membership Rt Hon Margaret Hodge (Labour, Barking) (Chair) Mr Richard Bacon (Conservative, South Norfolk) Stephen Barclay (Conservative, North East Cambridgeshire) Guto Bebb (Conservative, Aberconwy) Jackie Doyle-Price (Conservative, Thurrock) Chris Heaton-Harris (Conservative, Daventry) Meg Hillier (Labour, Hackney South and Shoreditch) Mr Stewart Jackson (Conservative, Peterborough) Sajid Javid (Conservative, Bromsgrove) Fiona Mactaggart (Labour, Slough) Austin Mitchell (Labour, Great Grimsby) Nick Smith (Labour, Blaenau Gwent) Ian Swales (Liberal Democrats, Redcar) Justin Tomlinson (Conservative, North Swindon)
Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk.
Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/pac. A list of Reports of the Committee in the present Parliament is at the back of this volume. Additional written evidence may be published on the internet only.
Committee staff The current staff of the Committee is Adrian Jenner (Clerk), Sonia Draper (Senior Committee Assistant), Claire Cozens (Senior Committee Assistant), Ian Blair and James McQuade (Committee Assistants) and Alex Paterson (Media Officer).
Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5708; the Committee’s email address is [email protected]
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Contents
Report Page
Summary 3
Conclusions and recommendations 5
1 Strategic decision making on military capability 7
2 Risks to the delivery of the Carrier Strike programme 10
Formal Minutes 12
Witnesses 13
List of printed written evidence 13
List of Reports from the Committee during the current Parliament 14
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Summary
In October 2010, the Ministry of Defence (the Department) decided on the basis of deeply flawed information to change the type of aircraft to be flown from the two aircraft carriers under construction for the Carrier Strike programme. In 2012, when the Department realised that this decision would result in additional costs and delay, it decided to revert to the original choice of aircraft. Despite this change of mind, the Department still faces major challenges to the affordability of the Carrier Strike programme, particularly with the uncontrolled cost growth in the aircraft and carriers, and the misalignment of essential capabilities such as the radar system needed to protect the carriers. In addition, the Department might not have the skills or capability to manage the programme despite having some 400 staff working on it.
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Conclusions and recommendations
1. The Carrier Strike programme comprises two new aircraft carriers, the aircraft that will operate from them, and a new helicopter-based early warning radar system (known as ‘Crowsnest’). As part of the 2010 Strategic Defence and Security Review, the Department decided to change the type of aircraft to be flown from the carriers from the Short Take-Off and Vertical Landing (STOVL) variant of the Joint Strike Fighter to the carrier variant. In 2010 the decision was justified by claiming the alternative aircraft would both save money and enhance capability. Yet 18 months on the Department yet again changed its mind. In May 2012, the Department asserted that the benefits expected from switching to the carrier variant of the aircraft would not be achieved, the costs of switching would be significantly higher than projected, and it would delay the operation of the new carriers. Accordingly, the Department decided to revert to the original aircraft type and announced that it would once again be buying the STOVL variant. That change of mind will cost the taxpayer at least £74 million more, though final costs will only be known in 2014.
2. The Department has a history of making poor decisions, based on inadequate information. In this case, the Department provided decision makers with deeply flawed information on the benefits of changing the type of aircraft which included basic errors, such as omitting VAT and inflation from the costs of converting the carriers. The Department attributed these mistakes, which have cost taxpayers at least £74 million, to the process being rushed and secret.
Recommendation: For the 2015 Strategic Defence and Security Review, the Department must plan now to provide decision makers with improved information, sufficient time to consider options rationally and avoid repeating the mistakes of the 2010 decision.
3. In justifying its further changes the Department said it had altered its view on the urgency of securing the new capability in service and on how it was going to operate with our allies in deploying the aircraft carriers. It does not make for good planning to have a constant change of view which results in changes to specification and requirements.
Recommendation: The Department must determine its needs and requirements thoroughly and transparently and then do all it can to stick to these over time.
4. The component elements of the programme will be delivered piecemeal, reducing the benefits from the sums invested. There is a two year gap between the planned delivery and initial operation of the first carrier and aircraft in 2020, and the early warning radar system Crowsnest in 2022, which is essential to protecting the carrier and its crew. In addition, some support shipping will be 30 years old when the carrier comes into service but the Department does not yet have funding to replace them.
Recommendation: The Department needs to align the delivery of the various component projects of Carrier Strike to make the most effective use of its significant investment. It must provide decision makers with the necessary information to
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prioritise and allocate appropriate funding for the programme and the support shipping to operate the carriers, as part of the 2015 Strategic Defence and Security Review.
5. Carrier Strike remains a high risk programme as the Department has little control over the technical risks and costs involved in acquiring the aircraft. Despite assurances from the Department, we are not convinced that it has the aircraft contract under control. Although Carrier Strike is over five years from planned operation, significant technical issues, costs and delivery dates for the aircraft are not resolved. There are also significant cost risks associated with in- service contracts for maintenance which have yet to be resolved.
Recommendation: The Department must seek to minimise outstanding risks as soon as possible and it should, drawing on its experience of other aircraft programmes such as Tornado and Typhoon, exert its influence with international partners to ensure that the support arrangements take full account of UK requirements.
6. The Department has not yet completed crucial negotiations with industry over the carriers. The current carriers’ contract is not fit for purpose as it fails to provide industry with any real incentive to control costs. The Department has not been able to transfer delivery risks to contractors and has struggled to manage its relationship with UK industry.
Recommendation: The Department must establish clear cost and time baselines for the completion of the carriers, which the Department must use to monitor progress.
7. Despite having some 400 staff working on Carrier Strike there is a risk the Department is not managing the programme effectively. Although the Department employs some 400 people on this programme, it may not have the right procurement skills to manage the risks in delivering Carrier Strike effectively. We recognise there have been cuts to this function, but question whether the team is now the right size or if further significant reductions are possible. We are concerned that the Department’s staff are wasting their time with bureaucracy and duplicated effort in having to make detailed checks on the operations of contractors, raising a question as to the quality of the contracting process.
Recommendation: The NAO should examine whether the Department has the appropriate mix of staff, skills and capability in procuring equipment and support from industry and whether the Department’s processes for managing contracts are fit for purpose.
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1 Strategic decision making on military capability
1. The Carrier Strike programme includes two new aircraft carriers, the aircraft that will operate from them, and a new helicopter-based early warning radar system (known as ‘Crowsnest’). In 2007, the Ministry of Defence, (the Department) decided to procure the Short Take-Off and Vertical Landing (STOVL) variant of the Joint Strike Fighter as the aircraft to operate from the carrier. In October 2010, as part of the Strategic Defence and Security Review, the National Security Council which is chaired by the Prime Minister, decided to switch to the carrier variant of the Joint Strike Fighter arguing this was a better value option, saving money and enhancing capability including ‘cross-decking’ (the ability to land on another countries’ aircraft carriers).1 This required the installation of additional equipment, supplied from the USA, on the carrier to launch and land the aircraft (by catapults or ‘cats’ and landing recovery equipment or ‘traps’). We reported on our considerable concerns in November 2011.2
2. In May 2012, the Department concluded that the expected benefits from switching the type of aircraft for the carriers would not be achieved as the costs involved would be significantly higher than projected and switching would delay the operation of the carriers. Within an 18 month period, the Department changed its mind again and announced that it had decided to revert to the original STOVL variant of the aircraft. On the basis of a Report by the Comptroller & Auditor General, we took evidence on this decision from the Department.3
3. The Department conceded that the decision taken in 2010 had been based on deeply flawed and immature information.4 It attributed the basic mistakes that had been made to time pressures, secrecy in the way decisions were taken and a failure to prepare for all the options considered under the 2010 Strategic Defence and Security Review. The Department told us the National Security Council had not discussed the option of switching to the carrier variant of the Joint Strike Fighter until the end of the 2010 Strategic Defence and Security Review. As a result, the Department had had to generate cost estimates quickly. The Department acknowledged that it should have advised the National Security Council, at the time, that it had not had sufficient information to provide an accurate estimate of the costs of switching to the carrier variant. Instead, it had provided a rushed estimate that the cost of converting the aircraft carrier by installing ‘cats and traps’ would be between £500-£800 million. The Department recognised that this had not been based on a proper analysis and accepted that it had been clearly wrong.5
1 Q11 2 ‘Providing the UK’s Carrier Strike capability’, Committee of Public Accounts, HC 1427, 56th report, 2010-12, 29 November 2011 3 ‘Carrier Strike: The 2012 reversion decision’, National Audit Office, HC 63, Session 2013-14, 10 May 2013 http://www.nao.org.uk/wp-content/uploads/2013/05/10149-001-Carrier.full-report.pdf 4 Qq 3-5 5 Qq7-9
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4. By February 2012, the Department’s forecast of the costs of converting the aircraft carrier had risen by 150% to £2 billion. Every element of the conversion cost had increased significantly. These cost increases cannot be blamed solely on the result of a lack of information and unknown, unpredictable costs. Over half were the result of omitting predictable costs, such as the costs of planning the conversion, and basic errors which included omitting VAT and inflation from the costs of converting the carriers.6 The Department agreed that it should have taken inflation into account at the start and believed that it missed inflation off the original estimate due to the pressure it felt rushing to give a cost estimate to the National Security Council.7 The Department’s original estimate assumed VAT on conversion items would not apply, although it did not confirm this with the suppliers in the USA. In December 2011, the Department discovered that the USA required the use of a ‘Foreign Military Sale’ route on conversion items. This route attracted VAT and increased costs by over £130 million.8
5. The original planned operating date for Carrier Strike was 2018.9 The Department initially estimated that the conversion work for the carrier variant could be completed to allow a delivery date of 2020. The Department conceded this had been over-optimistic. It told us the delivery date slipped to 2023 once it had undertaken work to determine how long fitting the conversion equipment would take. Part of the reasoning the Department offered for its decision in 2012 to revert to the original aircraft type was its belief it would be undesirable to delay Carrier Strike beyond 2020.10
6. We are concerned that the Department appears to have changed its definition of ‘interoperability’ to suit what can be delivered. The Department admitted that while interoperability with the French and the Americans remains a priority, the ability to land the carrier variant aircraft on other nation’s aircraft carriers had proven to be more technically difficult than previously thought. The emphasis now was on whether the UK could deliver its Carrier Strike capability to work alongside our allies, which does not include the ability to land aircraft on each other’s carriers.11
7. The Department has estimated that £74 million incurred in switching to the carrier variant option will be written-off by switching back to the original aircraft type. But the Department will not be able to confirm this estimate until 2014. The Department believes that, despite writing-off this sum, reverting to the original decision will avoid £600 million across the 30 year life-cycle of the Carrier Strike programme.12 However, the Department agreed that its cost information is still not mature.13
8. We were concerned that the Department has delayed investment in Crowsnest, the helicopter-based early warning radar system required to protect the carrier and its crew,
6 C&AG's report, para 1.9, Figures 1 & 3 7 Q8 8 Qq 8 & 108 9 C&AG's report, para 1.13 10 Qq 13-15, 108 11 Qq 11-13 12 C&AG's report, para 1.12 and 2.9 13 Q 10
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which is not expected to be fully operational until late 2022. The Department confirmed that when the aircraft carrier comes into service in 2020 it will not be protected by Crowsnest and conceded that this might constrain where the carrier could operate. However, the Department noted that there would be other options for protecting the carrier including land-based airborne early warning and relying on our allies for this capability.14
9. Operating Carrier Strike effectively and safely will require a wide range of other enabling capabilities including frigates, destroyers, aircraft, helicopters, submarines, hydrographic vessels, mine clearance assets and amphibious units.15 The Carrier Strike programme’s capability may be limited if the Department does not upgrade or replace a range of other capabilities, including support shipping where some vessels will be over 30 years old when Carrier Strike comes into operation. The Department told us that it had not agreed funding to replace this shipping and considered that this should be a decision for the next Strategic Defence and Security Review in 2015. The Department acknowledged it could not guarantee the other support programmes would not be touched in the 2015 Strategic Defence and Security Review, or that it could completely protect the Carrier Strike capability in its decisions on funding. It recognised these are all complex and expensive programmes, which would take a long time to deliver.16
10. Realising value for money from the 2012 decision to revert to the STOVL variant of the aircraft will also depend on bringing the second aircraft carrier into operation. The Department told us that this change in aircraft variant provides the option to operate Carrier Strike from both carriers, as it will not have to install ‘cats and traps’ on the second carrier. However, it was still planning to put the second carrier into storage and would not reconsider this policy until the 2015 Strategic Defence and Security Review.17
14 Qq 45 – 72; C&AG's report, para 3.5 15 C&AG’s report, Figure 12 16 Qq 81 - 94 C&AG's report, para 2.13 17 Qq 81, 108; C&AG's report, para 3.7
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2 Risks to the delivery of the Carrier Strike programme
11. The Carrier Strike programme remains high risk. There are significant technical and commercial risks to the timely and affordable delivery of aircraft and the carriers.18
12. In its evidence to the Committee in July 2011, the Department made a strong case for its 2010 decision to reject the STOVL variant to avoid its limitations, which included a shorter range, a smaller bomb bay payload (making integration of UK weapons more difficult), an extra engine and greater complexity, compared to the carrier variant it was then intending to buy. The Department had also pointed out that a vertical landing on the carrier would require significant power and produce a lot of heat and blast, which would have an impact on deck coatings. In hot climates, the aircraft would need to drop its weapons before landing.19
13. Given these shortcomings, we questioned why the Department had decided to switch back to the STOVL variant of the aircraft. The Department explained that its confidence in the STOVL variant had increased since 2010. For example, it expected to implement a solution, known as ‘ship-borne rolling vertical landing’, to enable the aircraft to land on the carrier in hot weather. Despite these assurances we are concerned that significant risks remain.20
14. The Department accepted that it has limited control over the final costs of the aircraft, but maintained that it was gaining increasing confidence in the cost estimates and hoped the cost of each aircraft would fall by 2018.21 The Department explained that it would negotiate on price two years ahead of time and that the price of aircraft would reduce as the number ordered increases. The biggest influence on price would be if there were a significant reduction in the number of aircraft bought by the USA, as this would result in the UK having to bear a higher proportion of the aircraft’s fixed developmental and production costs.22
15. The Department acknowledged it was also exposed to movements in the sterling-dollar exchange rate. It told us it hedges against the risk of long-term adverse foreign exchange movements to provide some smoothing to exchange rate variations, but a significant move in the sterling-dollar exchange rate would inevitably affect the cost of the aircraft.23
16. The Department is currently renegotiating the carriers’ contract and its wider maritime agreement with UK industry, with a view to incentivise contractors more by transferring cost risk. The Department accepted that its original cost-plus contract with industry for the
18 Qq 21 – 35, 75, & 108 – 113 19 ‘Providing the UK’s carrier strike capability’ Committee of Public Accounts, HC 1427, 56th Report, 2010-2012, 29 November 2011; Q 111 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1427/1427.pdf 20 Qq 17, 21 – 35 & 75; C&AG's report, para 3.8 – 3.11 21 Q 18 22 Qq 26, 75 23 Qq 17, 21 – 35 & 75; C&AG's report, para 3.8 – 3.11
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aircraft carriers contains only very limited incentives for the contractors and it does not put any real onus on the contracting companies to keep down the cost of the carriers.24 Currently, the contractors will continue to make a profit until the £5.24 billion target cost has been exceeded by £2.5 billion.25 The Department acknowledged the importance of changing the terms of the contract, and of transferring significant risks to the contractors, if it is to achieve value for money. The Department aims to conclude negotiations over summer 2013.26
17. The Department has some 400 staff working on the three core Carrier Strike projects – the Joint Strike Fighter, the aircraft carriers and Crowsnest.27 The Department maintained that these numbers were necessary when dealing with industry on major projects. The Department justified this approach based on its experience of the Astute project, where it had initially taken a more hands-off approach but then had to step back in to tackle a number of problems which it then struggled to address.28
24 Q 108 25 C&AG's report, para 3.13 26 Q 108 27 Ev 17 28 Q 99 – 105
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Formal Minutes
Wednesday 10 July 2013
Members present:
Mrs Margaret Hodge, in the Chair
Mr Richard Bacon Fiona Mactaggart Stephen Barclay Mr Austin Mitchell Mr Guto Bebb Nick Smith Chris Heaton-Harris Ian Swales Mr Stewart Jackson Justin Tomlinson
Draft Report (Carrier Strike: the 2012 reversion decision), proposed by the Chair, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paragraphs 1 to 17 read and agreed to.
Conclusions and recommendations agreed to.
Summary agreed to.
Resolved, That the Report be the Eighteenth Report of the Committee to the House.
Ordered, That the Chair make the Report to the House.
Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.
Written evidence was ordered to be reported to the House for printing with the Report
[Adjourned till Monday 15 July at 3.00 pm
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Witnesses
Monday 20 May 2013 Page
Jon Thompson, Permanent Secretary, Bernard Gray, Chief of Defence Staff Materiel and Air Marshall Stephen Hillier, Deputy Chief of Defence Staff (Military Capability), Ministry of Defence Ev 1
List of printed written evidence
1 Ministry of Defence Ev 16
14
List of Reports from the Committee during the current Parliament
The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.
Session 2013–14 First Report Ministry of Defence: Equipment Plan 2012-2022 and HC 53 Major Projects Report 2012
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Committee of Public Accounts: Evidence Ev 1
Oral evidence
Taken before the Committee of Public Accounts on Monday 20 May 2013
Members present: Margaret Hodge (Chair)
Mr Richard Bacon Fiona Mactaggart Stephen Barclay Austin Mitchell Guto Bebb Ian Swales Chris Heaton-Harris Justin Tomlinson Meg Hillier ______
Amyas Morse, Comptroller and Auditor General, National Audit Office, Gabrielle Cohen, Assistant Auditor General, NAO, Tim Banfield, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, HM Treasury, were in attendance.
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL
Carrier Strike: The 2012 reversion decision (HC 63)
Examination of Witnesses
Witnesses: Jon Thompson, Permanent Secretary, Ministry of Defence, Bernard Gray, Chief of Defence Matériel, MOD, and Air Marshal Stephen Hillier, Deputy Chief of the Defence Staff (Military Capability), MOD, gave evidence.
Chair: Welcome. I think that you have got the quality Q4 Chair: Okay, you are justifying it. Were you here today— around then, Mr Hillier— Jon Thompson: Obviously. Jon Thompson: No, I am not justifying it, actually. It was deeply flawed and immature. Q1 Chair: So I hope we can deal with this. This is a pretty sorry saga, really. Mr Thompson, the questions Q5 Austin Mitchell: Was that Report primarily to do probably come to you. We are looking at this very with financial issues—you wanted to save money? narrow thing: the 2010 decision. How did you get it Jon Thompson: No, it wasn’t. It was that a decision so wrong? to switch to the carrier variant was made at some Jon Thompson: The three of us were not personally considerable speed. It was set out in the 2011 Report involved in that decision, but we will try to give the and, as that Report says, at the time the decision was best explanation— made, we didn’t have information about, for example, how well cats and traps would work. Q2 Chair: You were director of finance. Jon Thompson: Yes, but if you will recall, there was Q6 Chair: In this Committee we are often in the a National Audit Office Report at the time that said position, particularly with defence procurement that, as a director general of finance, I was not because it takes so long, that we do not have the right involved in any budgetary matters. There was a people. You were not around either, Air Marshal? hearing in October 2010. Mr Morse is nodding. Air Marshal Hillier: No, I was not. [Interruption.] Thank you. To the best of our knowledge, and our explanation would be— Q7 Chair: What is pretty shocking is that David Cameron is sent in to bat, and no doubt he was a Q3 Mr Bacon: I remember that one of our decision maker, but if you look back at his statement, conclusions was that perhaps you should have been he says that the previous decision taken in 2006 or involved. 2005, which you are now reverting to, was for a more Jon Thompson: Indeed. I would obviously support expensive and less capable version of the strike Mr Bacon’s conclusion, and that was your fighter. That was his assertion, and he said that the recommendation. carrier version of the strike fighter was less expensive, Mr Bacon: What was the name of the permanent has a larger range and carries more weapons. That is secretary? I cannot remember. Was it Bill? what he told Parliament. It concerns me. And, Chair: No, it was after that. It was Ursula. presumably, MOD helped to write his statement. Jon Thompson: The decision was based on— Jon Thompson: Yes. The Prime Minister’s statement Chair: 2010? was clearly based on the advice that MOD officials Jon Thompson: Yes, it was Sir Bill. The decision was would have put into the national security secretariat, based on the best information that officials had at that which advise the National Security Council. Part of time, but that information was deeply flawed— his statement was based on an assumption that cats cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 2 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence and traps, for example, would cost £800 million, either time or access to go and speak to other people. which is clearly wrong, as this Report sets out. That is at the root of the problem.
Q8 Chair: Well, we come to figure 3 in the Report, Q10 Chair: But the 2012 decision was also taken which I think is really shocking. It is an attempt to try very quickly—the NAO says on better information, to explain how you got it so wrong. I had assumed it and I accept that—but it was taken very quickly and was the technology—when we looked at it last time, pretty secretly. You set up another mechanism of, I we said you have no idea what the technological accept, 15 people—however many—nevertheless, the challenges are going to be, and you have no idea what fear, sitting here and having a déjà vu attitude to it, is is going to work. When I then looked at figure 3, what was different. It was taken—and we will develop which is the explanation of why the costs had the argument, I am sure, during the course of the increased massively, I sat there thinking, “Why the hearing—but there are still so many unknowns on hell didn’t they realise this? Why didn’t they cost, and you are coming to the much tougher period, recognise it?” This is not technology going wrong: both on the carrier itself and on the costs and viability this is understanding that you have to have a bit of of the planes. What was different in 2012? Or will we discussion with the Americans—item one—and be sitting here next year, saying that we are in the technical assistance from them. It is the VAT issue, same boat yet again? which is so basic that I can’t understand how that was Jon Thompson: What was different in 2012 from missed out. You hadn’t talked to BAE, or taken into 2010 was that both the National Audit Office and your account the full cost of UK industry. There are all of Committee had agreed that until we had reached the these items listed here. There is inflation—not to have end of the so-called conversion and development thought about inflation. There is testing and phase, which was an 18-month programme to commissioning—not to have thought about testing understand whether you could implement the policy and commissioning. This is not a case of unknowns or not, you did not have a mature date. That was the going wrong: these are “knowns” that went wrong. conclusion of the previous Report and your previous That seems to me to be pretty awful. hearing. We got a significant way through that, and, Jon Thompson: Perhaps Mr Gray would be better at as soon as we had what we thought were significantly explaining the difference between them. improved data, we went back to Ministers and said, Bernard Gray: I agree with you. The issue is how it “Do you wish to carry on with this policy, or do you came to happen—it clearly happened. The decision to want to revisit the decision?” make the switch to CV happened late in the process So we did have a significantly better understanding of the defence review; when we looked back at the of, for example, EMALS, the technical risks and so documents that were around through that period, it on, which are set out in the Report. I think you are was not in active discussion until the very end of the right to ask whether that information is completely defence review, and therefore people were being mature, and the answer to that question is still no. We required to generate numbers very, very quickly. colour-coded whether we thought the information was Clearly, my organisation was asked how much cats mature, and indeed the Report colour-codes the and traps would cost, for example. My answer to that question—and admittedly I have the benefit of maturity of that information. We were trying to say to hindsight—would have been, “I can’t tell you right Ministers, “We still do not have perfect information now, because I have to go and do a proper piece of to make a decision, but, as the NAO also concludes, work in order to determine what the answer to that we think there is a significant difference between the question is.” But people feeling under pressure, policy options.” Almost irrespective of how this wanting to give advice to Ministers and so on, rushed moves, we thought that a reversion to STOVL is still at answering the question, and they did not take into cheaper and with a lower technical risk. You may account issues such as inflation, which they should want to debate that, but it is the conclusion of the have done. Also, the way you choose to procure the NAO’s Report, and it was our conclusion, too. We equipment—either directly from the manufacturer or were trying to be much more transparent with from the foreign military sales system—makes a Ministers about the decision-making process and difference to whether or not VAT is chargeable. When about the maturity of the data on which they were we subsequently got into conversations with the making their decision. Americans, they said “We want you to purchase it through the FMS system,” and therefore VAT was Q11 Chair: One of the arguments in 2010—I am chargeable when they previously made the assumption turning to Air Marshal Hillier on this—is that you that it hadn’t been. That is how that particular— wanted interoperability with the French and the Americans. That was one of the assertions in the Q9 Chair: Presumably, in 2006, when they were statements to Parliament. There are two questions. going for the other variant, they would have talked to First, it seems that it was never there anyway, so you the Americans and there would have been a decision were asserting something that was undeliverable. on VAT in relation to that. Secondly, it suddenly became a non-priority—it was Bernard Gray: No. This is not about the aircraft— a priority when you were doing the defence review, this was the purchase of the catapult system. The point but it is a non-priority 18 months later. So it was a is that the central underlying problem with the 2010 priority, and you said that you were going to deliver decision is the speed with which it was taken and the it, but it is unclear that you ever could have done so, secrecy with which it was taken, which did not allow and 18 months later it suddenly becomes irrelevant. cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 3
20 May 2013 Ministry of Defence
Air Marshal Hillier: Interoperability with the French Air Marshal Hillier: The argument was had in 2010 and the Americans remains a priority, but when we and the capability gap was accepted then. As part of were talking about interoperability in 2010, I think the the work that we went through in 2012, the Chief of focus was particularly on whether we would be able the Defence Staff, looking at the world as we saw it to do what is called “cross-decking”—whether we in 2012, judged that extending that gap by a further would be able to land our aircraft on another nation’s three years was not a good idea. aircraft carriers. That was proven to be more technically difficult than we thought, but, actually, the Q16 Chair: Why? What changed his mind? What is key for me is that it is not at the heart of so critical about three years? I know nothing about interoperability. defence really, but it seems that if you accept, in the defence world, eight years without it—you are going Q12 Chair: But it was one of the justifications in to use the American and the French carrier capability, 2010. I haven’t got the quotation, but one of the I assume, during that period—why not hang on for justifications in all the statements put out at that time another three? What suddenly changed? What makes to justify the 2010 decision was the idea that we could the difference? all share each other’s carriers. Bernard Gray: It is not the only factor; it is a factor. Air Marshal Hillier: As part of the decision that we If you then say, “By the way, we have more cost data are talking about today, we discussed with the French that say that the CV—the cats and traps version—is and the Americans what exactly “interoperability” going to be substantially more expensive”, you then means in much more detail. The emphasis was much turn to the question, “Do I want to pay more money more on whether the UK can deliver a Carrier Strike to get a capability later?” There are a variety of other capability that will allow us to do proper burden factors that go into the balance of the decision. It is sharing between nations and to be able to operate not purely the capability gap. more at the operational level—in other words, to work alongside each other. That was judged far more Q17 Chair: Okay. I don’t know what your latest important than just the ability to land aircraft on each indications are. One of the aspects that is so scary other’s carriers. about this is that we have very little, if any, control over the final cost of the aircraft; that is more or less Q13 Chair: So you changed the definition of entirely in the Americans’ control, as I read it. “interoperability” to suit what you could actually Bernard Gray: That is true, but we have increasing deliver? confidence in the numbers about what they will cost. Air Marshal Hillier: No, I think we refined the definition because we were much more able to discuss Q18 Mr Bacon: What is the latest unit cost estimate? it with our allies. The other key part of interoperability Bernard Gray: It depends on when you buy them. is that, if we had stayed with the CV variant, the Effectively, there is a sort of U-shaped curve. As earliest point we would have been able to do cross- production rates ramp up, the unit prices fall through decking would have been at least 2023. By reverting the course of this decade, until around 2018 to 2020, to the STOVL version, we are able to interoperate when they hit a low point. Then they are at full rate and be alongside our allies in 2020. That is a huge of production and inflation starts to creep up. interoperability benefit, which was reflected by both the US and the French in our discussions with them. Q19 Mr Bacon: What are the numbers at each of those points? Q14 Chair: I appreciate how difficult these decisions Bernard Gray: For each of the variants? Or for the— are, but the last time you were in front of us it didn’t Mr Bacon: The variant you are going to buy, rather really matter that we didn’t have an aircraft capability than the variant you aren’t going to buy. for eight years—I cannot remember the exact figure, Bernard Gray: I struggle to remember whether it is but eight years is what comes to mind. in any sense commercially sensitive. From memory, Air Marshal Hillier: Yes. the rough number is around $115 million per C copy. Chair: Suddenly, three years becomes absolutely Chair: But the GAO, in its recent reports that I have crucial to decision making. That does not sound very seen in a House of Commons briefing, has repeated credible. its concerns about affordability, the lifetime costs, and Air Marshal Hillier: We made the judgment in 2010 the problems with the evaluation, whereby people that that gap was acceptable, but what we discovered who have flown it said that it will get “showdown” as a result of the work we did on the CV variant is every time—significantly below the programme that the gap was extending all the time and that there office’s projected targets. That was of February 2013. were still significant costs and technical and time Aircraft suffered critical failures of equipment every risks. 3.9 flying hours on average.
Q15 Chair: Why was eight years acceptable in 2010, Q20 Mr Bacon: Can I just check with the NAO? The and why, then, did 11 years become unacceptable in number that I remember from last time was £127 2012? I don’t understand. What changed? Again, I am million. Was that right? Did I remember correctly? not directing this at you personally, but shouldn’t the Tim Banfield: The numbers are moving around, and Air Force have already had that argument before that would have been for a different variant as well. It 2010? would very much, as Mr Gray was saying, depend cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 4 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence on where you were on that learning curve as to what Bernard Gray: Well, I do not have any information would happen. that says that it would. Mr Bacon: At the end of the day, I would take the total number of planes and divide it by the total Q26 Chair: None of this stuff, none of this amount paid to get an average unit cost. technical— Bernard Gray: But we also have paid a significant Bernard Gray: The parallel development and amount into the development phase, so it is not just production activity has all been in train for about five the production cost but our share of the development years, so that is a known characteristic. The thing that cost. It is probably best if we send you a note on the would affect the unit production price would be if the phasing across the decade in the currently projected US were to significantly reduce its offtake in the unit production cost. course of the next decade, where we’ve got all the fixed costs of setting up the production lines, and then Q21 Chair: Can you answer the question about what it depends on how many aircraft— the assessment seems to suggest and the reports flying around in the States: that the costs are likely to Q27 Chair: So if one of the other countries pulls out escalate and that we have not seen the end of the as well. costs? The feasibility of the plane also has a question Bernard Gray: But the US is by far the predominant mark on it. There is a lot to be got right on it. buyer and therefore it would have the biggest impact. Bernard Gray: With the exception of significant problems that they have had with the helmet, where Q28 Ian Swales: One of the things that I did in they have a complex helmet that gives you a head-up preparing for this hearing was read the transcript of display and actions on it, which has been technically our previous hearing on 11 July 2011. One is struck very significantly challenged, and a couple of engine by the feeling that the best answers were given on the issues, they are working through parallel development day, but they don’t bear a heck of a lot of relation to and production, which is causing the sort of issues the current report, so that undermines our confidence that you are talking about. But there aren’t any—if I that we are getting a thought-through position today. might call them this—showstoppers in that. They are Let me refer to one specific in illustrating that. working through issues, but the level of confidence Question 111 of our previous hearing was about short about both the B variant and the C variant—the take-off and landing planes, and in his answer Rear- STOVL variant and the carrier variant—is going up Admiral Hussain gave four reasons why we were not all the time, so I don’t recognise that characterisation. going down that route. One was that the aircraft is inherently more complicated. It has an extra engine. Q22 Chair: You don’t recognise the characterisation It is doing difficult things, so it is going to be more of the GAO— expensive. The second one was: “It had a smaller Bernard Gray: Of saying that this is— bomb bay. That meant that, for the integration of UK weapons, we were going to have more difficulty… Third, because of the nature of a short takeoff and… Q23 Chair: This is taken out of a GAO report that is landing aircraft…especially in hot climates”, it in a House of Commons briefing. probably needs to dump its weapons before it lands. Bernard Gray: I understand. Fourthly, “the sheer heat and power from the STOVL Air Marshal Hillier: I have read that report and I had an impact on deck coatings. That was more work, think it needs to be seen in the context that we are another risk that we were going forward with…that five years away from when we are declaring our initial amount of heat and blast from the aircraft.” So my operational capability for the aircraft, and our question is: to what extent has an overall financial experience of these complex programmes is that you case been done—not just in relation to getting rid of will see technical issues like this arising through their cats and traps, but the total case, so that we do not see development, but in terms of the aircraft that we are another table such as figure 3, where there are five buying, the B model—this does play back, I think, to things we forgot to think about? the 2010 decision. At that point, the B model was seen Air Marshal Hillier: Perhaps I can start off against as a much riskier proposition than it is now. It was on those four headings. First, on the complexity point, probation in the US. It certainly isn’t now. Last year, that was the judgment in 2010 and in 2011, but as the US Marine Corps flew two aircraft for three weeks I mentioned earlier, we have got much better data, off one of their carriers—a B model. They are going particularly as a result of what the US Marine Corps to do another exercise this year. That gives us much have been doing, and there are no greater risks in the greater confidence that this aircraft will achieve what STOVL version of the aircraft now than there are in we want it to do. There will be technical issues along the C model. On that issue, we’ve now just got a the way, but that is in the nature of these complex— better understanding of it and it doesn’t apply. In terms of the weapons issue, it is absolutely true that Q24 Chair: And cost issues along the way? Are you the C model has a larger weapons bay than the B expecting the price per unit to go up further? model. However, the weapons that the UK intends to Air Marshal Hillier: It would be for Mr Gray to put in this aircraft fit into the B model weapons bay, answer— so although the C has a bigger weapons bay, it doesn’t Bernard Gray: No, not right now. matter for the weapons that we are planning to put in. You might say, “Well, there’s an issue there about Q25 Chair: Not right now. future flexibility,” but just dealing with the cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 5
20 May 2013 Ministry of Defence information and the decisions that we have in front of this is something that no one else has done and we are us today, it doesn’t matter. not sure how it will work? Air Marshal Hillier: There is nobody else at the Q29 Ian Swales: I would like you to come back to moment who is planning to put this into their the other two points, but let me just interrupt you. The capability, but they may wish to use it in future. Is it actual quote about weapons was: “Having the larger the highest risk in the programme? No, it is not. The bomb bay in the carrier variant should make some of fact that it is a capability that only the UK is pursuing the integration of UK weapons, which we consider to at the moment does not mean that we should not be a sovereign capability, relatively easier to do.” So pursue it. It is something that we have a solution for. have the weapons systems changed, or was that Yes, there are risks; there are risks in any of these, but answer not true? it is properly bounded and properly costed in there, so Air Marshal Hillier: The particular weapon that I at the moment we have confidence that we will be believe that he would have had in mind there at the able to deliver that capability. time was the Meteor air-to-air missile, which we had a concern about—would it actually be too big? There Q33 Ian Swales: How would you cost that risk—just was a modification that we have now been able to to help us understand how you do these things? You progress, which means that it fits in, so I suspect that are saying that it is a risk that has been costed in. that is what he had in mind. What has been costed in? Air Marshal Hillier: It is a technical capability, Q30 Ian Swales: Were you progressing that because you need to mark up the flight deck on the modification anyway, or is that more costs we have aircraft carrier. You need to put in appropriate lighting incurred in order to change this decision? to guide the pilots as they are landing, and there is a Air Marshal Hillier: It would have been progressed software capability in the aircraft itself, so these are anyway, because originally we were going for the technical issues, which you can develop a solution to, STOVL variant. We went to the CV and then back to properly bound and put in appropriate risk money the STOVL, so the work would have been in hand against. It is also worth emphasising that this is not anyway. I suspect, I can check, it was probably put in an everyday occurrence. This is a powerful aircraft, abeyance when we went for the CV, but we came back and we are talking here about it being in particularly to it and, as I said, that is not an issue. hot conditions when it is carrying a full weapon load and a large fuel weight coming back on to the ship. It Q31 Ian Swales: Sorry, just to be clear for Mr will not happen every day. Thompson, what you have just described there is Jon Thompson: You asked whether the costs were another bit of financial cost associated with this included. They are included on figure 5 in the NAO decision. Has that been taken into account in the Report, as best as we can estimate them at the time overall decision—modifying a particular weapon we made a decision. system? You said that the work was probably in Bernard Gray: The other strategic backdrop to this is abeyance and now it has been restarted. that in a programme such as this you are always Air Marshal Hillier: Yes, it was assumed as part of looking at a balance of risks. What Admiral Hussain’s our work for the reversion. We went through an evidence did not lay weight on are the technical risks extensive process of identifying every potential cost, associated with the development of the catapults for and actually we laid off a significantly greater amount example, which were significant. It is looking at a of risk money—if you like—against weapons number of reasons—I appreciate that you have to integration, which we have gradually been able to make a judgment in the round about this—why he reduce subsequent to the decision we made in 2012. might go in one direction. What the financial and On the point about will the aircraft have to jettison technical data we have in here suggest is that there is weapons at heavy weight, then again there was a clear difference between STOVL and CV, which is another capability, which was under development not likely to be tipped in a different direction as a called SRVL—Ship-borne Rolling Vertical Landing. result of some other variables. The gap between the Instead of landing vertically, it can land at low speed two is very large to the extent that my question would on the deck. That allows it to land in the appropriate be how do you validate the original decision, not how weapons configuration without jettisoning those do you validate the reversion decision? The reversion weapons. We had previously been assuming that we decision fundamentally allows for the possibility of would do that. We stopped doing that work when we running aircraft carriers for 100% of the time, as went to CV. As part of our reversion, we put that work opposed to 60% of the time, and saves significant back in again and it was fully costed. money in the process.
Q32 Ian Swales: Can I just stop you there? Again, Q34 Ian Swales: I understand that Mr Gray. My from the same answer, “In order to get round that, we question is simple: are we making the right decision were planning on a rolling landing.” Again, that is now? Will we see another table in one of these annual something that no one else is doing. It was going to reports with “Oops, we forgot about that”? be innovative in itself. That was an issue that we Bernard Gray: No. Believe me, we looked at this very worried about. We thought we were able to deal with carefully. Changing this decision was not it, but it is still a risk and it is a risk that we have now straightforward. We went through an exhaustive removed, having gone the other way. Is it true that exercise within the Ministry of Defence looking at all cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 6 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence of the options to make sure that we had flushed out Q38 Chair: Better than what? all of the issues and the associated risks. Air Marshal Hillier: Better than the C model. It was better to go for the B model— Q35 Ian Swales: The fourth area was the cost of the deck having the power and blast of vertical take-off. Q39 Chair: Why? Driven by budget rather than What is the extra cost of what you have to do to the capability? deck to take this different type of aircraft? Air Marshal Hillier: No, it was because you get the Air Marshal Hillier: I don’t know a precise figure. I capability earlier and you have a much better am sure that between us Mr Gray and I could come guarantee of getting that capability because of the back to you with that precise figure, but I can assure lower technical risk, so that is what the Armed Forces you that that was part of the analysis that we worked Committee agreed. In terms of the deep and persistent through. I don’t think it is as big an issue as perhaps capability, which the C model was partly designed to might have been portrayed in 2011. Certainly, now we address, the Armed Forces Committee again agreed have the practical evidence of the US Marine Corps that that part of the requirement could be postponed having done this for three weeks, it does not seem to until we looked later on, and we are talking into be as big an issue as perhaps might have been Typhoon replacements, because the balance of portrayed then. capability, risk and priority meant that it was more important to get the earlier carrier strike capability. Q36 Chair: What I was going to ask about the Bernard Gray: The key thing turns around whether change in 2012 is that you lose capability. You lose you are putting one aircraft up against another single capability on distance and you lose capability on the aircraft. On a like-for-like basis, just on those aircraft, amount paid out, don’t you? what you say is correct; the C variant is more capable than the B variant. That is the point that the Prime Air Marshal Hillier: Shall I start on that? Minister made in his Commons statement. Chair: Let me just finish my thoughts. You have Not only do we get the capability earlier, but we have changed your mind on capability three times in two the option now to use both carrier decks, which allows years, so what confidence can you give us that you us to have that capability for 100% of the time. If we are not going to come back in six months’ time with had converted The Prince of Wales to catapult yet another view on capability? operation, we would only ever have had one aircraft Air Marshal Hillier: I can give you that confidence. carrier available for about two thirds of the time. Chair: Well, you probably won’t be in the job. Therefore, we would have had about a third of the Air Marshal Hillier: I will. time with no capability at all for carrier-based Jon Thompson: I can assure you that he will, Chair. operations. For argument’s sake, you have one aircraft Air Marshal Hillier: In terms of the difference that is 80% as capable as another but it is available between the B and the C model, there is no doubt that 100% of the time, or 100% capable aircraft available the C model is a bigger aircraft with a longer range 65% of the time. and it has the potential to carry more weapons, so in itself the aircraft is more capable. However, the Q40 Chair: We said that of the 2010 decision. We judgment we made is that getting a more capable did, didn’t we? aircraft, at least three years late at considerable Bernard Gray: You were right. additional cost, was not as good an option as getting Chris Heaton-Harris: Chair, you are always right, so a slightly less capable aircraft three years earlier, both it is well argued. at a cost we could afford and with a balance across Chair: Not according to the accountants, I’m not. into other priorities in the defence budget. It is worth pointing out as well that the B model is many times Q41 Chris Heaton-Harris: My question is basically more capable than the Harrier which it will replace. It on the theme of re-specification, because it is goes further; it goes faster. It is a fifth-generation something that the MOD has done really badly in the combat aircraft. It is overall much more capability past. Now you have made your choice, how are you than we had in the past. On the point about whether going to stop Air Marshal Hillier changing his mind we are going to change our minds again— on the specification of the aircraft in future? What sort of contract do we have that helps us keep those Q37 Chair: I accept it is better than it was in the costs down? past, but you were going for something that gave you Jon Thompson: The answer to your first question is this deep offensive capability, whatever it is, that you that we significantly enhanced the governance that are going to lose. surrounds investment decisions in 2011, which was Air Marshal Hillier: But that “Well, if we could subject to a review by our friends at the NAO and a afford it and the technical risks were solved we might public Report about the discipline that we had put in get a better capability at some point in the future”, to to making decisions about changing requirements. me, as the capability sponsor, is not as good as “This There is a connection between our overall strategy and is a lower-risk technical solution that we can afford the amount of money that you have got available and and we can get it earlier.” I would rather go for that. you have got to balance those two things. We did It is not just me saying that. It is important to highlight significantly enhance the Investment Approvals that the Armed Forces Committee, which is the chiefs Board, which my colleagues are both on; it comprises of each of the services and the CDS, agreed that that seven people. There is now a process of significantly was the better capability option to go for— enhancing the scrutiny of business cases. If Air cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 7
20 May 2013 Ministry of Defence
Marshal Hillier wants to change the specification of which we have some concerns, supported by both of the requirement, he has to go through seven my colleagues. independent people before he goes to Ministers in order to get that. Q45 Austin Mitchell: I am just trying to get my Bernard Gray: To add to the point, as it turns out, Air mind around all the delays and the arguments about Marshal Hillier is an incredibly disciplined individual whether it will be available in 2018, 2020 or 2023. It who does not come to me trying to change his mind. looks to me, as a total ignoramus on this matter, as It is also the case that this particular aircraft is not, as though that must have something to do with this the Chair said, designed by us. It is quite difficult for Crowsnest operation, without which the aircraft us to change the specification of the aircraft. We carriers are very exposed. Unless you have got some would have to go in and argue for and pay for and plane up there spotting the incoming attacks, these are negotiate the cost of any variations before we altered terribly big beasts and easy to hit, I would have that. As far as the aircraft is concerned, fundamentally thought. The initial question therefore is, why was we are a price taker and a capability taker of what the Crowsnest postponed in 2012 if we were going to go defined programme is. It is not really in our gift to be ahead with the carriers and use the carriers? Why was able to vary that. We have a process for negotiating it postponed, so the carriers wouldn’t have the with the programme office in Washington about when protection of Crowsnest? we want to buy the aircraft and what, under the sale Air Marshal Hillier: We define the Carrier Strike system, the price of their aircraft is, depending on capability that we will be delivering in 2020 as which year we are buying it, which is the question we bringing together the ship and the F-35B. We have were asked earlier. defined it consistently as our initial operating We have effectively a benchmarked cost for the fly- capability from the maritime environment. The away price of aircraft. I am currently discussing with Crowsnest capability has never been part of that the US our forward buy, for example. That price is a definition. benchmark price that comes out of that process. The Austin Mitchell: You will need a lot more ships specification is set and the price is a pretty open round about to protect it, won’t you? benchmark. Air Marshal Hillier: Could I just add a final point? The other incentive to ensure that I do not change my Q46 Chair: Austin, if you look at figure 12 on page mind is that I am now the senior responsible owner of 35, it puts Crowsnest—if I am reading it properly— the programme. as an essential capability for the Carrier Strike capability. So it isn’t an add-on, it isn’t an Q42 Chair: But how long are you going to stay afterthought, it is essential. there? Air Marshal Hillier: We have never defined it as Air Marshal Hillier: I anticipate being in my current being essential for the initial operating capability. The job for probably another two and a half years. way we introduce capability—
Q43 Chair: And you have been there for how long? Q47 Chair: Sorry to say this to you, but you guys Air Marshal Hillier: About a year and a half so far. sign off on these Reports. That was a definition— Jon Thompson: Air Marshal Hillier’s posting is one Jon Thompson: Sorry, we didn’t. of the new double-length tours introduced on the back of the Gray report in 2009. Q48 Mr Bacon: Was this Report not cleared? Air Marshal Hillier: So I am accountable to the Normally they are. permanent under-secretary for the delivery of the Jon Thompson: Well, we could have an interesting carrier programme and the component parts of that. I diversion into whether it was or was not cleared. In would undermine myself if I were to change the my opinion, it was not finally cleared in relation to specification. the specific issue of Crowsnest.
Q44 Chris Heaton-Harris: The Committee has Q49 Stephen Barclay: That is interesting, because constantly, throughout its history, raised these sorts of we had this last time when there were discussions and concerns. I am very pleased to see the changes being multiple Reports going back and forth. Germane to made, and I am sure the Committee is, but I want to the point being raised, footnote 11 on page 24 says, try to hammer your feet to the mast, as it were, to “By the end of 2020, under current planning make sure you are not going anywhere. Should you, assumptions (which have not yet received investment and should things change, we have nailed you on the approval)”. Perhaps you might want to clarify what evidence you are giving today. has not received investment approval, and therefore Jon Thompson: The Committee has had a consistent what uncertainty remains. concern about SRO appointments, and the reporting Air Marshal Hillier: I will tie that in, if I may, to of subject costs and so on. We have specifically continuing my previous answer. When we have that changed the SRO policy with direct accountability. initial operating capability in 2020, we will have a The board now has a monthly report on the status of highly usable Carrier Strike capability. For the early the top 50 Government programmes–whether they warning that you mentioned, we will have at that stage have changed over the last reporting period. The a greater reliance on either allies or our Type 45, Secretary of State now chairs a board called the major which is a very good air defence capability, or some projects review board, which looks at projects about land-based airborne early warning. Why is that cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 8 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence acceptable? Because we are at initial operating Air Marshal Hillier: That reflects the fact that there capability. is a difference between initial operating capability and Mr Bacon: When you say land-based, do you mean— full operating capability.
Q50 Stephen Barclay: Just a second, Richard. That Q58 Stephen Barclay: Take a scenario such as the is not what the Report says, Air Marshal. If you look Falkland Islands. If that scenario were happening in at that footnote, you see that what it says is, “in 2020, would the carrier be fully operational or not? extremis,” you will “be able to deploy two Crowsnest Air Marshal Hillier: That reflects into the footnote systems without full mission capability, testing or that you mentioned, namely that by the time we get clearance for operational use.” This is based on to 2020 we will own four Crowsnest helicopters, of investment that has not been approved. which two would be available to deploy in extremis. Air Marshal Hillier: As I say, in 2020 we will not Why would we not do that straight away? Because have a fully deployable Crowsnest capability. That we are building up the force and we do not want to reflects the fact that we are at initial operating compromise that if we can avoid it. What we are capacity. trying to do here is just do a sequenced, incremental introduction of capability, which is the least risky way Q51 Austin Mitchell: Without Crowsnest, it is not to do it. only highly usable but highly sinkable. In terms of this approach that I have outlined, this has Air Marshal Hillier: As long as you make the been fully endorsed by the armed forces committee, assumption that we will not be working with allies or and they have agreed that the definition of carrier that we will not have any of our other capabilities. It capability in 2020 is the carrier and JSF with a may, in certain circumstances, constrain where you are growing Crowsnest capability. The point about the able to use the carrier capability, but that is reflected approvals is the fact that we have yet to give main in the fact that it is an initial operating capability. gate approval to the Crowsnest programme. What I do not want as a senior responsible owner is to be in the Q52 Austin Mitchell: Do the Americans have a position of making commitments until those approvals are in place. Crowsnest system? Air Marshal Hillier: They have a different airborne early warning system, but that, I think, reinforces— Q59 Austin Mitchell: So the statement that it will be in operation by 2023 is still subject to possible refusal of approval? Q53 Austin Mitchell: And is that extendable to us? Air Marshal Hillier: Well, it is subject to approval Air Marshal Hillier: No. It is a fixed-wing and it because what we have to go through is that disciplined would require cats and traps to operate. process of making sure that we understand what we Chair: Say that again. are proposing to buy and when it is deliverable, and Air Marshal Hillier: It is a fixed-wing aircraft that the ensuring that it is properly affordable. That work is in Americans use, which would require cats and traps— progress, and I believe that the main gate for Crowsnest is in 2014, but I would have to check— Q54 Chair: So we cannot use it? Jon Thompson: It is spring of 2014. Bernard Gray: We cannot operate it from our carrier, Air Marshal Hillier: So it is in our programme and but if we were operating with the Americans, we we have the funding identified for it, but until it goes would have the benefit of it. through that main gate approval process, it results in footnotes like that. I think it is important that we Q55 Chair: Why? How? Do you mean they would highlight those conditions that are in place. be in the same area? Air Marshal Hillier: Yes. You would be able to use Q60 Chair: The funding is not in this spending other nations’ capabilities. As we then introduce the review settlement; the funding is an assumption into Crowsnest capability, that works us up to full the next. operational capability with Carrier Strike, at which Air Marshal Hillier: We run a 10-year equipment point we will have the Crowsnest available. programme, and it is in that programme. I should also point out that we are constantly looking at the Q56 Stephen Barclay: Is what we are saying that we potential to bring this programme forward, but we will could not use this against, for example, a Chinese, only do that as part of making sure it is properly Russian or other sophisticated enemy, but we could affordable within our programme. This is the use it, perhaps, off the coast of Libya for operations discipline that we have in our equipment programme. such as that, or we could use it if the Americans were We will only commit when we need to and when it is alongside us phoning us warnings as and when properly affordable. something happened? Bernard Gray: Can I momentarily illustrate those Air Marshal Hillier: In those sorts of scenarios—this three examples about how we would actually tackle is exactly my point—we would be working alongside that problem? In the first instance, in a Libya-type allies and we would be able to share capabilities. This operation, we would have the ability to fly our is part of the interoperability piece. AWACS aircraft from Italy, so we would be able to use land-based air in the Mediterranean or any of that Q57 Austin Mitchell: If we are not, not. kind of environment to give air picture cover that cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 9
20 May 2013 Ministry of Defence would cover the carriers as well as Type 45 destroyers, programme pressures then you should look at dealing for example. with them— In relation to some major state-on-state conflict— Amyas Morse: My own need for asking it is to be without getting into unnecessary names—the clear—this is a discussion about how in a lot of probability is that we would not be in such a conflict circumstances Crowsnest isn’t going to make a without being in operation with allies. If there was difference, because of allies and because of land-based some major, out-at-sea engagement, we would likely systems, and so forth; and then how it might be be with French or American carrier groups and brought forward. Even though there are limited operating under a total air picture recognised and circumstances where we would actually use it, none partly provided by them and partly provided by our the less it might be brought forward. I just want to be destroyers. realistic. If there are a lot of cost pressures out there In the case of the Falkland Islands defence, we would on this programme that are not resolved that might go in the direction that the Air Marshal said: from the mean that you weren’t in a position to do that. So, outset of the availability of the carriers in that kind of taking a reasonable view of it, we don’t want to extremis, if we did not have access for some reason oversell the probability of acceleration, I take it. to the Falklands airfield itself, we would use the Jon Thompson: Sure. We don’t want to oversell the developing capability. Those are the three different probability of what the Air Marshal is saying now, but ways in which you tackle that problem. neither do we want to default to “There is no capability at all.” We are trying to be balanced that it is somewhere in between those two extremes. Q61 Austin Mitchell: They are still exposed to an Exocet missile in a large conflict: protected by the Americans or not, they are still exposed. These big Q62 Mr Bacon: Can I just ask a bit more about Crowsnest specifically? The Report says the radar will things putting to sea are almost as exposed as the start being tested from 2020. That is on the basis of Hunter was in 1940. the delayed investment, is it? Bernard Gray: They are defended in depth; any Air Marshal Hillier: Yes. That time line just reflects military system is vulnerable to a weapon, but they the funding— are defended in depth and it is extremely difficult to get close to them for the range of the kind of stand- Q63 Mr Bacon: So on the basis of the delay in off weapons that you are talking about. investment in Crowsnest, it is true, because of the Amyas Morse: Just to be sure I understand this: I am delay, as it were, that Crowsnest will begin radar trials not getting involved in debate about the Report. I in 2020 and will be operationally effective from late think it was a pretty unfortunate incident, actually— 2022. That is correct? that whole thing. Just to be clear: if there was further Air Marshal Hillier: Yes. escalation in the cost of the Joint Strike Fighters we Mr Bacon: There is a chap behind you nodding, as are going to have, because there was a reduction in well, which may be encouraging. the amount of off-take or any of the other things that Air Marshal Hillier: That 2020 date is fixed by our might happen in the years to come, then the chances decision to delay Crowsnest; so that is the realistic are it would be more difficult to bring Crowsnest date of 2020, when we start the radar trials. forward—right? So is it in the same budgetary package, or if there are other pressures on the Q64 Mr Bacon: Crowsnest is a radar system being programme, cost-wise, what will happen? developed by the MOD in conjunction with whom? Bernard Gray: Just for clarity, Crowsnest is currently Which supplier? Is it British or American? intended to be fielded in the time line that we have Bernard Gray: There is a competition going on. There here, so we will have initial capability by the end of are two— 2020; full capability by 2022. What Steve is saying is, is there any possibility to accelerate the deployment Q65 Mr Bacon: You haven’t even appointed the of that? person who is going to do it yet? Amyas Morse: That is just what I was asking about; Bernard Gray: There is a competition going on. There and presumably, is that seen as a total budget package are two variants of radar under consideration. One is in Carrier Strike? In other words, if you had slippage the one we already use for this purpose, and the other in some of the biggest cost components in Carrier is the radar that’s in the F-35 itself. Strike, is that likely therefore to mean it is not very probable to bring Crowsnest forward? Q66 Chair: So one is American. Who makes the Air Marshal Hillier: The first port of call would be other one that we use? within the overall programme envelope, but I think Bernard Gray: We make it here. we would pretty quickly be looking across the span Chair: BAE— of the equipment programme and deciding what our Bernard Gray: It is Thales. priorities would be. Amyas Morse: But your answer was that it is first of Q67 Mr Bacon: So it is either Thales or an all in the programme. American one. Air Marshal Hillier: First of all in the group, but that Bernard Gray: Yes. answer doesn’t imply that if there is any cross-growth Mr Bacon: And we don’t know which it will be yet. in JSF then Crowsnest is going to get delayed further. Bernard Gray: We’re running a competition. It is just good programme discipline that if you have Mr Bacon: I see. And the American one is? cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 10 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence
Bernard Gray: Northrop. Jon Thompson: Eight. Henry Parker: 12 or 16. Q68 Mr Bacon: Okay. It will sit on the helicopter Mr Bacon: Four, 12, eight—any more bidders? platform—what helicopter will it sit on? Bernard Gray: Eight. Bernard Gray: The Merlin. Air Marshal Hillier: It is important here that we should not commit ourselves to a number of aircraft Q69 Mr Bacon: So there is no development problem because we are looking at a requirement, but we need with the helicopter—that is already there. It is simply to see how much it’s going to cost. One of the levers a software problem, as it were. we will have if the costs increase is to examine the Air Marshal Hillier: It is integration. You are trying number of platforms we fit it to, so it would be to take an existing radar and put it on to a helicopter premature finally to commit ourselves and say, “It is it’s not been on before, so it’s an integration issue this number.” between the two, but we already own the helicopters. Q74 Mr Bacon: You mean that if it costs an arm and Q70 Chair: What could change to make Crowsnest a leg, we would put it on only one and a half unaffordable? At the moment you have not signed up helicopters, so to speak. That is what happened with to it—it is in your plans. the Chinook HC3, isn’t it? Jon Thompson: What could make Crowsnest on its Jon Thompson: In extremis, given that there are own unaffordable? public expenditure constraints, if what we have to do Chair: Well, is it one of your top priorities? There is is change the requirement, we have to look at still a bit of “the promised land” here. changing the requirement. Jon Thompson: You may recall the hearing in Bernard Gray: The cost of this capability is between February about the overall equipment plan and how one and four JSFs, to put it in context. we had approached that. Crowsnest is part of the core programme—I am looking at Air Marshall Hillier and Q75 Chris Heaton-Harris: On the same theme, in he is nodding—which is some £8 billion or the United States there has recently been the sequester. thereabouts short of the 10-year funding. If there were There have been reports in the international press that to be some explosion of the cost of this programme, Lockheed Martin said that cuts are likely to inflate the the first thing we would look at is using that £8 billion final cost of the F-35 itself. That raises an interesting of so-called headroom—you will recall that we gave question: have you bolted down what we are paying, some evidence about that. I also think we gave you as it is not an off-the-shelf purchase? Related to that, some evidence about the £4.8 billion of risk what if the dollar against the pound moves contingency that we also had. Those are the two areas massively—have you accounted for that? that we would look at for all these programmes. That Bernard Gray: The way the pricing mechanism for is one of the reasons we have not fully committed the everybody, including the United States, works at the equipment programme, which I think you have agreed moment is that they are in an LRIP—low rate initial is not a good idea. production—process whereby they are ordering batches that are successively coming down in price as Q71 Chair: Do you still have the assurances that you the batch numbers increase and the maturity of the are going to get the 1% increase in real terms? aircraft increases. We have been on a downward Jon Thompson: We are still working on that course in the LRIP process, and I think we are now assumption, but even if we don’t get the 1% increase on LRIP 8. We will negotiate two years ahead of time in the equipment plan over that period, obviously the for the aircraft we are proposing to get—this year and £8 billion would reduce, but you would still have next we will be negotiating over 2015–16 deliveries. funding available for this programme. So not all those aircraft costs are yet nailed down, because everybody is negotiating two years in Q72 Mr Bacon: How much is Crowsnest expected advance. The lead negotiator on all that is the to cost? Pentagon with Lockheed Martin, because they are 10 Henry Parker: There is a range from about 120 to times the volume that we are in the marketplace, or 400, depending on which solution and how long it thereabouts. takes.1 We have some forward price visibility. There is a lot Mr Bacon: Is that £120 million to £400 million in of work going on, some of which has been cited sterling? already, where the CAPE, which is the US version Henry Parker: The system we had was a more of the cost assurance service that we run, has been expensive one— modelling the costs of initial acquisition and support. Mr Bacon: But that is £120 million to £400 million There has been a lot of interrogation of that and there sterling, spread over the life of the programme? was a significant negotiation between Lockheed and Bernard Gray: That is correct. the Government in the last big LRIP. We have some forward visibility, but not full forward Q73 Mr Bacon: And it will sit on how many visibility, on the unit prices. We know what the US’s helicopters? short-term plan is for the acquisition of the aircraft Bernard Gray: Eight. over the next few years. We wait to see whether 1 Note by witness: Specific figures attributable to each sequestration has any further impact on those, but it potential supplier remain commercially sensitive due to has had a modest impact so far. As far as the sterling- ongoing negotiations. dollar exchange rate is concerned, you are right to say cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 11
20 May 2013 Ministry of Defence that we are exposed to it. We forward-hedge in the would have been of no use in Libya. We managed way we have discussed previously here. That without them. We would manage without them in effectively gives us some smoothing, but ultimately, Syria—if we actually do anything there. The cost is if there was a significant move in the dollar-pound enormous. exchange rate, that would affect us at some point. Paragraph 3.7 expresses the hope that strategic alliances will be “strengthened” if the US is able to Q76 Chair: Is there still this ridiculous rule that you help us and protect us to lumber these beasts into are only allowed to do it on one day a month? action. If we do lumber the beasts into action, Jon Thompson: Do what? paragraph 3.7 also says that operating continuous Chair: Buy forward and cover yourself for exchange capacity will cost £25 million. If we were to operate rate movements. Am I right that there is only one day both carriers simultaneously, it will be £60 million a a month that you are allowed to do that? year. That is not funded and no decision has been Jon Thompson: We use the Bank of England to have made on funding. The Crowsnest stuff is not funded. a four-year layered rolling hedge, if you really want There is all sorts of stuff in appendix four that is not to get into it. funded, either, that will be necessary, such as adapting the Merlin helicopters to use aboard the new carriers. Q77 Stephen Barclay: The liability was shifted to Some Solid Support Shipping is over 30 years old. Departments from the Treasury, was it not? There is a huge cost there, which will have to be Jon Thompson: Yes. We have a four-year rolling funded at some stage. We then have the costs of the programme. Every year we purchase 20% of what we big nuclear submarines, which we are not going to think the next year’s use of foreign currency is for give up, for prestige reasons. So much of the Navy’s both the euro and the dollar. We buy about £2 billion operational funding will be tied up in big beasts. It of both. We are sitting on positive hedges of several will not leave much for little things like frigates and hundred million pounds in the accounts. Off the top destroyers to chug round the world and be used in of my head, I cannot tell you what it is. battle. Are we tying up too much of the Navy’s resources and our expenditure in these big monoliths? Q78 Chair: We had this absurdity in a session here Jon Thompson: We are significantly recapitalising all with the FCO. We found that Government Navy assets over the next 10 to 15 years. That is Departments are only allowed to deal in foreign correct, but it was the decision of the SDSR and exchanges on one specified date per month. “2020” that we would proceed on that basis, and I Jon Thompson: I am not familiar with the Foreign think it was the decision of the previous Government Office’s situation. All I can tell you is that we have a that we would proceed with the two aircraft carriers. programme with the Bank of England on that. We also That was the policy decision. To be clear about what forward-hedge oil prices. is and is not funded, Crowsnest is funded. That is the answer that Air Marshal Hillier gave you. Q79 Stephen Barclay: The point, just to be clear, is In relation to paragraph 3.7, what this decision does that while it is very positive at the moment and you is give a future Government and the SDSR in 2015 are in profit on the hedge, within the known risks of the option of running both carriers. Under the 2010 the programme there could be a loss to the programme decision, that option was not there, so this does give from exchange rates. That loss would need to be borne optionality, and we have tried to cost that so you can by the Department, and not by the Treasury. understand what 100% availability is—or running Jon Thompson: True. both carriers. Those are what the numbers are in Stephen Barclay: Or there could be a surplus. paragraph 3.7. We have not funded that, because we Bernard Gray: The point I am making is that all think that is a decision for the Government in the hedging does is average it over time, fundamentally. SDSR in 2015. That allows us to have some forward predictability, but it probably does not, one way or another, affect the Q82 Austin Mitchell: I can see that, but wouldn’t it outcome. We are exposed to significant dollar costs be more sensible to rely on the Americans for the big in the programme, and we therefore do have foreign stuff and for us to run a proper nice little Navy? exchange risk. Bernard Gray: To give you a feel for the size of things, the proposed Type 26 frigate replacement Q80 Chris Heaton-Harris: On a completely programme is not quite, but of the order of, twice the different topic, is there a difference in cost between size of the cost of the Carrier programme, so it is not the manned and unmanned version? the case that we are spending all the money on aircraft Bernard Gray: Of? carriers and no money on escort vessels. We have just Chris Heaton-Harris: The F-35. spent—from memory—£6.5 billion on air defence Bernard Gray: There isn’t an unmanned version. destroyers, so we have invested significantly in Chris Heaton-Harris: Sorry, I thought there was. service escorts and will continue to do so.
Q81 Austin Mitchell: I am just worried about how Q83 Stephen Barclay: That is where I just wanted much brass we have got tied up in these great big to clarify things. How many Type 45 destroyers do lumps. We have got these two huge aircraft carriers, you need once the Carrier group is fully operational? which frankly are of no use. I cannot see any Air Marshal Hillier: In terms of the number of conceivable use for them in any conflict that we have destroyers that we would deploy with the aircraft been engaged in or are likely to be engaged in. They carrier, it will depend on the operation. In a high-end cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 12 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence conflict it will be a significant number. I think it is operation, then you would vary that and you would be perhaps best not to go into those specific numbers able to cover more operational tasks. It is not avoiding here. If it were just a reassurance mission, these are the answer; there just is no set answer to this, because adaptable carriers that we can use for a range of it is asking me to define a particular operation. We purposes—for example, non-combatant evacuation— make assumptions for particular contingencies, but and perhaps you wouldn’t need that, so there is a again I would have to get back to you outside of this range that we are looking at. forum to discuss that, because that is in our secret- level operational planning. Q84 Stephen Barclay: Sure, I appreciate there is a range regarding when you can use the group without Q90 Stephen Barclay: It may be something that can Crowsnest and when you can’t. But in terms of being be picked up in a note. I am trying to get an able to say, as a working guesstimate, the carrier understanding of the extent to which the areas around group is fully operational, how many destroyers the edge of programme perhaps are vulnerable. To would be needed? what extent is Crowsnest vulnerable; to what extent Air Marshal Hillier: The plan at the moment is that are the costs of destroyers; and what other parts that we will have 19 destroyers and frigates. That was are key to a fully operational carrier group are, announced in the SDSR. It is very difficult to give perhaps, vulnerable to budget pressure, in order to you a precise answer, because it will depend on the meet the political imperative of getting some carriers operation and our allied interoperability. It is difficult to sea? One can understand those pressures—those are to be precise and say that every time we are engaged real-life pressures—but at £1 billion a go, buying in this operation, it would have this number of more destroyers is going to have a significant impact. destroyers. Bernard Gray: But we have just bought—the last one left the Clyde about six weeks ago—and built those Q85 Stephen Barclay: Sure, I appreciate that, but, as six. Those are the air-defence destroyers that we a non-military expert, is there not a rule of thumb intend to carry us through until the 2030s, so we have between destroyers and frigates? When we deploy all of the air defence assets that we would expect to now, which I imagine is not a national secret, what is a have. The aircraft themselves, Crowsnest, the Type 45 normal deployment of destroyers and frigates? I again frigates, land-based air surveillance and Alliance air accept that capabilities may change if you have more surveillance are all part of a multi-layered defence of frigates, but there must be some working estimate that the carriers. You might have one or two that might go we can go with. with you one time or you might have a whole package Air Marshal Hillier: I don’t have a figure that I would that goes out with, if there was some large-scale be comfortable about giving to you now, but I can operation, but we have built those. come back to you and give you the examples of We have existing anti-submarine warfare and general operational deployments and the number of ships. purpose frigates, which will come to the end of their life in the 2020s. The Type 26 programme is intended Q86 Stephen Barclay: When we deploy a carrier to replace those and that is going through the group now, how many destroyers does it have? assessment phase at the moment, and will come into Air Marshal Hillier: We don’t have a carrier group its main gate around the end of next year. We will now. then move into production of those, where we are intending to have the balance of the force composed Q87 Stephen Barclay: What is the cost of a of those Type 26s. destroyer? Jon Thompson: Can we try and answer your question Bernard Gray: Build cost or operating cost? by referring to figure 12 on page 35—the one the Stephen Barclay: Let’s go with both: the build cost Chair referred to earlier? I think your question is, and the operating cost. which of the capabilities in the grey circle on the left Bernard Gray: The build cost for the Type 45s is might be at any kind of risk? about £1 billion each. Air Marshal Hillier: Those are all capabilities which contribute into Carrier Strike. The key thing is they Q88 Stephen Barclay: And how many of those do also contribute into a lot of other things in defence, as we have? well. We look at C4ISR—that is our communications Bernard Gray: Six. and our reconnaissance capability—so, yes, they contribute there, but there are wider implications Q89 Stephen Barclay: It goes back to Austin’s across defence. Can I absolutely guarantee that none question. What I am concerned about is, how many of of those programmes will be touched, and that they those six destroyers are we going to need to use for will completely protect the carrier capability? We the carrier group and what are the implications for our cannot do that at this sort of range because, again, ability to deploy destroyers elsewhere? they are complex programmes that are expensive and Air Marshal Hillier: As I say, it will be dependent on will take a long time to deliver. the operational priorities at the time. If we are The key thing is that, for my responsibility as SRO in deploying the carrier into a high-intensity operation, delivering the programme, I understand these then clearly you would put a significant number of dependencies. I am not just the SRO for the those six against that task, and other lower-priority programme, in my day job, if you like, as DCDS tasks would simply not be covered. If it was a more Military Capability I look at that strategic balance and routine deployment, on an exercise or a low-intensity investment, so I can see where the money is going cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 13
20 May 2013 Ministry of Defence and so I can directly understand whether or not there planned and budgeted way. It is not that all of the is an impact on the programme. money is being spent on the aircraft carriers and nothing on anything else. Q91 Stephen Barclay: Sure, but the Report says on Jon Thompson: Would it help if we gave you a note page 29 that there is a risk of divergent views—this of these capabilities, where they are, what their is between the Air and the Navy forces. It states that service stay is, when they fall out and whether it is in the Senior Responsible Owner continues to face the programme? difficult challenges. I absolutely appreciate the Chair: Yes. pressure. We are just trying to get some visibility on Jon Thompson: In relation to the inter-service issue, some of the other aspects which are components of an which you raised, we have used the Armed Forces effective and fully operational carrier group, and the Committee, chaired by the Chief of the Defence Staff, extent of risk on that. Within that—Mr Thompson is to balance the various issues in setting the policy—to right in terms of the grey area—the Report says that my knowledge, it has been discussed at least three some solid shipping is over 30 years old. Will any of times in the last 12 months—so that the Chief is the that solid shipping still be in use when the carrier person who gives the ultimate policy advice to group is launched? balance those issues, working with Air Marshal Air Marshal Hillier: Yes, it will, but we have a plan: Hillier. what we would hope to do is replace that shipping. Amyas Morse: Thank you for that helpful bit of The key thing is that it is not there just for the carrier; discussion. We are having a discussion about many actually, only a relatively small percentage of that different ways of providing capability, which we have solid support shipping is directly in support of the from time to time. That does not mean that I think it carrier. This is required for the whole fleet. is wrong. None the less, when you are negotiating the defence budget, you must be saying, “Look, we need Q92 Stephen Barclay: But in a way, Air Marshal, at least this many of this type,” and, “Our range of that is the exact point that I am trying to make: other responses will be very limited if we do not have this capability in other theatres may be put at risk. What or this.” In other words, if you are defending the you are saying today is that we are going to have budget and negotiating for the budget, rather than solid support shipping, which is over 40 years old, explaining how flexible it is, you must have some supporting this brand-new carrier fleet. baseline numbers that you put forward to have viable Air Marshal Hillier: Yes. structural units of capability. I agree that you are renewing models, but the other Q93 Stephen Barclay: That is also supporting other thing we have experienced in the past, is finding that Navy operations elsewhere. Then, I imagine it is a bit the numbers of any particular class might shrink a like the air tanker in terms of Afghanistan: we get bit as we go into actually procuring them because of into huge problems with maintenance, with failure and budgetary pressures. I can understand the with it not being able to resupply a frigate elsewhere Committee’s interest in understanding whether, if we if we are running very old— have got this, that impinges or does not impinge, or Bernard Gray: No. distorts or does not distort, the rest of the capabilities and responsibilities that you might have. Are you Q94 Stephen Barclay: You say no, so by all means stretched very thin? We had a similar discussion on come back. the way in which you were going to be able to protect Bernard Gray: We have solid support shipping that nuclear submarines going into action when you were works fine and that supports operations today, which no longer going to have aerial surveillance so you we will retire in the mid-2020s. Later on, in this were going to use helicopters for that as well. decade, in a planned way, we will come forward with Here is a suggestion: the Committee is not being the plans to replace that. unreasonable in wanting to understand this more In answer to the question about whether it would be clearly. Perhaps you could give some consideration to available, yes, it will be available until around 2025 how you could explain it in slightly more concrete when we will replace it with something else. It is terms. I am not being critical of your answers; I am working fine. All of the elements are here: the just saying that I can understand that it is rather destroyers and frigates we have discussed. The MARS difficult to feel whether you have ever got anywhere tankers are on order, being built today and will be in the conversation if you cannot say: is the whole delivered in 2016. The lead commando group exist. thing getting sub-critical? That is really the question, Steve has discussed ISR. Our mine warfare operations and if you want to be able to do x number of things are up and running, and we will have an update plan at the same time, you can only really answer it by in the due course for those, but our current Sandown understanding whether our capacity to do that now is class and Hunt class exist and are working today in greater or less than it was a couple of years ago. Pray, the Gulf among other places. We replaced the explain that. I think that that would be really helpful. amphibious shipping and the LPD around the turn of Air Marshal Hillier: I understand that, but perhaps I the century, for example. should just say that we do have some models. The The point that we are making is that you have a long, ultimate reflection is in the number of destroyers and rolling programme of replacement of assets over time frigates that we say we need in the SDSR. The point that come in at different phases. We are happy today I was trying to get across is that the methodology that that, as Mr Thompson said, we are recapitalising a builds up to those numbers is clearly classified. I need large part of the Navy, but we are doing so in a to share it in a body other than this Committee the cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 14 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence operational assumptions that we have made, because, Q98 Ian Swales: Thinking about constraints, these clearly, if we start talking about numbers of ships in planes were sold off to America for spares, so they particular environments, it is sensitive information. are still using them. Could we have either delayed or Jon Thompson: Would it help if we tried to work out made the current procurement project cost-effective a way—it is quite difficult in public—to allow you by still having Harriers in service? to engage with how the military capability planning Bernard Gray: I am a big fan of the Harrier, and I process works and how it results in the programme will answer your question directly: yes, it was the that Steve runs? right decision. We could not afford to run three types of fast jet. It is not the acquisition cost but the Q95 Chair: We did come across once to have a operating cost of keeping, maintaining, having all the briefing on the negotiation for something. I cannot spares and training people to use three types of aircraft. We had to choose because of the budget remember what it was now. pressure we are under, which is not a short-term Jon Thompson: I think it was on the Harrier. pressure; it is a pressure that builds up over the Chair: Yes, it was on selling the Harriers. following 20 years. You looked at the budget situation Jon Thompson: We will try to work out the in 2010 and you could see that gap opening out over mechanics for the operational scenarios and what they 20 years. We did not have the money in 2010, 2020 mean in capability planning terms, and so on. or 2030 to keep running the systems, so we had to Chair: And your staff do not need to feel threatened make some choices. One of those choices was to come by that, as they did last time. down on the number of types of fast jet that we ran. Harrier was, unfortunately, the least capable of those Q96 Ian Swales: That is where I wanted to come in. aircraft. As the Air Marshal has already said, the F- Knowing what you know now, would you have 35 is twice as fast, has twice the range and carries scrapped the Harriers? Who should answer that? twice the payload of the Harrier. It is a substantially Air Marshal Hillier: I will start off. I was not more capable aeroplane. So, yes, it unfortunately was involved in the decision making at the time, so I the right choice to stick with the Tornado as a more cannot comment on what evidence was available. My capable bomber than the Harrier. perception is that the decision made at the time was on what gives us the greatest level of capability. The Q99 Ian Swales: On a different matter, how many Tornado was and is a bigger force. It is more capable people in the Ministry of Defence work in the carrier than the Harrier was, so I think the decision making area? How many staff are involved in this whole was based around that. exercise? Chair: That is very much a non-answer. Air Marshal Hillier: If I start at the top level with Jon Thompson: I will try. The answer to your governance, then I am the senior responsible owner, question is that, when you have a budget deficit of but clearly I have other responsibilities as well. As a £72 billion, you have to decide what you are going to result of the changes we have put in place I have a withdraw from service. Ministers decided, on a two-star, full-time programme director. Within head prioritised basis, that the Harrier was one of the office there is a further programme office of eight. capabilities to withdraw from service. As the Then at the individual service commands—Navy Committee is fully familiar with, the Ministry of command and Air command—they have staff working Defence got itself in an unbelievably difficult financial on those projects. I don’t know the specific number situation. One of the ways out of that situation was but I can get you that number if you wish. They are to prioritise and say, “We simply cannot afford to do looking at the capability planning. In terms of the everything we have done in the past, and some things delivery part of it which is in the DE&S— have to be scrapped.” That was the decision the Bernard Gray: In the carrier—I will check the Ministers made. number and come back to you—but I have a feeling Austin Mitchell: It was a panic situation. it is around 100 people working on the ship and probably about 50 people working on the F-35. Jon Thompson: That might be your way of putting it, but the way I put it is that, if you are £72 billion in a budget black hole, you have to do something about it. Q100 Ian Swales: The reason for my question, and I would appreciate a note on this, is that you rightly use the word “project”. Once we get to the point where Q97 Ian Swales: Obviously, that was short-term we are buying ships from people who know how to thinking at the time. I have two points. First, it is hard make them and we are buying aircraft from people to imagine the capability planning that we have just who know how to make them, then presumably you been talking about—planning that we should have stand down a lot of these people and move them on aircraft carriers without aircraft. to something else. We only do this every decade or Jon Thompson: Capability planning is nothing so. The worry we have heard in other regards—I have without some frame of reference to what public heard about it from manufacturers—is that there are resources are available to deliver that capability always lots of Ministry of Defence people here to help planning. You have to be framed by some resource you. What they really are doing is re-speccing on a constraints. I am sure Air Marshal Hillier would have constant basis. How are you going to avoid that a great long list of other things that he would like to happening? What will you give the people to do once do, but we simply have to be constrained by what the they have finished this project of buying two carriers taxpayer makes available. and aircraft? cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 15
20 May 2013 Ministry of Defence
Air Marshal Hillier: Those sorts of acquisitions are to handle all the internal approvals, businesses cases generational activities. We will have the aircraft and and a bunch of other activity. We also have significant the ships in service for 40-plus years. People will safety obligations, where we have to check on the change naturally through that time. In terms of when safety of systems, which has been the subject of will we get to that ramp-down point in carrier and F- debate before, for example. There is a variety of tasks 35, it is a long way in the future. that these groups do. My point is that the happy-go- lucky world of us writing out a contract and then Q101 Ian Swales: I am not talking about the allowing industry to get on with it is not one that I capability. I am talking about the people involved in live in. making these decisions and making it happen. Surely there is a point where you need a lot fewer people, Q107 Stephen Barclay: When we get the figures isn’t there? from Air Marshal Hillier, could we have them broken Bernard Gray: There is the setting of requirements down by grade and by whether people are contractors, and then there is delivery of the equipment itself. service staff or MOD staff, so that we can see the full While I appreciate that the defence industry will quite picture across the programme? often say that it wishes to be left alone, thank you Mr Gray, you said that the up-front capital cost with very much, my experience is that that is not on the the destroyer was £1 billion. The operating cost— whole a good idea. It is fair to say that on most Bernard Gray: That is not my bailiwick. I was just occasions when I have pushed on specific issues, they trying to understand whether you wanted capital or are not as well covered off as they should be. If I just operating. let a contract and walked away and invited defence Jon Thompson: We can give you a note on that. It is contractor A to get on with it and “Do just please drop in Navy command. by and deliver the equipment at the end of it and I’ll write you a cheque”, I am unlikely to get that Q108 Chair: It is common ground between us that equipment. the 2010 decision was poor—I’m being kind to it, but it has led to an 18-month delay. The last time we had Q102 Ian Swales: Why? an 18-month delay was with the original decision of Bernard Gray: Because their control of programmes 2006, or whenever it was, when they signed the is not all it might be. budget but did not have the money. That cost us £1.6 billion. How much is this delay going to cost us? Q103 Ian Swales: So we have to get involved in Bernard Gray: We do not have a delay of that kind. controlling the programmes of our suppliers? Is that We did not stop what we were doing. The way that it? this was structured was that the adaptations would Bernard Gray: If I can take you back to the most have been made to the second carrier, not the first. The salient example of this, in the Astute programme we first one, obviously, is significantly ahead in build, so did what you suggested. It was a disaster. From 1996 our strategy has been to carry on building the first to 2003 we let them get on with it. We had a contract carrier and to seek the design changes in the second, and that is what we cared about. In 2003, it almost so we have tried to capture the costs of that. The broke BAE Systems. It cost them hundreds of millions contract that we have for both carriers remained in of pounds. We then had to step back in, reformulate place; we did not stop what we were doing in order the programme and effectively recuperate the whole to pursue the second carrier’s conversion. One of the of our submarine-building activity, which is reasons for the slippage in the CV option from 2020 something that is only beginning to come right some to 2023 is a recognition, when we did that work, that 10 years after that disaster. it would have taken us much longer to build the second ship with the catapults on it—an action that Q104 Ian Swales: I am sorry to press this, but it is a will not now happen. Therefore we are close to, but thing I find very interesting. How many people do not quite on, our original timetable. you need on the MOD side of the house to see that a From our point of view, in the control of risk and programme like Astute is on track? of complexity—you asked earlier about changes—we Bernard Gray: As it happens, on Astute we have have made a deliberate effort to avoid Ministry of about 100 people working on various different Defence-specified changes to the original carrier spec, components. You are looking bemused, but I can including the treatment of the CV conversion. We held absolutely promise you that— that aside and said, “Build the carriers according to the original spec.” Now that CV has been removed— Q105 Chair: What I am bemused about is that I think we have quantified those costs—we have the original you are right that you need the capability; it is just the spec for the carriers, which we are carrying through, numbers—I don’t know how you get to those so there is not a massive cost associated with the CV numbers. Much as I love defence contractors—do and then reversion, and significant delay. I?—I wouldn’t trust them. However, the original contract, effectively, is a cost- Bernard Gray: These are matters of detail. plus contract. There is a very minor element of incentive on the contractors. I am not satisfied with Q106 Chair: A hundred people? I am taken aback by that contractual structure, which does not put any real the numbers. onus on the contracting companies to keep the cost of Bernard Gray: These people do a variety of things, the programme down, and I am worried about their which is not just looking at the contractors. We have performance to the schedule in order to deliver the cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 16 Committee of Public Accounts: Evidence
20 May 2013 Ministry of Defence capabilities. I am therefore in a significant negotiation Chair: Yes, and the aircraft—both. with them right now about attempting to change the Bernard Gray: Of which the aircraft are a more terms of the contract and to capture not only some significant cost. We are in discussions with the US significant risk transfer to them, but some costs of Government and Lockheed about how we collectively items that were originally excluded from the carrier control the costs of the F-35 in service, because a contract. All that is in the context of the shipbuilding significant part of how much it costs depends on how industry in the UK as a whole, and I am looking to the US chooses to configure itself. It has to put in all conclude those negotiations with them over the course the infrastructure for all the spares and the logistics of this summer, but it is not yet done. management and so on. The costs of that system significantly depend on how the US chooses to do it. Q109 Chair: Are you constrained by the industrial That is currently a matter of discussion and is not yet strategy? What I mean by that is jobs, to put it crudely. nailed down. What are the constraints on you in that negotiation? Bernard Gray: I don’t want to get too far in to this Q111 Chair: So, it is still an unknown. subject until we are clearer, but fundamentally, the Bernard Gray: It is still an unknown, but we are military shipbuilding industry has got larger over the involved in that conversation. course of the past five years as we have built these two very large carriers. It has taken on people to Q112 Chair: When you changed your mind on the complete all of this work. From a level, it has gone aircraft, is there a cost associated there, with shifting up and will go down. What we need at the end of that from one to the other and back again? process is a modern frigate/destroyer-building Bernard Gray: We have assumed that the STOVL capability in the UK, because we are not going to variant is more expensive to maintain than the CV build something of the scale of the aircraft carriers variant, and we have included that cost in our total— again for a very long time. There will be a decline in that, and that is part of this discussion. It is going Q113 Chair: I understand that. Are they using the from, as it were, an artificial high down to a more fact that you changed your mind? sustainable lower level. Bernard Gray: No. Chair: They’re not, at all. Q110 Chair: When we get to the final costs of all Bernard Gray: As far as the US is concerned, it is these—the lifetime costs, which is another set of costs comfortable with us buying either option. that tend to spiral and move out of control—how are Chair: Has anybody got anything else? Good. Thank you controlling those in this particular project? you very much indeed. Bernard Gray: The lifetime costs of the operation of the ship?
Written evidence from the Ministry of Defence Q59 AM Hillier “I believe the main gate for Crowsnest is in 2014, but I would have to check…”. Jon Thompson “It is spring 2014”.
Correction The Assessment Phase 3 is in 2014 with the planned main gate for Crowsnest in 2017.
Q65 Bernard Gray “There are two variants of radar under consideration”.
Correction There are two potential Mission System providers (Lockheed Martin and Thales), but within this there are four variants of radar under consideration (Eltra Systems Ltd; Northrop Grumman; Selex; Thales).
Q72 Mr Bacon “How much is Crowsnest expected to cost?”. Henry Parker states “There is a range from about 120 to 400, depending on which solution and how long it takes”.
Correction (Crowsnest Review Note Cat A 15 Mar 13—IAC 3350) There is a range in demonstration and manufacture costs from c£230 million to c£500 million, depending on a number of factors, including who is chosen to provide the Mission System and which radar units are used. cobber Pack: U PL: COE1 [O] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Committee of Public Accounts: Evidence Ev 17
Add Footnote: Specific figures attributable to each potential supplier remain commercially sensitive due to ongoing negotiations.
1. What are the average unit costs of a JSF Type B? (From Questions 18–20) (a) The current US estimate for average F35-B Unit cost is $124 million, which equates to £78 million at current exchange rates. (b) Amplification. This estimate is taken from the US Selected Acquisition Report 2012, released 23 May 2013, which states the average F-35B Unit Recurring Flyaway (URF) cost of the F-35B is $124 million in outturn conditions over the life of the program; the F35 production line shuts down in 2037. Further to this, the Department has undertaken a risk analysis exercise to consider potential variations in cost that could result from sequestration and changes in the buy profiles of other international partners. The profile of annual unit costs is commercially sensitive data provided by the US Department of Defense and is not publicly releasable.
2. How many units would typically be deployed as part of a Carrier Task Group (from Questions 83–86) (a) As stated in the evidence to the PAC, the extent of commitment of Forces to operations is mission specific and scaleable, based on the Commander’s assessment (of mission, threats, operational risk, Rules of Engagement, intelligence) and in line with Defence Strategic Guidance. As an integral part of a Task Group, the Carrier would expect to operate alongside other platforms to provide a flexible, credible and timely response. Illustratively, this could be a minimal number of Frigates and Destroyers for lower-end, short duration activities, up to a much larger blend of warships, aircraft, helicopters, submarines, hydrographic vessels, mine clearance assets and amphibious units, in the higher threat environments. These forces would provide (offensive) capabilities to maintain sufficient sea control to execute the mission and permit the carrier to operate without hindrance. (b) Amplification. We can provide the PAC with a briefing (at Secret level) on the operational scenarios which we are using for planning purposes, and which give an illustration of potential Carrier Task Group composition.
3. How many people, by grade and type (military, civil service or contractor), work in the Ministry of Defence in the Carrier area? (from Questions 99, 100 and 107) (a) As of 22 May 2013 there are 399 personnel within the MoD employed (full and part time) in the delivery of “Carrier Strike,” including QEC Aircraft carriers, JSF aircraft and Crowsnest programmes. Of these, 250 are Military, 118 Civil Service and 31 Contractors. A breakdown by grade is shown in table 1 below:
Table 1 PERSONNEL EMPLOYED WITH THE CARRIER STRIKE AREA IN THE DEPARTMENT BY GRADE AND TYPE. **CONTRACTORS IN PARENTHESES
Rank/Grade 3* 2* 1* OF5 OF4 OF3 OF2 SRs JRs SCS2 B1 B2 C1 C2 D E TOTAL Equivalent
No of Personnel 1 4 3 8 33 64 16 78 43 1 8 15(14) 45(17) 36 11 2 399
(b) Amplification. The table details those involved fully or partly in the delivery, planning or operation of the core Carrier Strike programmes on 22 May 2013; the number will grow over the life of the programme, with the balance shifting to front-line units. These include, but are not limited to, appointments in Head Office, single Service Headquarters, acquisition and project management within the DE&S, Ship’s Company of QEC, JSF A Squadron, the JSF Test and Evaluation Programme and exchange programmes and secondments with the US directly related to QEC or JSF. An approximate percentage breakdown of employment by area is provided in table 2.
Table 2 ILLUSTRATIVE MANPOWER BREAKDOWN BY AREA Area Percentage Policy (MoD, Naval and Air Commands) 15 Acquisition & Project management (DE&S) 50 JSF Programme inc test and evaluation 26 Front Line Units (QEC/A Squadron) 7 Other Exchange programmes 2 cobber Pack: U PL: COE1 [E] Processed: [24-07-2013 11:15] Job: 031023 Unit: PG01 Source: /MILES/PKU/INPUT/031023/031023_w001_michelle_Written Evidence from MoD.xml
Ev 18 Committee of Public Accounts: Evidence
4. What are the Operating Costs of a Type 45 Destroyer? (from Questions 87 and 107) (a) The annual Type 45 unit running cost at FY12/13 rates is £48.57 million, broken down into three elements: personnel £8.76 million; fuel, inventory and services £6.41 million; and general ship maintenance £33.40 million. (b) Amplification. Type 45 is a new to service platform that, so far, has been deployed in a limited way. As deployments become more routine we will have a more comprehensive set of data to base the through life support costs on. To mitigate this, the personnel and services figures have been generated against running four of the six ships in the class. Personnel costs, fuel and inventory have been captured from data logged against the ships UIN (cost centre) and the cost of fuel is based on the MoD FY12/13 planning price of £539/m3. The ship maintenance figure was supplied by DE&S in response to a previous PQ, 25th Apr Column 1286W. Type 45 Engineering Support is provided under a Contracting for Availability arrangement.
5. Additional Actions (a) Military Capability Planning. During the hearing the opportunity was offered to brief the PAC members on how the Military Capability planning process works (Question 94). This presentation will need to be at Secret level and can be delivered at any time convenient to the PAC. This brief will also provide the opportunity to outline how the constituent programmes within the Carrier Enterprise inter-relate. (Question 94). 29 May 2013
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