Oral evidence: Naval Procurement: Type 26 and Type 45, HC 221Tuesday 07 June 2016

Oral evidence, 7 June 2016.

Witnesses

John Hudson, Managing Director, BAE Systems plc, Andrew McKeran, Marine Business Executive, GE Energy Connections – Power Conversion, Dr Andrew Tyler, Chief Executive Europe, Northrop Grumman, and Tomas Leahy, Director, EMEA Programmes, Naval Marine, Rolls-Royce, gave evidence.

Chair

I would like to welcome the members of the second panel. I will begin by asking you to identify yourselves and to say a quick sentence about your roles, please.

Tomas Leahy

My name is Tomas Leahy, and I am the director for Europe, Middle East and Africa for Rolls-Royce—for the naval business within Rolls-Royce. Within my region I have responsibility for the delivery of new equipment as a tier 1 supplier to prime contractors, invariably—for equipment into the new-build programmes, but I am also responsible for the in-service support of our equipment. So, Type 26 and QEC are new build programmes and Type 45 and Type 23 are in-service support programmes.

John Hudson

My name is John Hudson. I am the managing director for BAE Systems’ UK maritime businesses. That is our submarines business, our shipbuilding business, our support business in Portsmouth, and radars and torpedoes.

Dr Tyler

I am Andrew Tyler. I am chief executive for Europe for Northrop Grumman. I am responsible for all of Northrop Grumman’s business across Europe.

Andrew McKeran

I am Andy McKeran. I work for General Electric. I am the marine business executive for our global marines sector.

Chair

Thank you. The structure of this is that we have about three quarters of an hour, and we are going to start off with a few questions about the apparent delays to the Type 26 programme, and then we are going to move on to some fairly detailed questions about the problems with the Type 45 destroyer, so obviously there will be a degree of self-selection amongst yourselves as to which questions you answer. I am probably looking to you, John, for some of the responses on what I am initially going to ask about, which is the Type 26 programme. The first question I would like to ask you is this: if the Ministry of Defence were to ask that construction of the Type 26 global combat ships begin pretty well straight away, would you be able to achieve this?

John Hudson

The ability to start the construction of the Type 26 will depend on a number of factors. These include the maturity of the design, the ability to mobilise a supply chain, and the relatively modest infrastructure work that we need to do on our site on the Clyde. We would need to accelerate some of those activities to accelerate the build of these vessels.

Chair

We’ve heard from the previous panel their belief that the main problem is simply that the Ministry of Defence does not enough money available at this point of time, and that that is the principal reason for the delay—for the moving of the programme to the right, as they say.

John Hudson

As we advised you when you invited me to come to this panel, we are in detailed negotiations with the Ministry of Defence as to the build programme for the Type 26 programme, and we continue those discussions. We will be able to advise you more on the conclusion of those discussions.

Chair

Yes, I was hoping for a little more than that. Would I be right in saying that the original plan was to cut steel for ship No. 1 of Type 26 in 2016—this year—and to hand over ship No. 1 in about 2021 so that she could be in service in about 2023? That was the original plan, wasn’t it?

John Hudson

Back in November 2013, when the whole naval shipbuilding programme was announced, there was an understanding that we would build three OPVs, followed by the Type 26 programme. Following the 2015 SDSR, the Ministry of Defence advised us that they wished to procure another two OPVs. Clearly that is going to have some impact on when we commence the Type 26 programme, and those discussions form part of the detailed negotiations that we are having with the Ministry of Defence to understand exactly what programme they wish to pursue on Type 26.

Chair

Yes, but the original plan was to start cutting steel now so that the first handover could be in about 2021. It appears that the new plan is to start cutting steel only at the end of 2017. The effect of that, if it is true, would be that the handover would be around 2023-24, and therefore full commissioning around 2025-26.

John Hudson

As I tried to explain, we are in discussion with the Ministry of Defence as to exactly what programme they wish to re-baseline the Type 26 programme on. Until those discussions are complete, I am not in a position to be able to advise what the cut steel date would be for the Type 26 programme.

Chair

Well, surely you can advise us hypothetically. I appreciate that they have not decided which option they are actually going to go with, but let me put it to you again that if we had started cutting steel now, we would be handing over ship No. 1 in 2021 and it would be fully in service in 2023. So if we only start cutting steel at the end of 2017, is it not bound to be the case that the handover would be around 2023 to 2024, and the fully-in-service date 2025-26? In other words, everything is going to slip by about two years.

John Hudson

I do not feel in a position to answer hypothetical questions when we are engaged in a discussion with the Ministry of Defence.

Chair

Do you think my estimates are wrong?

John Hudson

I think there are different ways that we can cast the programme, so there may be different options that we could explore.

Chair

Okay. Let’s just have a quick word about the drumbeat. The idea is that as each Type 23 frigate goes out of service, a Type 26 and subsequently a general purpose frigate replaces it. Am I right in thinking that the original plan—this isn’t a matter for your discussions, John, this is a fact—was to have a drumbeat of 12 months, with an out-of-service date for each of these ships? For example, if the first one—the Argyll—goes out of service in 2023, which is when we were hoping ship 1 would be coming in, she would be 31 years old at that time. The idea is that each of these ships would go out of service at 12-month intervals, and each of the new ships would come in at 12-month intervals, thus keeping our numbers the same. Am I right about that?

John Hudson

I don’t believe that the drumbeat was decided or declared in 2013, and the drumbeat is a very important part. It is not only about the first-of-class programme, the cut-steel date and the duration of that programme, but the subsequent vessels and the frequency with which we will build them are still very much part of this discussion.

Chair

The drumbeat for out-of-service dates is a matter of public record. Answers to written parliamentary questions have revealed that the planned out-of-service date for the Argyll—the first one to go—is 2023, and the others are planned to go out at 12-month intervals. So unless the drumbeat for the new ships coming in is at 12-month intervals, we are going to see a very considerable reduction in the availability of ships, aren’t we?

John Hudson

I think that is a matter of mathematics.

Chair

Exactly. So is the question of keeping the Type 23s in service part of the discussions that you are having, or are you only having discussions about bringing the new vessels into service?

John Hudson

We are only engaged in discussions about bringing the new vessels into service, and therefore that is a question for the Ministry of Defence.

Chair

So there seems—don’t worry, I am drawing this to a close—to be a widely held belief that, as well as delaying the delivery of ship No. 1, the drumbeat could slow down to a new ship every 18 months. It presumably follows that if the fleet is to be maintained even at its rather limited number of 19 frigates and destroyers in commission, then they will have to revise the out-of-service dates from 12 months to 18 months. Otherwise we are going to see very considerable reductions, aren’t we?

John Hudson

Again, I think that that is a question for the MoD. The mathematics is clear. The only thing I would advise is that there is a discussion of the light frigate programme and whether that would contribute to fleet numbers.

Chair

We heard from one of our witnesses just before this session that there is a possibility that perhaps we could try, if not to accelerate the Type 26 programme, then to bring in the new general purpose frigates a bit earlier. But surely they are not even designed at this stage, are they?

John Hudson

I don’t believe that there is any design to meet the UK MoD requirements for the light frigates. That is clearly an option, and I believe that the naval shipbuilding strategy will review it.

Chair

Finally from, the defence review says that there would be at least five of the new light frigates, with the implication being that there might well be more than five of these ships. Have you been given any indication to suggest that the Navy is seriously thinking about ordering more than five? That would perhaps restore some of the depleted numbers of the frigate and destroyer fleet.

John Hudson

It is very early days in the development of the naval shipbuilding strategy. Again, that question is more for the Ministry of Defence.

Chair

We are in the position, then, that unless the Ministry of Defence comes up with more money we are going to see a big slowdown in this programme, aren’t we?

John Hudson

In terms of frigate numbers, that is a case of mathematics.

Chair

Thank you very much.

Ruth Smeeth

Thank you, gentlemen, for coming. I would be really interested in hearing from all the other companies about whether, if the MoD requested building to start straightaway, you would be able to meet that. Specifically—unsurprisingly, I am sure, Mr McKeran—I am interested to hear from General Electric, given the 243 jobs that have just been terminated in my constituency, some of which relate to maritime. I would be interested in hearing from all of you about your ability to deliver on this going forward.

Andrew McKeran

Absolutely. Shall I go first? We are working in full collaboration with BAE Systems on the Type 26 programme to look at any of the impacts that John was referring to. With specific reference to the Kidsgrove site, obviously, as you are aware, we are in the early stages of a consultation, so it is premature to speculate on those manufacturing capabilities for the propulsion converters. What I can say is that GE has 22,000 employees here in the United Kingdom, we have depth and breadth of manufacturing capabilities and we are fully confident that we can deliver on all existing and future commitments to BAE Systems and to the MoD.

Ruth Smeeth

You will appreciate that this is slightly personal for me, given what is currently going on, and while I appreciate that we are in the early stages of the consultation—I seek your indulgence, Mr Chairman—the concept that there is going to be ongoing manufacturing capability at that site is unlikely, as far as I have been informed. Given that some of the work on that site is about ongoing manufacturing, yet in February you were still investing in the site and signed a new lease for seven years, you will understand my queries about your ability to forward-plan and be able to pick up an MoD contract going forward.

Andrew McKeran

I can only repeat that we are in the early stages of the consultation. As you know, we were in discussions with you last week, so we are obviously looking at all the alternatives available to us under that consultation. As part of that consultation we will obviously be looking at forward planning, depending on the outcome of the consultation.

Douglas Chapman

Going back to a question I asked the previous panel about some of the design and technical reasons why the Type 26 could not be started almost immediately, you mentioned in your first answer maturity of design, supply chain and the idea of the frigate factory—

John Hudson

Infrastructure.

Douglas Chapman

Yes—infrastructure issues. How much would it take to overcome these? Are these big issues? I imagine that the supply chain would be fairly mature, for example, in terms of knowing that this project is about to kick off.

John Hudson

The design is well developed, more than 60% mature, so we have a very good understanding of what the design is. It is in nobody’s interest to rush the design into production; we want to make sure that the design is at a certain level of maturity before we cut steel, therefore if the Ministry wants to advance cut-steel, we would have to invest a little more in engineering. We would need to recruit some more people to bring that forward. Likewise, to advance our colleagues in the supply chain, we would have to place orders with them and increase investment in the supply chain.

Douglas Chapman

Lord West mentioned the increasing cost of delays. Are you in a position to tell us today your anticipated increase in the cost due to cutting steel at a much later date than was previously anticipated?

John Hudson

We are in discussions, but we do not know what the programme is going to be, and therefore I do not have a figure that could advise you of what the increase will be.

Douglas Chapman

Have you not made some assumptions about what that delay might mean? We have had examples today. The Type 45, for example, started at a promise of 12, and was reduced to eight and then reduced to six. That must have a huge impact on your cost structure, your unit cost per ship. You are probably part of the management team that saw the last of the 45s coming out of the Clyde shipyards. Are there no figures that you can look back to on the Type 45s, to say “These were the percentage increases in costs from the original figures?”

John Hudson

Lord West highlighted that when programmes slow down, there is a tendency for them to increase. In terms of specific numbers, it would depend on what set of specific assumptions one was making. I do not have any specific numbers, but there is a theme there.

Douglas Chapman

Okay, nice one. In terms of business planning, we have huge investment in personnel on the Clyde. There is an impact that that might have on skills—I think the Chair and others mentioned the drumbeat. The unions came out a few months ago and said that if we did not get this right and the delay went on into 2018-19, the skilled workforce might disintegrate, go elsewhere or not have the same sense of purpose and so on. How concerned are you about that coming to fruition? I think the number is that maybe 800 people will be losing work—losing their jobs—through that process. How concerned are you about whether, if that 800 go, you can start to deliver the rest of the programme at the drumbeat that the MoD expects beyond that?

John Hudson

It is important for us to retain that skilled workforce in order to deliver these complex warships. That is absolutely essential to what we do. Depending on what the programme outcome is, we will then have to look at what the implications are for our employees. We are fortunate in the sense that we have the carrier programme and the submarine programme; we would look to explore how we could use our employees on the Clyde to support those programmes if there were any break in load on the Clyde.

Douglas Chapman

One more supplementary. Your trade union convenor said today that this would create a bit of a hiatus in people’s level of skills and in their commitment to the job—maybe “commitment” is not the right word, but it is about being on site, being part of the project from the start and using their skills. If they are pulled on to other responsibilities or other jobs, you might lose some of that skill level.

John Hudson

As part of our responsibility to our employees and the customer, it would be very important for us to make sure that those skills were maintained and that the activities done were relevant to the skills we need to sustain. We would work very hard to avoid losing those skills.

Chair

I know Ruth wants to come back briefly.

Ruth Smeeth

We are hearing a great deal from BAE, which makes absolute sense, but it would be really interesting to hear from everybody else about the impact of the delay in this contract on your business planning and on your workforce. Obviously I have a specific interest, but I would be interested to hear the knock-on effect on jobs, investment and even R and D within your own businesses because of this delay.

Dr Tyler

The answer from me is very simple: we are not involved in Type 26.

Ruth Smeeth

So you’re alright.

Tomas Leahy

From a Rolls-Royce point of view, we have been selected for the MT30, the gas turbine on board. We signed the contract with BAE for the first three vessels back in July last year. The first of those engines underwent a factory acceptance test in January this year; that engine is currently being packaged and will be due for delivery in December this year. The product will be available, but we are looking at how and where we deliver that at the moment. Obviously there is an ongoing debate. In terms of the security of the supply chain going forward, MT30 is a successful product globally; we have a number of programmes that we have been successful in, so we are able to manage any movement if it happens. Today we have a programme that we are working to, but were that to change, we would be able to accommodate that with the other engine programmes that we have been successful in on a global basis.

Andrew McKeran

My answer is very similar to Tomas’s. The Type 26 that we are supplying to BAE Systems has the propulsion drive plus the propulsion motor, which is normal business to us in the marine world, so we have the capability to manufacture this.

Ruth Smeeth

You have the capability. Will you have the ongoing capability, even with your current reductions in workforce?

Andrew McKeran

Yes, we will have the capability to meet the commitments to BAE.

Ruth Smeeth

And that will be consolidated at Rugby?

Andrew McKeran

It is too early to say at this stage, because of the consultation period.

Chair

Thank you, gentlemen. Before we turn to Type 45, let me say that we appreciate that your company warned us, Mr Hudson, that you would be restricted in what you could say in open session. Is there any prospect that BAE Systems would be prepared to share a bit more detail on the Type 26 programme with the Committee if we had a private closed session in confidence, or private written correspondence in confidence?

John Hudson

These discussions are ongoing. We would not want to prejudice those discussions in any way, so I think that would probably be difficult for us at this time.

Chair

Okay. Well, let’s hope that the people taking part in the discussions take note of some of the points that have been aired today.

Richard Benyon

Are you still working on the basis that is in the SDSR of eight?

John Hudson

Our current assumptions are entirely consistent with the SDSR—eight Type 26s built on the Clyde. For the initial contract, we anticipate three.

Chair

On to Type 45s—John Spellar.

Mr Spellar

Okay, let’s move on to that. According to the Secretary of State, the MoD’s independent review of the propulsion system identified “design shortfall” and “reliability problems”. Any idea why those failings were not found out at an earlier stage?

John Hudson

The Type 45 story is quite complex. I will attempt to start it and my colleagues can join in as we go through. There was an ambition in the 1990s among the marine engineering community of the Royal Navy to move towards all-electric ships. There are tangible operational benefits to doing that. When combined with a highly fuel-efficient, recuperated gas turbine, that provides real fuel efficiency. You get fuel efficiency even with a very fuel efficient prime mover, but that adds to it. There are operational reasons, in terms of training and crewing, where you can simplify support. In an era when we still think that directed-energy weapons will play a role in the naval battlefield of the future, having the ability to generate large amounts of electricity on board warships is a very desirable thing to do. That was the ambition in the 1990s. The Royal Navy team then developed some new innovations around electric propulsion. They developed the advanced induction motor and were looking at drive technologies. Coincident with that was the technology of the advanced intercoolers—the WR-21 gas turbine. In the same period, the company was contracted to build the Wave class fleet tankers and the Bulwark LPDs. They were, indeed, electric propulsion. There were one or two teething problems in the first instance, but those were very successful. So, when it came to Type 45, it was natural that there would be an ambition to move towards the fully electric propulsion system. There was a degree of prototype testing of the engine and of the electric drive system, but, as one of the admirals said, with 20:20 hindsight, that testing was not rigorous enough and exposed some vulnerabilities in reliability and in systems integration. What we saw through 2011 was the manifestation of some of those risks.

Mr Spellar

And was that failure of testing at the company level or at the MoD level?

John Hudson

It was a combination of things, including the integration of the equipment into the ship; there was an element of design integration where some things were unanticipated. The test facilities did not exactly replicate the situations on the ship and therefore failed to expose some of the issues that became exposed when the ships entered service. We have also heard that some of the testing proved that the functional integration of the system—that is, that the system would work—was not run sufficiently long enough to be able to demonstrate that they were reliable.

Dr Tyler

I think that is a generic challenge that you always have with a complex engineering system, particularly when there are new and novel bits of technology being introduced to it. We see that on all sorts of different complex platforms from airliners to ships to cars. It is very difficult to fully simulate a lifetime’s worth of realistic conditions in a test regime of any sort. That is an extremely difficult thing to do, so there is always a risk of some discovery once a system enters service and then goes through its operational duty cycle. That is almost certainly what we have found out with the Type 45s’ power and propulsion system.

Mr Spellar

Was it just that specifications were built into the design and, when you tried to integrate them in real-life conditions, they did not come off? Or was it that, as so often happens with these projects, the specification and the energy demands changed during the lifetime of that project?

John Hudson

I don’t think it’s an issue with changing requirements. This is more to do with reliability and systems integration. The requirements were pretty stable through the design phase.

Mr Spellar

So would it be prudent in these, therefore, to err on the side of simplicity in designs rather than over-complexity, in spite of the theoretical advantages of the overly complex system?

John Hudson

These are the decisions people have to make. There are tangible benefits going to the integrated fully electric propulsion system, but that is at the expense of simplicity.

Mr Spellar

Well, perceived benefits might be better than tangible.

John Hudson

Perceived benefits, yes.

Dr Tyler

I think Admiral Stanhope made the point very well that all of our battle-winning equipment requires a technological edge. When you are aspiring towards a technological edge, you’re always going to be taking on a level of risk. Actually, for Type 45, there is a whole system of systems, including its weapons systems. A lot of technological risk was taken on it. A large amount was mitigated and dealt with, and we still have the finest air warfare destroyer in the world as a result. If we had erred on the side of caution, we wouldn’t have put anything like the innovation into that ship, and we would have had a ship that wouldn’t have given anything like the operational advantage to the Royal Navy that this one clearly does.

Mrs Moon

Two things: you’ve got a very fine ship; it’s just that you can’t rely on it actually being able to sail, which is fairly serious. We have heard about the onshore testing, and the fact that it didn’t go on long enough. Can anyone tell us how long it was tested for, and how long onshore testing should really be?

Tomas Leahy

For the WR-21 gas turbine, because it was a product development, it actually underwent over 8,000 hours of testing during the development cycle. That was a mixture of development testing and endurance testing. There was a change in the design after about 5,000 hours of that, on the recuperator itself, so that had only about 3,000 hours of testing. The problems that we have experienced in service have come between 4,000 and 5,000 hours. So did we do enough testing? No, with hindsight, we didn’t. It would have been good to do that extra testing. Overall, the gas turbine system—the intercooled recuperated system—was proven, in that the concept worked and it delivered the fuel efficiency that we were expecting. Yes, an element of that system, the recuperator, because it was changed late in the design cycle, has proved not to be as robust as the rest of the system.

Mrs Moon

Who made this decision not to carry on with testing when the changes were made? Was that an MoD decision, or was it a company decision, not to run it for a further 8,000 hours?

Tomas Leahy

It was a mix. When all of this happened, the US navy were running the programme at the time. It was a US navy programme, so WR-21 was designed to a US navy specification. Northrop Grumman were the prime contractor, and Rolls-Royce were a subcontractor into that for the gas turbine element of the system. The change was made by Northrop Grumman, and there was also a very challenging cost target within the WR-21 development programme. The change was made to the recuperator and in a number of other areas to try to drive that cost down. So the US navy was still very much in the driving seat when there was the initial issue with the recuperator. Following that, the US navy withdrew from the programme. Almost coincidental with that, WR-21 was selected for the Type 45 programme, and the MoD took responsibility for the subsequent testing of the recuperator and WR-21. So the 1,900 hours of testing that were done post the modifications to the recuperator were funded by the Ministry. It was a Ministry-led programme.

Mrs Moon

So it was the Ministry of Defence that decided not to put the extra hours into testing following the modifications.

Tomas Leahy

It was the Ministry that decreed the 1,900 hours it would take. At the same time, we were also installing and delivering the first WR-21 to the first of class on 45s, so there was an issue of timing playing into all this. They didn’t want to hold up the build programme, obviously. The engines are one of the first things fitted in the build sequence, because of the size.

Mrs Moon

Is that normal practice?

Tomas Leahy

Yes.

Mrs Moon

It is normal practice to cut the testing hours?

Tomas Leahy

No. At the time, the testing was deemed sufficient. Given all the running that had been previously done, it was deemed that that was sufficient testing. In any testing, it is a cost versus risk benefit analysis, and at that time, it was decided that was sufficient testing. With hindsight, it would have been good to have done another 4,000 or 5,000 hours of testing. We may then have seen some of the problems we have had in service.

Mrs Moon

Has it taught you a lesson? Do you now decide, “Yes, we need to carry on running it.”?

Tomas Leahy

It is very difficult. You do an analysis of what you think the risk is and what you think you will realise through testing. Have we learned a lesson on WR-21? Yes, because we now have empirical data and over 90,000 hours of experience of running WR-21 in service. It is very difficult to imply that for another programme. When we developed the MT30, for instance, we took a view on the level of risk that we had embedded within that marinisation programme, plus all the experience we had of that engine as an aero-product with over 4 million hours of running behind it, so we didn’t do as much testing. We didn’t do the 8,000 hours that we did on the WR-21 because of the inherent risk that we felt was in that product.

Dr Tyler

You are never in a situation where you can do enough testing, but in any engineering programme, you have to deliver a product. The ultimate test of a product is to look at it through the entirety of its operational life. That is really where you understand whether you’ve got everything right or not, and we spend our whole lives making judgments in these complex programmes about the point at which you have to get on and produce the product and stop the test programme, because you could just carry on forever.

Mrs Moon

But clearly the judgment was wrong in this case.

Dr Tyler

With the benefit of 20:20 hindsight, in this particular area of the ship system, history has shown that, yes, we should have done some things differently in design, and maybe additional testing. As I said, if you look at it in terms of the overall ship system, there are plenty of other areas where we might have ended up with a similar risk manifesting itself, but we didn’t because the judgment call was right. This is an incredibly sophisticated product by any engineering standard.

Mrs Moon

What I find difficult is that here we have a critical defence capability that basically doesn’t work and is not reliable. It places the country and the people who serve on it at risk, and none of you seems to be saying, “Yes, really sorry about this.” It is almost as if it is, “Yes, we got that wrong.”

Tomas Leahy

That is unfair on the industry involved in the Type 45. We are actually very focused on improving the reliability of the system, and the equipment embedded within the system, going forward. We are working extremely closely with the MoD, and we are working extremely closely with the crews to support them in service on the Type 45s. We have seen considerable improvements in the reliability of the equipment in service. We have a number of programmes running that we have either completed—we have seen the improvement directly from those programmes—or on which we are working very closely with the Ministry to develop and deliver cost-effective solutions to give Type 45 the level of reliability that it deserves.

Ruth Smeeth

I think it is a level of reliability that the service and the country deserves. Taking us back a step, focusing on Mr Hudson, in a statement to the House the then Secretary of State, the right hon. Geoff Hoon, said: “The prime contractor advised us that both engines met the programme requirements, and that either would be acceptable to the Royal Navy.” As the prime contractor, what evidence did you have at that point to make that assessment?

John Hudson

I think that assessment is not entirely complete, because we did also advise that the WR-21 carried higher risks. When we said that the technical specifications of either engine would meet the requirements of the ship, we advised that the WR-21 had inherently greater risk because of its development nature and we pointed out that it had higher through-life costs. I think we tried to give a balanced view to the Ministry of Defence when we made that comment.

Ruth Smeeth

Are you saying that it was a political failure to choose this, or are you saying that it was an MoD failure and that you had covered your back?

John Hudson

No, I am trying to say that we tried to give professional advice to the MoD. It is a decision for the MoD as to what benefit and risk they wished to take in the programme.

Ruth Smeeth

Okay. Given that there was higher risk, were you surprised when the engine failed to deliver to the required spec?

John Hudson

We were anxious about the risks in this novel engine. The propulsion system does require a highly reliable engine, so we were anxious about risk, but that decision was made by the MoD.

Ruth Smeeth

You say that you were anxious. How did you choose to communicate your anxiousness about this risk?

John Hudson

I have said that, when the recommendation was made to Government, it was made in an explicit way, but it was for the MoD to choose which solution they wished to take forward.

Ruth Smeeth

So after the initial ship had been deployed, was there any point when you continued to articulate that there could be additional challenges?

John Hudson

There was a study done in 2005 where some of the issues associated with the recuperator were identified, and we did a short study to ask the Ministry of Defence whether they wished to reconsider the decision to integrate the WR-21, or whether they wished to consider putting a different prime mover into the vessel. That study was not taken any further; it was not progressed.

Ruth Smeeth

Who made the decision not to progress it?

John Hudson

I think it was a collective decision that the balance of the ongoing risk of the WR-21 and the potential programme impact of change did not warrant a change.

Ruth Smeeth

At that point.

John Hudson

Yes.

Chair

Can I talk a little more about the WR-21 test process? Would it be fair to say that it was rushed in any way in order to secure orders, first for the US navy, though that never transpired, and secondly for the Type 45 ships?

Tomas Leahy

No. The WR-21, as I have explained, was a development programme run by the US navy. The speed of testing and of development was very much dictated by the US navy office that was running that programme, subsequently joined in 1994 by the Royal Navy. The programme was very much run by the Governments involved in it. So in terms of whether it was rushed to meet a particular programme, no it was not. The development testing was an organised level of testing that ran its course.

Dr Tyler

It was 14 years of research, development and testing from the initiation to the factory acceptance testing of the first engine.

Chair

How quickly did the problem emerge with the first of the ships to suffer?

John Hudson

We are focusing a lot on the WR-21, but in fairness, there have been a broader range of issues that are not unique to the WR-21. We have also had problems in other aspects of the propulsion technology.

Chair

What I am trying to get at, with that little question, is this: were there indications of something seriously wrong with HMS Daring early enough for steps to have been taken with the later-build ships, or were they all beyond that stage?

John Hudson

The nature of the failures is quite complex. In the early days, there was a proportion that were related to the WR-21; there was a proportion that related to the drive mechanisms themselves; and there was a proportion that was a consequence of the way the system had been integrated into the ship. It has taken industry some time to really analyse those failures and to be able to articulate which bit is contributing to the failures of the ships. In the early days, it would not have been immediately apparent what had to be done to resolve the problem.

Chair

When did the first really serious incident of a total power wipe-out take place?

John Hudson

Early on in Daring’s commissioning.

Chair

At that stage, where was the build with regard to the propulsion systems for the later ships?

John Hudson

They would have been largely procured, and some of them would have been very much built into existing second and third class—

Chair

So you are saying that by the time the major problem became apparent, it was already too late for the later ships.

John Hudson

Yes.

Chair

What control did Rolls-Royce have over the replacement core design submitted by Rand Energy Systems and chosen by Northrop Grumman on cost reduction grounds, before Northrop Grumman themselves subsequently pulled out, following the withdrawal of the US navy from WR-21?

Tomas Leahy

Rolls-Royce was a subcontractor to Northrop Grumman. We were not involved in that decision-making process. We were given a concept—“This is the change. What is the impact on the system?” It was almost a fait accompli—“This is the change in the recuperator. What impact does it have on your gas turbine?” We were only doing that one element—the rotating part of the gas turbine—and WR-21 is a very complex gas turbine system, with an integral number of parts.

Chair

Would it be true to say that, once these things started happening, you were all keeping your fingers crossed a bit that it was all going to be right and work out well in the event? But you must have had misgivings from the first time this happened onwards.

Tomas Leahy

I’m not sure we had misgivings. We understood that introducing a significant change in the design that late in the programme could have had some consequences, but the 3,000-hour endurance test was already programmed and the view was that that would shake down the new recuperator and we would get some understanding of its performance.

Chair

Although the Government took the decisions about how long the testing process should last, were there any people from within industry who felt the Government were taking a wrong decision?

Tomas Leahy

The programme works very much hand in hand with both Governments—the US Government and the UK Government—and decisions were taken jointly. The funding was coming from the two Governments, of course, but on engineering decisions the Governments decided on advice from the companies involved.

Chair

So it was quite a joint endeavour.

Tomas Leahy

Very much. Yes.

Douglas Chapman

A quick question: I read somewhere that the ambient air temperature or sea temperature could affect the operation of the units. I find it really surprising that that was not part of the spec that was set down at the start. The MoD must have realised that it would be using Type 45s globally and it almost comes across that we cannot use this ship in the Gulf, for example, and a full-complement, battle-ready ship is a sitting duck if there is lack of power. Could you give us a bit more of the technical background to that? The other point is about poor fuel quality. I was watching something the other night about how, for example, aviation fuel is protected to make sure it is absolutely clean and without water particles and so on. Surely, that level of care and attention should be taken with fuel for naval ships.

Tomas Leahy

I will answer the first question initially. From a WR-21 point of view, there was a specification for the Type 45. The engine met that specification, which was the same specification that was applied across the whole system. The system met that specification. Are the conditions experienced in the Gulf in line with that specification? No, they are not. The equipment is having to operate in far more arduous conditions that were initially required by that specification.

Douglas Chapman

Was that in the first scheme?

Tomas Leahy

That is really a question for the Ministry because it lay down the specification for the warship.

Mr Spellar

But don’t you have some responsibility as a contractor and one of the few companies that can do this to say, “Your specification will not match up to the conditions that you are likely to meet.” You don’t just take the spec straight off and implement it if from your knowledge and experience it would be inadequate or insufficient.

John Hudson

Part of industry’s response to that was that there was an upper limit for environmental temperatures and we sought to produce a design that would have graceful degradation beyond those temperatures. We have found in the Gulf that it takes the gas turbine generator bit into an area that is sub-optimal for the generator, and we also found that the cooling system created condensation within the drive units, which caused faults, and that caused electrical failures as well. We found two additional problems, but we designed the ship such that it would have a graceful degradation and not simply stop functioning.

Tomas Leahy

We discovered that, with the integrated electrical propulsion system, it was very different in the mode of operation than we had previously experienced and the Navy had previously experienced. All gas turbines previously had been a mechanical drive, so there was a gas turbine connected to a gear box connected to a propeller. The laws of physics say that if you run a gas turbine in a hot environment it will not generate as much power as in a cold environment. It is a mass flow machine and air is less dense when it gets hot. So if you take a Type 42 or a Type 22 into the Gulf and run it, yes, its engines will not deliver as much power as in the North Sea. All you would see though would be a bit of drop-off on top speed; that is all they would be aware of. In an integrated electric propulsion system, the electrical system loads the WR-21 up to its 21 MW power rating, and that is what it is expecting to see. If you then operate in a hot environment, the WR-21 cannot deliver 21 MW any more, but the electrical propulsion system does not know that and still demands it. It continues to load it, saying, “Where’s my 21 MW?” The net result is that the engine cannot deliver any more fuel or power, so the speed of the generator starts to drop off. We then have under-frequency protection as part of the system design and eventually the breaker will open because of the low frequency of the gas turbine. That is when you get your total electrical failure. Suddenly, you have lost your main generator on your system and you are plunged into darkness. It is not a fault of the WR-21; even if it were a single-cycle gas turbine it would still suffer the same fate in those circumstances. It is a law of physics.

Mr Spellar

Maybe, but as those were the laws of physics, why were they not taken into account in the specification? Or, when the specification came to you, why did you not say, “This offends against the laws of physics.”? You do sometimes have a duty to educate your customer.

Tomas Leahy

That was more about the system design. The gas turbine was delivering what it was required to do. It is the system design that probably did not take that into account as well as—

Andrew McKeran

The system design was probably sound. I think that this is traditionally where you probably would have used a—

Mr Spellar

You mean the play was a success but the audience was a failure.

Andrew McKeran

A diesel gas turbine mix in a slightly different way, whereas WR-21 at the time indicated that it would operate across those ranges in an efficient way. The concept of integrated electric propulsion was right, in the fact that it does allow an agnostic prime mover configuration. To add to Tomas’s point, it was designed right at the start and it had been tested during shore testing, in terms of its operation.

John Hudson

It was compounded a little by people’s thinking at the time around the capabilities of the WR-21. The WR-21 is a unique gas turbine in that it is very fuel-efficient at low power, and the aim and the aspiration of the Ministry of Defence was to use the WR-21 for as much of the operational time as possible. Therefore, the diesel generators were sized very small. So we have a very large gas turbine unit, at 21 MW, and we have quite small diesel generators at 2 MW, which are insufficient to propel the ship and provide the electrical supply to the ship’s systems. In those circumstances, when you have a failure of the gas turbine, it has a cascade effect on the ship and causes total electrical failure. Had the prime movers been more evenly sized, it would have had different consequences.

Mr Spellar

I understand that, but none of it, surely, is unpredictable. The basic physics—the basic calculations—should have taken that into account, should they not? This is not a completely exogenous impact; it is just your basic engineering design and physics.

John Hudson

Assumptions were made that the WR-21 would be a very reliable prime mover, and therefore the system design was built around that assumption.

Chair

For how many years do you think the Royal Navy has had a naval presence in the Gulf? Would it be measured in decades, scores of years—a century? Why should it have come as such a surprise that there would be these sorts of climatic demands and obstacles to be overcome by a new design of ship?

John Hudson

I think that the Navy have operated in the Gulf for many, many years and were aware of that. The operating profile that was considered at the time was that there would not be repeated and continuous operations in the Gulf, that they would not form a part of the operating profile for the ship. Therefore, it was not designed explicitly and uniquely for operations in the Gulf.

Dr Tyler

I think we have also got a confluence of two of John’s points. One is around this concept of graceful degradation, which is something that we apply a lot in engineering systems at the upper or lower threshold of their specification because you do not just want the thing to stop; you want it to be able to carry on and operate, albeit sub-optimally, once you move outside that specification. It was designed that way. Then another of John’s earlier points was to recognise that, if this is a failure, it is at a systems of systems level in an extremely complex system, which isn’t just the gas turbine and isn’t just the architecture of the integrated electric propulsion; it’s a combination all of those things acting together. And when you really stress a very complicated system of systems and put it to the outer edge of its specification, sometimes you find that that gets a system failure that you hadn’t anticipated before, and I think you could point to many, many engineering systems where, when they are pushed into those extreme situations, you get that sort of unintended outcome.

Tomas Leahy

Just to follow up on that, I think what is important, though, is this: have lessons been learned? Yes, they have. Both the QEC and the Type 26 environmental conditions are very representative of what’s actually experienced in operating in the Gulf. So, yes, they’ve been embedded into the new vessels that are currently being built and being planned to be built.

Chair

Yes, one always hears this thing about “lessons being learned”, but one would like to think one could learn lessons in a less costly way than building a ship that doesn’t work in the environment where it is deployed.

Douglas Chapman

It wasn’t a further question; I’m just absolutely stunned that you’ve given the answers you have. As the Chair has just alluded to, to have such an asset—it’s a £1 billion asset—that you’re putting into perhaps a war zone, and we don’t know if these people who are making up the complement on that ship will go in there and come back out alive, because there might be a problem with the power system on the ship. I just find that—I’m just astounded. I’m sorry.

Chair

Any further observations on that point?

Dr Tyler

Well, except to say that, as I think the Secretary of State outlined in his letter to the Committee, the Type 45 has been doing sterling service around the world, including in the Gulf, where it’s a very, very highly respected asset, respected not only by our own Navy but by the US navy. So I think there’s a certain element of black and white that’s been introduced here, when perhaps this is a situation more of shades of grey.

Chair

Well, it sounds to me that this is a situation whereby the more complex we build these machines, the greater the problem that if one element goes wrong then it has a catastrophic consequence potentially, in that over-complexity is not always compatible with reliability.

Dr Tyler

I think that there is a point where you have to be in the optimum place, between the complexity that gives you a technological edge and the complexity that then gives you, in this case, reliability issues, and finding that sweet spot is not always easy. A lot of our jobs is around trying to predict where that is going to be and de-risking it through appropriate means like testing and so on, and also, on occasions, bailing out of something that has demonstrated itself to be a risk too far. And we don’t always get it right. We’re not sitting here saying, “We got it right,” because the evidence is that in this particular specific area we didn’t get it right; I mean, that’s pretty clear. So I don’t think we’re trying to duck the issue at all here. What we are very focused on now, and I think what the Committee should be reassured that we are very focused on now, is working very closely with the Navy and the MoD in fixing this, and we’ve been doing that over some extended period of time already now—since, I think, 2011, although I defer to colleagues here—in an improvement programme, which continues to this day and which has already had meaningful effect and improvement.

Richard Benyon

I think that last reply was refreshing. We have heard a lot of corporate and Government-speak about this, and we just felt that the issue is being kicked from one to the other, and it is frustrating. I am not actually very interested in pointing a finger of blame just for the sake of pointing a finger of blame. What we really want to know is that lessons have been learnt. At the end of the last Parliament, this Committee produced a report on decision making in procurement and operational matters. I urge you to look at it, because it seems that at certain times and in certain ways a sort of cognitive dissonance can come into the whole process, and the inevitability of something is what drives it, rather than being able to say—even people quite low down in the process in your businesses, or in the MoD, or in the armed forces, being able to say—“Actually, this is not working, this won’t work and this is why it won’t work”, and to have the ability for people to be part of that process, rather than it having got a momentum of its own.

Andrew McKeran

I was going to say, just to reiterate and to come back to Mr Chapman’s question as well, that this is being taken very, very seriously by all the companies that are obviously sitting here. Specifically from the GE perspective, I was also on board HMS Duncan last week, and down in Plymouth the week before. So, not just as an organisation but obviously as individuals, we are taking this exceptionally seriously and working through some of the issues collaboratively. I think that’s the point—some of those unforeseen errors that we have had, or issues that we have had associated with the early performance of some of the equipment that’s being deployed on to the Type 45, is obviously being put through some very, very rigorous quality processes and root-cause analysis, etc., to get to the true root cause, to make sure that we do eliminate it and to make sure that that is passed on, not just to the deployment of these vessels but obviously to the deployment of future vessels as well, in terms of QEC etc.

Richard Benyon

The MoD has said that funding for the Type 45 power and propulsion improvement programme is to be contained within the budget allocated to Navy command. Do you feel that other items, as a result of this, are being pushed to the right—or off a cliff, to overuse that analogy? If this is coming out of the existing Navy command budget, there must be something else happening in other directions. Are you seeing projects you are working on being elongated?

Tomas Leahy

It is not something we have visibility of in Rolls-Royce. We are working very closely with the Ministry to develop a solution, particularly for the recuperator improvement. That is being installed in a testbed in Bristol at the moment, so we will be doing a trial on that in a month or so. That programme is running forward. Is that having an impact on other areas of work that we do with the Ministry? No, I am not aware of that.

Dr Tyler

I think that you are talking, in the grand scheme of things, about a relatively small element, finance-wise, in a large naval equipment and support programme. The MoD is consummate at veering and hauling its resources to meet different events that occur, operational needs and so on, and I expect that is what they are doing now. I think it is really a question for the Ministry, to be honest.

Richard Benyon

For those of us who went on HMS Duncan and spent some time in what I still call the engine room, you get a feeling of the scale of this, and therefore the scale of this contract. There is still uncertainty about how the existing machinery is going to be removed and replaced with the new one. You sort of get the feeling this is actually a ship rebuild, as has been said, with miles and miles of wiring and completely new systems. I would not expect you to say no to this, but we need you to be as frank as you can with the Committee: are you absolutely certain that this is going to deliver the solution that we are after? This is an enormous contract. This is not a great day for the history of ship procurement, and we want to have total confidence that the Napier solution is going to work.

Ruth Smeeth

May I just add a supplementary to that before you answer? One of the things that was clear when we visited HMS Duncan is the likely ongoing additional capability that the ship is going to seek. Given that the propulsion system cannot cope with what it is currently being asked to do, what are you doing to make sure you are future-proofing it, given that the experiences of all of this have been an absolute disaster? The fact that we have seen suggestions on Twitter in response to this debate, as we have been sitting here, that the ships have been in the wrong kind of sea, suggests that this is an absolute nightmare. How are you making sure that this is future-proof?

John Hudson

This is a complicated problem, and therefore, unfortunately, it has complicated solutions. It is not as simple as fixing the WR-21 or fixing the drives or fixing the various integration aspects of the ship. This has to be a multi-channel approach. We have to make the equipment inherently more reliable. That means embodying the change to the recuperator, making some changes to the drive technology, reconfiguring the platform management system and changing the cooling system. There are a raft of detailed changes that have to be implemented. That is described as the equipment improvement plan. Notwithstanding those improvements, when those improvements have been delivered the disparity of power between the WR-21 prime mover and the two 2 MW diesel generators will leave the ship slightly vulnerable to those power transients that cause part of the problem. A secondary part of the solution is to increase the electrical generating capacity on the ship via diesel generators. There are several options that the Ministry has been presented with as to the number and size of the generators, and they have different impacts on the benefits they will give to the ship. There is a slight cost capability trade-off to be made with the final solution, but once we have incorporated the diesel generator upgrades and the equipment improvements, I believe we will have a ship that is fit for purpose.

Richard Benyon

How long will it take in your estimation to refit each ship?

John Hudson

This will depend on the solution adopted, but we are going to be looking at a 12-month type of period to make good the insulation of the new diesel generators.

Chair

If we are going to find that the new Type 26s will take longer to come into service and we will lose the use of each of these ships for 12 months or more, is there any potential for extending the already superannuated Type 23s even longer so that we do not lose platform levels way below the existing 19?

John Hudson

I think I might have misled the Committee a little, because there are maintenance periods built into the programming for Type 45. There is already programming time for both the recuperative change—well, we can do these in parallel with the maintenance periods. While there will be some additional out-of-service time for Type 45, it will not be of the order of 12 months.

Chair

Okay, but I still come back to this point: do we have any potential for further life extensions of the Type 23s given this terrible combination of what has happened to the Type 45s and the potential delays to the Type 26s?

John Hudson

There are always ways to extend ship lives. It is a cost-benefit trade-off, and that would be a matter for the MoD to determine.

Chair

Is that part of your discussions with them?

John Hudson

That is not part of any discussions we have had.

Mrs Moon

First, thank you gentlemen, because you are in an utterly invidious position of taking questions from a group of very aggressive MPs who are demanding answers to questions that you feel, because of your commercial relationship with the MoD, you cannot really answer. We have to ask them, because the public need to know that our naval capability is there and, quite honestly, that the platforms we are sending people to serve on are capable and safe. It is not good enough to think they are fine so long as we only send them to cold climates. Please do not think that we do not appreciate that or do not recognise it. I want to go back to Richard’s question, because it exercises our concerns. We are very aware that our naval capability is weaker than it should be. To be told that the repairs to the Type 45 have to be within the current envelope of the naval budget is very worrying when we are also waiting for delays to move forward in terms of the Type 26. Are you able to give us any sort of assurance that it is not because of the ongoing problems with the Type 45 that we are hearing about the delays to the Type 26 and the reduction in the numbers?

John Hudson

The Navy’s budget is a matter for the Navy. It is very difficult for us to comment on that.

Mrs Moon

Are you being told, “Look, guys. We are going to have to slow things down”, or is that commercially confidential? You can say if it is commercially confidential—that is fine.

John Hudson

No, no we are not privy to those types of discussions.

Mrs Moon

But you will be told, “We are going to delay that. We are putting that back.”

Dr Tyler

You are talking about a very substantial, very integrated programme across all the Royal Navy’s assets, and they are managing their budget dynamically to respond to their day in, day out needs. Taking two elements of it and saying there is a direct causal link between them—I think that would be very difficult for anyone to claim. If it was the case, it would not be a question for us; it would genuinely be a question for the MoD and the Navy.

Mrs Moon

If you are saying, “Don’t ask us; ask the Navy,” that is fine, but realistically, I cannot have my new bathroom if my kitchen has problems with the piping underneath the floor. I am going to need to dig it all up and lay completely new pipes, and that is going to double the price of my new kitchen. It is as simple as that, in my very humble housewifey analogy.

Dr Tyler

But the Navy is trying to manage a whole household and a large garden in addition, so at any point in time it might be looking at the kitchen and the bathroom but it is also trying to manage a whole property on an ongoing basis. Trying to take two elements of that and say, “Well, because the kitchen has gone over budget, I now cannot afford the bathroom”—you need to look at that in the context of the overall estate, to extend your analogy.

Mrs Moon

And I do. Extending my analogy, you cannot have it all, and if there is a big cost in the kitchen—in the engine room of the Type 45s—you cannot possibly be thinking you can afford everything else you want to do with your Navy.

Dr Tyler

As I say, I think that is fundamentally a question for the MoD and the Navy, who have the unenviable job of trying to balance this entire budget across everything that they are doing.

Chair

I think that we have to leave it at that. Gentlemen, thank you very much for your endurance of a marathon session. We will now move to our final panel of one, which is the trade union representative. Examination of Witness

Witness

Duncan McPhee, Manual Convenor (Scotstoun), Unite, gave evidence.

Chair

Duncan, welcome. Thank you for agreeing to do this final session. I know you have had a very stressful and arduous journey—I believe specially—down from Scotland.

Duncan McPhee

Thanks to British Airways.

Chair

Oh, dear. Well, we are very grateful to you. We will try not to add to the pressure. I understand that both you and the BAE Systems management preferred that you give your evidence in separate sessions, so it is not a decision of ours, as you know. Would you like to introduce yourself briefly and say a few words about yourself and what you do? I shall then ask Ruth Smeeth to start off the questions.

Duncan McPhee

My name is Duncan McPhee. I am the Unite trade union convenor at the BAE Systems Scotstoun site—you have Govan as well; they are one business unit, basically. I have worked there all my life. I started as a marine plumber and I have been a trade union convenor since 2001.

Chair

Thank you very much indeed.

Ruth Smeeth

Good afternoon. I should make a declaration: I am a former member of staff at the Amicus part of Unite, so you’re all right. What is the size of the workforce committed to the building of the Type 26 global combat ship?

Duncan McPhee

Well, it will be the whole workforce, because that will be the major programme. There are around 2,300 involved in that between the two Glasgow sites. Obviously, there are some people who work down in Portsmouth, and in Filton as well on the design part of that, but mainly within Glasgow there are about 2,300.

Ruth Smeeth

How is the workforce? Are they concerned at the moment?

Duncan McPhee

Yes, they’re very concerned, because we thought we would be starting the Type 26 programme this year and now we are being told there is a delay, particularly on the manufacturing part of it, until late 2017, which means you will be talking quarter one of 2018 by the time manufacturing starts in any meaningful way. While we are working on the offshore patrol vessels at the moment, as most people are aware, they are nowhere near the size of ship that a frigate or a destroyer is. We basically have a workforce geared up for the Type 26 programme, and obviously they are working on the offshore patrol vessels, so we have problems with the size of workforce we have at the moment.

Ruth Smeeth

We’re going to come back to that in a bit.

Douglas Chapman

In terms of Scotstoun and Govan, do you currently have the necessary skills on site to start the Type 26s? If somebody made the decision today to make progress—gave you the green light to actually go ahead and build—are there any capacity issues that you think need to be overcome before you would be able to get to that stage?

Duncan McPhee

We have the workforce in place to do it, because if you actually go back through the restructuring of the industry in 2013, where the company lost 1,775 jobs and they unfortunately closed the shipbuilding facility down at Portsmouth, Glasgow used to be the main centre for complex naval ships, so that three-year restructuring programme and the job losses were to give us the workforce to do the Type 26 programme; so we had the workforce ready to do it. Obviously, if you are saying could we start immediately, we could do it reasonably soon, I think, but there would be design issues, because obviously, with the date being moved to the right, things have slowed down, because we have had to release some designers last year who were working on the programme; but we could get it back on track, I think, quite quickly. Obviously, we would need to plan for the offshore patrol vessel programme as well.

Douglas Chapman

We read extensively about the frigate factory-type approach. How far is that down the line in terms of preparation and so on?

Duncan McPhee

That is off the table, now, altogether. That was one of the unfortunate things that happened. We were told after the restructuring, based on going down to what would have been a single site, but with some major investment going into it, which would have produced what was kind of classed as a frigate factory and would have given us a world-class shipbuilding facility, which would have been based on the Scotstoun site. There would have been no additional job losses, and it would have really helped UK shipbuilding, because it would have given us a world-class facility, particularly to try to break into the export market. It was a real missed opportunity. Also, the investment that would have been put into that could have been reclaimed through the programme, we think, obviously with increased productivity going forward. The trade unions and the workforce think that was a real missed opportunity.

Douglas Chapman

Was that decision, not to proceed with that, part of the decision to reduce the number from 13 to eight, or was it a decision that was to extend or elongate—

Duncan McPhee

No, I don’t think it was anything to do with programmes. I believe it was the investment. I don’t have the figures for that but I imagine it was the cost of the required investment; but as I say I think it was short-sighted. I think we have missed a great opportunity for UK shipbuilding, in not proceeding with that plan.

Douglas Chapman

Just a final question from me: in terms of the impact on skills, retention—how do you think that has been affected by the delay in the start of the programme?

Duncan McPhee

The problem we have at the moment is, with the offshore patrol vessel programme being a smaller programme, we are going to have to keep people at Rosyth longer than anticipated, working on the carriers. We will probably send more people down to the Barrow shipyard to work there, because obviously we need to keep the skills within the industry to do that. While it is a magnificent workforce there, and they have proved that over the years with the different ships they have produced, it is not a good idea to have to send your people to other places, although they can do it. What you are doing—you mess up the drum beat on the production front, on that. So while we have the skills, it means the skills are going elsewhere for that period of time and they really should be working on the programme.

Mrs Moon

Can I just ask, in terms of skills—obviously this brings demoralisation. Are there other people trying to seduce those skills away? Are there other people who could come in, recognise the difficulties that are being faced in the workforce and say, “Never mind working for the shipyards. Come and work for us?” How much is that happening and what is the risk?

Duncan McPhee

At the moment it is probably—well, these things have happened before when there have been breaks in programmes, and the skills have been lost, and you struggle to get them back in again because you go and do other things. Unfortunately, you are aware that the oil and gas industry is on a dip at the moment. What was certainly experienced before is that when that is working normally, or, as you say, booming, you will lose people from the shipyards or other places. They will go and work up there because it has a longer-term contract—if you are only working on a short-term one in the yards or other engineering places. But at the moment, it’s not too bad. The biggest impact we are seeing now, unfortunately, is on the training programmes. They have been massively cut, solely because of the decision to move the Type 26 to a later date.

Mrs Moon

When you talk about training programmes, you are talking about apprenticeships?

Duncan McPhee

Apprenticeships, yes.

Mrs Moon

So basically we are not feeding in the next generation?

Duncan McPhee

Absolutely. Right through the carrier programme, we were fortunate in bringing in really big numbers through the apprenticeship programmes; I’m talking 100 a year. That’s great because obviously it helps to bring new blood into the industry and brings down the age profile, which, as in other areas of manufacturing, is quite high at times. We are going to recruit 20 this year, and there are steelworkers who started last August who we have now had to switch to other trades. Fortunately, we are keeping them within the business, but in all my time in shipbuilding, I have never known apprentices to start with one trade and then, six months later, have to switch to another one. They were brought in because we thought we would be working on the steel work for the Type 26. That is the impact on training and young people.

Ruth Smeeth

If, God forbid, the Type 26 is delayed even more than we think it is going to be already, what will the impact on the workforce be? What discussions have you started having?

Duncan McPhee

Well, the delay we have at the moment is causing us problems; any further delay would be catastrophic because, as I said, we have a workforce geared up to build that programme of ships, so we really need to get on with that. Our position is quite clear. A major restructuring happened in our industry and company, and some painful decisions were taken at that time. The workforce have lived up to that and have produced, as I said, the carrier blocks and sent them up to Rosyth, so they have worked well all through that painful restructuring. The position of the workforce is that they don’t see why they should suffer any longer. They have lived up to their side of the bargain; we expect the MoD and the Government to live up to theirs.

Chair

Can I check one point? I appreciate that you may not be able to answer this definitively, but is it very much your impression that as far as the workforce are concerned, if the MoD now gave the order to start cutting steel on ship No. 1 of the Type 26, the whole workforce would be ready and able to get on with it?

Duncan McPhee

We definitely have the numbers to do it because, as I said, that whole restructuring programme was geared towards the Type 26. So we definitely have that. I’m not qualified to say on the design part of it, so, to go back to your question, I don’t know how quickly they could do it, but certainly the people are in place to do it, so provided that the design part of it is tied up, it should be able to fit into the workload we have at the moment.

Chair

Have management given you any explanation of why the delay has been essential and, if so, is that explanation or a large part of it simply that the Ministry of Defence is not making the money available as soon as it should?

Duncan McPhee

We believe it is, yes. Obviously, we have had several meetings with the company on this issue, and we believe that the financial considerations that have been brought into it have caused the delay on this.

Ruth Smeeth

I’m going to ask a question about the offshore patrol vessels, but before I move on, can you just give the Committee an understanding of the type of jobs that are on site, the average salaries and the skill sets that are currently employed? What type of people are we talking about and what is at risk?

Duncan McPhee

On the production front at the moment, that would be crafts—welders, engineers, plumbers and people like that. We have about 900 at the moment.

Ruth Smeeth

And the average salary would be?

Duncan McPhee

The average salary would be £25,000 or £26,000. And then you will have well over 1,000 involved in what are called staff jobs: designers, naval architects and various levels of management. So the salaries will go right up to—whatever.

Ruth Smeeth

A lot.

Duncan McPhee

A lot more than my members get anyway.

Ruth Smeeth

But we are talking about incredibly highly skilled people.

Duncan McPhee

Absolutely.

Ruth Smeeth

And we collectively, the company included, have invested a huge amount in training these people to get them to the level they are at now.

Duncan McPhee

There has been a marked increase in graduate recruitment over the years. That is good: it’s bringing in highly skilled people. Obviously, the salaries will be commensurate with that, I would imagine. As I have said, we need to keep this kind of workforce intact, because apart from the Type 26, there are the new light frigates that have been announced. We are in the concept phase, I believe, on that. We need these people to work with the MoD to design these ships and hopefully break into the export market.

Ruth Smeeth

Okay. The award of the orders to construct the two additional offshore patrol vessels—is that sufficient to retain the skills and capabilities in the short term?

Duncan McPhee

Not on offshore patrol vessel contracts, no. We will either need to transfer employees to other sites—it is great to retain people but it is not an ideal business proposition—or bring other work to the Scotstoun and Govan sites, certainly for production employees, so that they can actually manufacture. We will need to keep the manufacturing drumbeat going on the Clyde.

Mrs Moon

You’ve come down here and are speaking to the Committee on behalf of the workforce. If there was one big message that you want to go back to the workforce and say, “I told ’em, I said this is the top priority,” what would it be?

Duncan McPhee

“You have lived up to everything that has been asked of you. You have done it. Every contract you have worked on you have delivered. You were promised at the start of the restructuring process that you would have a sustainable industry going forward. The people who promised that should live up to that.” Let’s have some joined-up thinking when it comes to producing naval ships in this country. Every delay on any of these programmes has impacts. A lot of people don’t find out about the impact of these things. We don’t like putting young people off joining the industry. We want to see that there is a future in shipbuilding and encourage them into it. It’s great to see young people coming in to your workplace. It has an effect on the people who are there—they like to see new people coming in because it shows a vibrant industry. We would like the powers that be to deliver that.

Mrs Moon

I think on behalf of the Committee, I can safely say we fully endorse that message.

Mr Spellar

Do you think the company are pressing the MoD sufficiently on this?

Duncan McPhee

I know that the company are in discussions with the MoD—I’m not privy to what goes on, obviously. At the end of the day, between the company and the MoD, they have to come up with solutions to this, whether it is hopefully to get back to the Type 26 starting reasonably near to when it should be starting, which will overcome the problems we’re facing at the moment, or we’ll have to come up with other alternatives. We already know the terms of business and we have the workforce in place for that, so we need to use that workforce in a meaningful way. They deserve that.

Mr Spellar

And so, in those discussions, do you ever have any direct engagement with the MoD or is it just through the company?

Duncan McPhee

Normally through the company. We have good access. We meet from the chief executive down through the business unit. The debates and discussions we have with the company are good. We don’t have any direct contact with the MoD, which is unfortunate, because last year senior MoD people did meet us on the Glasgow site. It was an unusual thing. In all my time we’ve never really done that. We said it would be a good idea to keep that going. At the end of the day, the MoD is a customer and it’s good for the customer to engage, not just with the senior management of the company, but also with representatives. Hopefully, that’s something we can pick up again in the future.

Mr Spellar

Do you think from the experience of yourselves and the company that the MoD or the Government, the Treasury in particular, understand the disruptive effect of this lumpiness in the award of contracts?

Duncan McPhee

No, I don’t think they understand that at all, to be quite honest. It seems to be a budgetary decision. The impact of that, not just in the short term, but in the long term—the disruption to the whole infrastructure of producing ships—is massive. I think it is very short term as well.

Douglas Chapman

Just a quick one. I don’t know if you caught the end of our previous discussion. We were talking about the possible link between the problems they have with the Type 45s—in terms of propulsion and so on—and any delay into the Type 26s. I have been around Rosyth for a long time, so I know how your people talk and have a great understanding of the industry. What is the talk in Scotstoun and Govan in terms of that link, or is that just something that is not on the radar in terms of the discussion?

Duncan McPhee

Our workforce don’t see any great link between Type 45 and Type 26. We produce the ships to the design that was asked for. We basically hand it over to the Navy. After that, it is with colleagues who deal with it. Baseline involvement ends. There is no real talk about Type 45. Obviously, people look and see the press reports on it, but in reality there is no link as far as we are concerned with the Type 26.

Mrs Moon

The Government promised us that they were going to drive down the movement to the right of contracts; that there would be a streamlining of procurement; and they would drive out delays. You have been there a long time. In terms of the ups and downs, do you see any difference? Do you see it getting better?

Duncan McPhee

No, it’s not better. It is probably about the worst I can remember. I can go back to when we used to order batches of three and different yards got them, and the yard that never got them obviously suffered. If I go back far enough, it was Swan Hunter and the old Jarrow shipbuilders. Basically, one yard would go down to literally nothing and then you had to go back and rebuild. It is not as bad as that, but I think the workforce would like to see this Committee visit the Scotstoun and Govan sites. It would be good if you could actually see it. There are two shipyards there operating as one unit. Probably the last time it was really working would have been on the Type 45 contracts. That was coming off a good drumbeat. You constructed at Govan and came over to Scotstoun. It was a throughput and a consistent drumbeat. That was good and I had all the workforce working more or less flat out on that. We have nothing like that just now. As I said, offshore patrol vessels are very small, so we are taking fewer people on that. Basically, you have got your workforce scattered to other sites, so it has not got the feel of what, let’s face it, the UK’s major complex naval shipbuilders should have.

Mrs Moon

NATO parliamentarians are coming to see you in September. From across the NATO Alliance people will be coming to see you in September.

Chair

Having attended every one of the Type 45 launches, I can say it is a very impressive operation when it is working as it should, so this problem, of course, keeps coming back to the very small numbers of platforms that the Royal Navy is commissioning at any one time. Duncan, we are much obliged to you. You have come a long way. I am sorry you had difficulties with the transport, but you made it in the end and we are very grateful to you.

Mrs Moon

Perhaps we should send a ship for you rather than a plane.

Chair

Have a more leisurely return. This session is now concluded. Oral evidence: Naval Procurement: Type 26 and Type 45, HC 221 1