Oral evidence: Work of DE&S, HC 1561
Oral evidence, 24 October 2018.
Witness
Sir Simon Bollom.
Chair
Welcome, Sir Simon Bollom. Will you briefly introduce yourself, although you are no stranger to the Committee?
Sir Simon Bollom
Good afternoon, ladies and gentlemen. I am Simon Bollom, chief executive of Defence Equipment and Support.
Chair
The first question comes from Phil Wilson.
Phil Wilson
You have been in post for five months now. What do you see as your priorities and challenges?
Sir Simon Bollom
That is a good question. No. 1 is getting better value out of the defence acquisition budget, without a doubt. Alongside that, we do not just do acquisition; we are a support delivery agency as well. I want us to build on the good work that has already been done, doing even better to deliver support to the frontline and to improve military productivity. We let contracts on behalf of our customers, and another area that we need to focus on is the development of more effective relationships with the key suppliers. That is one of the themes of the acquisition review going forward. The bottom line is vital as far as my organisation is concerned, and continuing the efficiency drive that we have been on since the start of the 2014 Transformation programme, which has delivered £3.9 billion in benefits back into the Defence budget. At the heart of everything we do, we have to be delivery focused but safety driven, not letting go of the lessons that we have learnt in the past, and ensuring that the men and women who operate the equipment on the frontline are as safe as they can be. My enabler here is my people. It is a privilege to lead Defence Equipment and Support. It is a privilege to lead such a professional and capable group of men and women who are really committed to delivering for Defence. I shall stop there.
Phil Wilson
You said £3.9 billion in savings—
Sir Simon Bollom
In efficiencies, yes. Correct.
Phil Wilson
But the corporate plan says £3.7 billion.
Sir Simon Bollom
It is £3.9 billion now; it was £3.7 billion at the end of the last period.
Phil Wilson
Can you give us specific examples of those efficiencies?
Sir Simon Bollom
There are probably two generic pots, one in negotiating contracts without suppliers—that is the acquisitions side—and the other is the support side, where we look at support solutions, rationalise contracts and deliver efficiencies in that manner. On the acquisitions side, Type 26 negotiation was one of the key areas of efficiency. On the support side, the Tytan programme, which was reconfiguring Typhoon support, drove very significant benefits in terms of availability and cost saving. There are many examples where we have done similar.
Phil Wilson
Where do you think that the future opportunities for efficiencies are?
Sir Simon Bollom
I have mentioned support as one of the key areas that we focus on already, but I really want to reinforce that. We have done some great work on individual projects in individual domains. I think that we can deliver better value to the taxpayer and indeed good business for the supplier—let us not forget that two can make the partnership. Looking across the portfolio at how we deal with our five major suppliers, set up our rates and manage our indirect costs, it is quite simply about best practice in support and acquisition delivery. That is one of the areas to go at.
Phil Wilson
Have the reforms to the MoD operating model improved your relationship with the MoD headquarters and the three Services?
Sir Simon Bollom
We have been tracking the Modernising Defence programme, which we are part of. Setting up strong functions in the MoD is a positive move that is very much at the core of what we have been doing in the DE&S Transformation programme. For example, the first two functions established by the MoD were the financial and commercial functions, and it has been really good to marry them up with the functions that we have set up in DE&S. We look at our people and their capability as a defence resource, rather than as being locked down in individual organisations.
Phil Wilson
What further reforms do you envisage for DE&S?
Sir Simon Bollom
The Transformation plan that was launched in 2014 is not finished yet—there is still more to do. As I said, we are a people organisation, and our capability is in the knowledge and skills of our people. One of the areas that we have concentrated on is project and programme management. We have set up a programme of training and brought in new tools and IT with a view to being able to manage and execute programmes better. A lot of training has gone on and the systems are in place, but in terms of implementation, we are frankly at base camp. We now need to deepen those skills and push the boundaries of our capability. The second area is contracts, which are the product of a lot of our work. We are not just upskilling our commercial force; the whole programme management set-up is important. It is a programme of experience and of education, so it is about having a more flexible and agile labour force who can move from one thing to another, rather than having our people locked down in one place. The third thing is also a people thing. DE&S needs the same sorts of skills as industry, but particularly engineering, commercial and financial skills. We are in the market for people. We must continue to compete in the open market to encourage retention and to get other people in. Underlying all that is the culture of DE&S, which is about making DE&S a great place and continuing to encourage our dedicated men and women to stay with us.
Phil Wilson
What role do you see for artificial intelligence in drawing up your contracts?
Sir Simon Bollom
Before we get on to artificial intelligence, I do not mind saying that we still have some way to go in getting into the digital age. So much of our work is still on paper. We have complicated projects, and we spend a lot of time joining them up with the huge range of data tools and analytics out there. Professionalising our information systems is a high priority. Artificial intelligence is something that we can and will exploit in the future, in complex areas including data mining, inventories and cost base.
Phil Wilson
What specific action has DE&S taken to contribute to the SDSR’s strategic goal of promoting prosperity? What are you doing to respond to the Philip Dunne report?
Sir Simon Bollom
Yes, I have obviously seen the Philip Dunne report. I was part of his consultation exercise going around. In terms of prosperity, I think that there is an awful lot that we can do in advancing the prosperity agenda. The first point is to shine a light on exactly what prosperity means. Ensuring that there is a wider benefit to the UK in the deals we do to bring new equipment in is not a new thing, and metricating that is a good start. When you measure something, you can manage it. Then you can target it on programmes going forward. I think there is great opportunity now, and Philip Dunne’s report rightly shines a light on that.
Phil Wilson
What weighting would you give to a contribution to UK prosperity when you are looking at bids for contracts?
Sir Simon Bollom
It is a good question and there genuinely is not a generic answer to it. You have got to look at each project on its—
Phil Wilson
You haven’t got a formula.
Sir Simon Bollom
We haven’t got a formula. A live example would be the Type 31 frigate. Prosperity is an element of that assessment. As we go forward with the procurement, that is very much one of the factors in play. I would definitely caution against having a formula that you apply to all projects. You have got to look at the context.
Phil Wilson
Finally, around 11,400 people work for DE&S. Are there any areas—there are all kinds of specialist skills—where there are skills shortages? Are there any areas where you have difficulty recruiting people to do specific tasks?
Sir Simon Bollom
That is a great question. Engineering and commercial is where we find it most difficult. I face off at the Defence Suppliers Forum against the 13 major contractors that I deal with, and everybody is in this market. With engineering, there is an age demographic. A lot of the experienced engineers in this country are over the age of 50. We are not alone in that, so we are in a real scrap for getting young people into the organisation and retaining them. It is not just about reward here, either. Yes, we have got to be able to offer a reward that is competitive with the market, but again it is about the challenge and the environment they are in. That is what drives young people: the challenge of the job and being in a good working environment with a good culture. They are the sorts of things we have got to work on.
Ruth Smeeth
Good afternoon. What has been your role and that of DE&S in the Modernising Defence programme?
Sir Simon Bollom
First, there was a DE&S review, happily as I just came into post. It was a very exact review of DE&S, its outputs and the inputs, looking at where our delivery strengths and weaknesses were. Participating in that review process was quite a good baptism of fire for me as chief executive. I was quite pleased with the review because it recognised the work that we had done to date in delivering a completely transformed organisation as well as the outputs that we had delivered, but it pointed to a few areas where we can improve. I absolutely acknowledge that we can and will get better.
Ruth Smeeth
Given how delayed the MDP is, what impact is that having on DE&S and your decision-making ability?
Sir Simon Bollom
In many ways, we are market followers. For me, there are two aspects to the MDP. One was the overhaul of the head office model and looking at how DE&S plugged into that. We have co-operated with that at every level going forward. It certainly hasn’t infringed on us as an organisation in that sense. The second part of the MDP is in looking to balance the programme to meet future threats. If there is any delay, I am not sure I have seen it. What I have seen—
Ruth Smeeth
Hold on one second. We have been waiting months and months for the conclusion of an urgent review.
Sir Simon Bollom
I will just give you my perspective. I always knew that between August and December we were going to be working really hard to look at the cost base and at new options going through, and that prediction is exactly what has turned out. It was always going to be by the end of the year that we had to do that re-costing or re-baselining exercise.
Ruth Smeeth
That is fascinating, given that we were expecting the numbers in July. I am pleased that you were ready for it, but we have been waiting months and months for this information. That brings me on to your part in this. For the 2017 equipment plan, the NAO said that it estimated an affordability gap of somewhere between £4.9 billion and £20.8 billion—that was last year—in the next 10-year cycle. Where is that gap now?
Sir Simon Bollom
You are probably not going to like the way I answer this question, but I will give it a go anyway. Essentially, I am given a budget envelope to operate in. My job is to make sure that the programme that I put forward matches the budget. I absolutely recognise that Defence has some issues out there, but my part in this is to make sure that we stick within the budget allocated.
Ruth Smeeth
What specific measures are you taking to ensure that you stick within the budget allocated?
Sir Simon Bollom
I obviously cannot go into the equipment planning measures that are being considered at the moment.
Ruth Smeeth
It is just that we are waiting for the outcome of the MDP—we are still waiting for that, and you are ready for it.
Sir Simon Bollom
I acknowledge your point. It is exactly that. The MoD will come to me and say, “Here’s a whole bunch of areas that we want you to do some costings on, both up arrows and down arrows.” My job is to make sure that that is diligently done, and that is not easy in some ways.
Chair
If the NAO is telling you that there is a gap, you must be making contingency plans to deal with that envelope, absent a necessary and welcome increase in your budget.
Sir Simon Bollom
I have to come back to it again. I look after the equipment plan that is flowed down to me—bear in mind that submarines and ISS are not part of my operation. I can genuinely only cost what I am asked to cost and put in place a programme that meets those affordability targets.
Martin Docherty-Hughes
On that point, at previous Committee meetings we were told, for instance, that there was a contingency, not through the Treasury but within the MoD budget, for the new deterrent replacement programme. It is clearly not just for the deterrent. It clearly is to assist you once you get your envelope. So you expect to use some of that contingency.
Sir Simon Bollom
I honestly do not get involved in discussions about contingency. You might come to me and ask me to cost a particular programme—
Martin Docherty-Hughes
All I am asking is, do you expect to use that contingency?
Sir Simon Bollom
I genuinely do not get involved in discussions about the contingency. I don’t know how much it is.
Martin Docherty-Hughes
I think it was £6 billion. Do you have permission to use that £6 billion contingency?
Sir Simon Bollom
No, I don’t, because what I do is put in a programme costing and then the centre will decide how to use its contingency, if at all.
Ruth Smeeth
On the budget and your confidence in the measures that you are taking, how confident are you that the plan will not omit any forecasted costings, as happened with the £1.3 billion of planned costs for the buying of Type 31s last year?
Sir Simon Bollom
As far as I know, and I have seen the programme lines, the Type 31 is costed in the programme.
Ruth Smeeth
It is costed this year. Parts of the expenditure were uncosted last year—that was my point. Are you confident that everything is appropriately budgeted for this year?
Sir Simon Bollom
Everything in Type 31?
Ruth Smeeth
No, everything in the plan.
Sir Simon Bollom
There is a certain element of risk in there. I have 600 projects in my order book. Not all of them will stay exactly as the plan.
Ruth Smeeth
What level of risk are you building in, then?
Sir Simon Bollom
I don’t actually build in a level of risk.
Ruth Smeeth
But you just said there was risk involved because—
Sir Simon Bollom
I was making a slightly different point. If you plan to hit a number there will always be a risk that you go under it or over it. In a large portfolio, some will go up and some will go down. The other point you might be making is about what level of risk we bake into projects. Was that the other question?
Ruth Smeeth
I think my issue was that you omitted certain forecasts last year from the budget. Not you, obviously, five months in, but certain forecasts were omitted from the budget, and £1.3 billion for the Type 31e was not there. How confident are you that everything is included in your 600 different project lines?
Sir Simon Bollom
We have a fairly transactional way of doing things, and I think it is quite a disciplined thing. You come and ask me to cost a programme. I give you the costs back, and once the money is allocated we execute the programme. It is a handshake.
Ruth Smeeth
Sorry, you are not answering my question. There was £1.3 billion missed last year on one project. How confident are you that that will not be replicated this year?
Sir Simon Bollom
I was not trying to be indirect. For the £1.3 billion, or the £1.25 billion plus £250 million—£1.5 billion—which is for Type 31, that money is in the lines.
Ruth Smeeth
It is now. It was not in the published documents for last year. You had a significant omission in last year’s plan. That is what I am saying. How confident are you that you do not have a similar omission this year?
Sir Simon Bollom
As I say, I am confident that where we have programmes that we are executing, the money is there.
Mr Francois
Sir Simon, good afternoon. My congratulations—you’ve only been in post for a very brief period of time and already you are starting to answer questions like an experienced civil servant. Let’s have a crack at this. The published total for the equipment plan for 10 years was £179 billion. That is the number that the NAO audited, and then said that it was over-programmed by between about £5 billion and £20 billion. You are saying, “I don’t have all the £179 billion, because you have to take out the submarines and you have to take out ISS.” What is the remaining amount that is down to you of that £179 billion?
Sir Simon Bollom
I can only repeat what I said earlier. My programme is a collection of projects with an associated funding line, and I have to live within those funding lines for each one of those programmes. In terms of the risk carried at MoD level, I genuinely do not get involved in that conversation.
Mr Francois
But when you add up your 600 lines, what number do you come to?
Sir Simon Bollom
I do not have the number off the top of my head, but it is roughly £10 billion a year going forward.
Mr Francois
So approximately £100 billion?
Sir Simon Bollom
Over 10 years.
Mr Francois
Okay. Of that £179 billion, approximately—I appreciate we are dealing with large numbers here—£100 billion of that is within your bailiwick, yes?
Sir Simon Bollom
In fact I think it is a bit more than that, but in that ballpark.
Mr Francois
How much more than that?
Sir Simon Bollom
I do not have the actual number for my 10-year programme.
Chair
Did you say you don’t have it?
Sir Simon Bollom
Well, I do not have it in my head right now.
Chair
I fully understand that. Could you send us a note on that, please? That would be helpful.
Sir Simon Bollom
Yes, sure.
Mr Francois
Within that £100 billion—maybe a little more—are you telling us that at the end of the MDP there will be no more over-programming within your bit of the budget?
Sir Simon Bollom
I do not want to sound as if I am playing you a record, but at the end of the MDP I will have re-costed a number of programmes. We will execute those programmes only where the funding matches the delivery intent. We no longer carry wedges of risk.
Mr Francois
The reason I ask is that the Department has historically had the serious problem that its eyes have been bigger than its tummy. For years, it has carried more programmes that it can afford, which is why the budget grinds to a halt every year and it has to make in-year savings measures that mean that nobody can buy a rail ticket. That is not how you would run a proper business, yet it has become part and parcel of how the MoD conducts itself. The reason we are pushing you on this is that we want some reassurance. The MDP process has been elongated for longer than we were told it would be—Ruth is spot-on about that. We want to be reassured that after you have done all that tremendous brainwork and analysis and put a wet towel around your head, you will have eliminated the overspend or the over-programming. That will mean cutting stuff out. Can you reassure us that you will take those difficult decisions and that the budget will be back in balance by the end of the MDP?
Sir Simon Bollom
No, because it is not my business to do so.
Mr Francois
Forgive me, but doesn’t your business card say that you are the head of procurement?
Sir Simon Bollom
Exactly. I am not the head of budgeting.
Ruth Smeeth
Which of your 600 project lines is giving you most cause for concern?
Sir Simon Bollom
My eyes are on the ones that are large, complex and cost a lot of money; I am sure you have done your own analysis of what they are. I am not particularly worried about the programmes, but I am eyes on. In the maritime sector, we have the carrier, which is not finished yet but will be fantastic. We have the first ship through vessel acceptance, but there is still a way to go. Type 26 is another large programme that we are executing. On the air side, there is the F-35; the P-8, which is coming into service fairly soon; and a number of critical deliverables on the Typhoon programme. On the land domain, there is a really comprehensive re-equipment of the army, with critical programmes that we need to ensure we deliver to time and cost—Warrior CSP and Ajax, to name two.
Ruth Smeeth
Of all those, I would be most worried about the F-35, but that is my personal view. The MoD expects the MDP to return the equipment plan to affordability—that is your role. What cuts are you having to make?
Sir Simon Bollom
We are sort of going around the same buoy here. I am genuinely not trying to obfuscate, but I can only do what I am asked to do.
Ruth Smeeth
Okay—let’s talk about what you are asked to do. Have you been involved in making contingency plans for the MDP? Were you at the 9 October meeting that the Permanent Secretary referred to?
Sir Simon Bollom
I don’t know which meeting the Permanent Secretary referred to.
Ruth Smeeth
It was a meeting with the Treasury to talk about the future of your work.
Sir Simon Bollom
No.
Ruth Smeeth
So you are not involved in the contingency planning?
Sir Simon Bollom
Cat Little, who is DG Finance, the Permanent Secretary and their staff set and manage the budget. My job is to ensure that I execute my plan within the parameters.
Ruth Smeeth
But your plan may change dramatically within that budget. Do you not have any involvement in the contingency conversations?
Sir Simon Bollom
Not in contingency, but I am involved in looking at particular programmes that they might want to speed up, slow down, bring new capabilities to, or do something different with. I am absolutely involved in that, but on a tasking basis.
Mr Francois
We now have a significant part of what was the total equipment plan budget under the Submarine Delivery Agency. What is your relationship with them?
Sir Simon Bollom
Ian Booth is the chief executive there; he and I work really closely together. Essentially, most of his workforce is down at Abbey Wood. We share the manpower, training and people management—I run it and he taps into it. He and I work together on the prioritising of people and whatever other facilities at Abbey Wood. That is at the enabling level. Clearly, we have some projects that overlap in the dockyards—there is an overlap of ships and submarines. In particular, BAE Systems, Babcock and Rolls-Royce are major suppliers with which both parties have contracts. I am very closely linked with the SDA in that respect.
Mr Francois
Very closely linked.
Sir Simon Bollom
Yes.
Mr Francois
Good. Unfortunately, Ian Booth cannot be with us this afternoon, but fortunately you can, so let’s ask you: why is the Astute programme such a shambles?
Sir Simon Bollom
I can’t answer that question.
Mr Francois
He is not here, but you are. You were warned that we would raise this; you were also warned not to say what you have just said, so I will try again. Why is the Astute programme so late and so over budget?
Sir Simon Bollom
I don’t really think I can answer that question when it is not a programme that I have any responsibility for in terms of delivery. I’m sorry—I know you’re not going to like that answer.
Mr Francois
You’re dead right. I will give you one more go.
Sir Simon Bollom
I’m going to give you the same answer, I’m afraid.
Mr Francois
I will tell you why I am asking. Because of the delays on Astute, we have had to run the Trafalgar boats on longer, which has cost more money in an already overstretched defence budget. Without going into a classified level, when our friends have come visiting from the north, we have been embarrassed because we did not have the availability that we should have had.
Sir Simon Bollom
Be careful that you don’t step into classified territory.
Mr Francois
Forgive me, but don’t tell me how to do my job. One last time: you are here on behalf of the Department—why has it gone so badly?
Sir Simon Bollom
I am here on behalf of Defence Equipment and Support, as far as I knew.
Mr Francois
Wrong answer.
Sir Simon Bollom
I’m sorry to disappoint you.
Mrs Moon
You are aware that we are pretty excited about the single-source contract on the Wedgetail. What part do you play in deciding on single-source contracts? On what basis are they decided? Do you have any input at all?
Sir Simon Bollom
Yes, we do. We will do the evaluation of a particular requirement and look at all the options. Then, we will make recommendations to the MoD—there is an investment approvals committee. Ultimately, that committee—and the Treasury if it is large enough—will make the decision.
Mrs Moon
In that process, is there any consultation normally with industry?
Sir Simon Bollom
Absolutely constant consultation.
Mrs Moon
Are you happy that there was constant consultation with industry in relation to the Wedgetail?
Sir Simon Bollom
I am satisfied that sufficient consultation took place at a lot of levels—technical, commercial and financial—for the Department to make the decision on that basis.
Mrs Moon
Are you confident that offers to have confidential briefings on equipment that could have influenced the decision were taken up and followed up on?
Sir Simon Bollom
I believe that we went far enough to be able to get sufficient confidence in the decision going forward. In terms of the confidential briefings that you referred to, we already had a pretty clear picture of what the relative capabilities of the solutions were. Actually, any further detailed briefing at that level probably would not have advanced our understanding much further in relation to the investment decision.
Mrs Moon
How do you know that without hearing the briefing?
Sir Simon Bollom
The other factors were overriding.
Mrs Moon
What sort of other factors?
Sir Simon Bollom
You are referring to the Wedgetail solution versus the Airbus-Saab solution. I know you heard all this this yesterday, but on the one hand we have a fully found capability in Wedgetail, which is in service, and on the other hand we have a concept to integrate a radar on to the A330. Yes, we could have done even more investigation over a longer period of time, but the decision that was taken was on the basis that there was a clear gap between the two solutions on the table, which is why we elected to go down the single-source route in the end.
Mrs Moon
What do you see as the clear gap?
Sir Simon Bollom
The clear gap would be in terms of time and cost. We have a lot of experience of integrating complex systems on to aircraft over the years; some have gone well and some have gone not so well—that has been much publicised in the past. We always have to look very carefully at technical risk. If you were to look at defence programmes across the piece, we are pretty good on costs now, but technical risk is where, in the past, we just have not laid down enough contingency. In this particular case, when you have one capability, which is fully found in service, versus a concept that has not been integrated yet, there has to be a lot of technical risk inside that programme.
Chair
But the Saab radar is operating, isn’t it?
Sir Simon Bollom
The Saab radar is operating on a different platform. Time after time, on military and civil aircraft, platform integration is the difficult bit, particularly when it is radar. There is as much art as there is science in that.
Mrs Moon
Perhaps I have it wrong, so you can help me on this, but my understanding is that the Boeing option is that you build a plane—okay, but no one in the last five years has cut open one of those planes to put in a complex radar system and then put the plane back together again. That is what we are going for, as opposed to what is ultimately a plug-and-play system with a plane that we already have and a radar system that operates highly effectively elsewhere, and would not involve any alteration to the plane, no cutting up the plane and welding it together—it is plug-and-play. But you thought that the option that had not been used for five years was better.
Sir Simon Bollom
Can I absolutely assure you that it is not plug-and-play?
Mrs Moon
How do you know that if you did not take on the technical briefings that you were offered?
Sir Simon Bollom
You cannot just put a radar system on an aircraft and switch it on. I can absolutely assure you that you cannot do that. If you look at the structural side of it, you have to put two very large radars on the aircraft. That will mean cutting the aircraft fuselage and changing its weight, balance and flight characteristics. There is a whole flight-testing programme. You have to design and integrate a whole mission system into the aircraft. It is absolutely not plug-and-play, I can assure you.
Mrs Moon
Did you discuss those concerns with the companies involved?
Sir Simon Bollom
There were a number of discussions with Saab, by my people, and the Defence scientific and technical people. But it is reasonably well understood that integrating a radar system on to a new aircraft is a really complex undertaking, I can assure you. Moving on to the Boeing piece, maybe that operation had not been performed for—how many years did you say?
Mrs Moon
Five.
Sir Simon Bollom
But the important thing is the design piece—that you have actually designed, built and tested it and can ascertain the performance. The putting it together is not really that big a challenge.
Mrs Moon
So nobody has wanted this for five years, but we now want it—a piece of out-of-date equipment that is over five years old and that nobody else has wanted, or they would have been building them for the last five years. You felt that it was not worth listening to confidential briefings that would have explained how a different system, a modern system, could have been utilised on planes that we already fly and have experience of.
Sir Simon Bollom
It is not out of date, I can assure you of that. It is absolutely not out of date. Any aircraft that has a complex radar system—we have Airseeker/Rivet Joint—is in a constant obsolescence and upgrade cycle, so you pick a configuration in year one, and by year three it will be different. One of the things for me—I have come into this reasonably late on, but I’m quite happy to discuss it—is that what we are buying into is an upgrade path with the Australians. It means that we are not the only taker of the capability and can share the fixed costs in terms of upgrade. If you don’t do that, your platform, in terms of a capability, will just become obsolete.
Mrs Moon
All this is documented?
Sir Simon Bollom
Yes, it is. Obviously there is an investment approvals business case. The investment approvals business case will be supported by a number of technical artefacts. So yes, absolutely, a rigorous assessment was done.
Mrs Moon
Can I ask this just very quickly? Do you have any idea how many NATO allies use the Saab radar, as opposed to the Australian one?
Sir Simon Bollom
No, I don’t.
Mrs Moon
Could you have a look at that and come back to us?
Sir Simon Bollom
I can certainly do that.
Chair
But surely if you had properly evaluated it, you would know that.
Sir Simon Bollom
Sorry, I was just saying I didn’t know personally, sat here now.
Chair
Surely if a proper evaluation had been done—you’re talking about commonality with allies, unless you’re saying that basically we are only dealing with certain allies in this regard—you would have known. In the same way, we still fail to understand why, for example, when there was a question about classified data from the Swedish Government and the Swedish Government gave permission for that, you did not take up the offer to access it. It does seem as though at quite an early stage, for whatever reason, there was a downselect to Boeing, and basically after that, probably from earlier this year, Saab and Airbus did not get a hearing at all.
Sir Simon Bollom
I can only go back over this: I do have a fair amount of experience in this area, and it was one of the first things that I looked at when I came into this post; I had more than a professional interest in it. The Saab radar is a capable radar, I don’t dispute that at all, but the integration of a radar on to a brand-new platform that has never been done before has a lot of technical risk in it. I know that from experience. And in terms of the time to do it and the cost, I am not surprised that the Boeing solution, the Wedgetail, was selected.
Mrs Moon
Why did you not do a formal market testing by issuing a high-level requirement and inviting responses? Was it your decision not to do that?
Sir Simon Bollom
It predated my arrival on the scene, but the organisation chose not to.
Mrs Moon
Do you know why?
Sir Simon Bollom
Because in our view there was such a clear decision relating to the E-7. The gap was that big that the assessment was made that going through a further market test was not going to fundamentally change the drivers here. We also have to remember—I am sure you heard this yesterday—that we have an issue: the E-3 is getting older by the day. Mr Francois knows that very well. Therefore we had to move at pace. I think that to have gone through a market test, as you put it, or a full competition would have simply delayed what was, for me, an inevitable conclusion.
Ruth Smeeth
I have a couple of points. First, for something that has not been manufactured for five years, the concept that it is relatively straightforward to restart a production line when you do not necessarily have the sovereign skills or the capacity to do so is a little bit extraordinary. There is an added risk in there. Five different platforms have integrated the current Saab radar. I am suggesting that at this point they are probably quite good at integrating on to lots of different aircraft. You raised timing as a key issue. From the date when the Australian Wedgetail contract was signed, it took nine years for the first plane to be delivered. The next contract was for Turkey. It took 12 years for the first plane to be delivered after signing the contract. The third order was for South Korea. It took five years for the plane to be delivered. Within your timescale and risk analysis, that suggests that—given that production is not currently running, and that at the point of those three contracts production was running at full capacity—you will not meet your own timescale and you are using time as a reason for doing single-source.
Sir Simon Bollom
I would say that the Australian production has completely de-risked the systems integration—I will go back to that—which is absolutely the thing that will drive the timelines on this. I cannot comment on Turkey.
Ruth Smeeth
But that took nine years, and the following contract took 12 years for the same level of integration for the Wedgetail. That suggests that they were not learning, and that was when they had a fully-fledged production line.
Sir Simon Bollom
I don’t think they were sequential.
Ruth Smeeth
They were signed in 2000, 2002 and 2006. They were sequential.
Mr Francois
But don’t worry, if it has nothing to do with you.
Sir Simon Bollom
It almost underpins my point that doing a systems integration is not easy. If the Australians took that long to do it, we have a fully de-risked solution.
Ruth Smeeth
But we don’t, because production is not currently occurring, so they will have to reopen a production line, which has added risks for everybody.
Sir Simon Bollom
My perspective, as an aircraft engineer, is that the design and integration bit—not the production bit—is the challenge here. If you have already designed it, systems-integrated it, brought it into service, tested it and flown it in allied operations, that is a massive de-risk of your solution.
Ruth Smeeth
We were very good at building submarines. However, when we stopped doing that, it took us eight years to reopen the production line.
Sir Simon Bollom
I think we are making different points. I am absolutely sure that it will not take anywhere close to that length of time to build it.
Ruth Smeeth
I really hope, given that that is for the record, that that will be—
Sir Simon Bollom
That is fine. I am happy to go on the record and say that having done the de-risking, the building is less of a challenge.
Mr Francois
What was the relative cost between the two offers?
Sir Simon Bollom
I think that at the moment I will have to say that is commercially sensitive data.
Mr Francois
Come off it. Which was cheaper? The Wedgetail or the Airbus/Erieye solution?
Sir Simon Bollom
The Wedgetail.
Mr Francois
Clearly cheaper or marginally cheaper?
Sir Simon Bollom
Clearly.
Mr Francois
Okay. Now, why—in order to deal with everybody’s concerns—didn’t you run a BAFO?
Sir Simon Bollom
Because, in our estimation, we had such a gap between the two, in terms of technical risk, cost and time, that there was not any need to do so.
Chair
Mark, we are going to have to move on, because we have a number of other areas that we need to cover.
Mr Francois
I have one more question, then fair enough. The Apache AH-64E: a multibillion dollar contract awarded non-competitively to Boeing. The Poseidon P-8: a multibillion dollar contract awarded non-competitively to Boeing. The E-7 Wedgetail: a multibillion dollar contract awarded non-competitively to Boeing. Does it not occur to you that optically, that does not look good?
Sir Simon Bollom
From my optics, we are buying into a well-found capability operated by our allies and there is the opportunity to defray our fixed costs and to be able to co-ordinate with them. I think it is just an opportunity.
Chair
Basically, you have sub-contracted your decision-making process to the Pentagon. The Pentagon agrees something and therefore you just follow.
Sir Simon Bollom
We are faced with a military requirement, a budget and a need to operate with our allies. Inevitably your eyes are going to be drawn towards platforms that are performing, that we can access and that build on our relationships within NATO.
Mrs Moon
But you do not know how many of our NATO allies, other than the Americans, are actually flying the Wedgetail. You do not know.
Sir Simon Bollom
No. Well, I do, actually. We have got the—I have already heard from Ms Smeeth on that particular area. [Interruption.] But it is not on the A330, and that is really my point.
Mrs Moon
I am worried about the fleet solid support ships, the mechanised infantry vehicle and the AWACS—all those decisions mean that the Department is sending contradictory signals on competitive tendering. Are single-source non-competitions a route that you are going to go down further?
Sir Simon Bollom
As I was saying at the start, we do an evaluation on a project-by-project basis, and there are a number of factors that inform the final decision.
Mrs Moon
So Boeing is so good, they do not like competition.
Sir Simon Bollom
Your words.
Mrs Moon
What risk assessments have you made of the consequences of not building the fleet solid support ship in the UK?
Sir Simon Bollom
We have got the national shipbuilding strategy, which I thought was a very coherent piece looking at the capabilities and capacities in UK yards. For fleet solid support—I know you have covered this in previous hearings—our judgment was that as a non-warship it had to be put out to international competition. UK bidders are bidding into that at both the prime and the sub level. There is opportunity for British shipyards here.
Mrs Moon
So it is nothing to do with Boeing not wanting the contract, I take it. I have got the shipbuilding policy here, and it states: “Defence will take account of wider factors (including the impact on UK prosperity) when making these procurement decisions.” Did you take that into account?
Sir Simon Bollom
We are in the early stages, as I am sure you appreciate. We will be looking at the prosperity dimension, as we do with any programme going forward.
Chair
Given that you are so keen to leap in and make an early decision on the AWACS, why did you not build that in at an early stage of the prosperity agenda? Can you tell us any other of our NATO allies in Europe who build these types of vessels other than in their own yards?
Sir Simon Bollom
To my understanding, Norway, Canada and New Zealand have competed contracts for similar types of vessel.
Chair
Interestingly, none of those are our EU allies. My understanding is that all those other EU countries built these vessels in their own yards. Why would we not follow that? They are protecting their shipbuilding industries for the future and also maintaining capability. We know the cost of maintaining a workforce, in Rosyth, for example, and we know the cost of recreating a workforce, after what happened in Barrow. Following that would enable us to retain that capacity for when the Queen Elizabeth needs its first major refit.
Sir Simon Bollom
I absolutely understand your point, but the countervailing point is that the drive here is to get the best value for money.
Chair
In a very short-term sense.
Sir Simon Bollom
At the end of the day, it gives us the option, doesn’t it?
Chair
No. You may have lost the capacity in Rosyth, for example, and you would not have a workforce there.
Sir Simon Bollom
Sorry; I am talking in the context of the procurement decision for FSS.
Chair
But you can’t look at these things in separate, isolated silos. You surely have to look at them in the context of our sovereign shipbuilding capability as a whole.
Sir Simon Bollom
And there is the opportunity to do that. We are going through a process, as you know, and we hope to have five bidders into this. Ultimately, when we select a preferred bidder, that is the opportunity to make a decision along those lines. We will be looking at prosperity and at the value of that to British industry and to the taxpayer. However, fundamentally—as has been said at previous hearings—we are obliged to follow the JSP 507 and the Treasury Green Book in how we evaluate these competitions.
Mrs Moon
I know that Martin wants to come in on the shipyards, but I just want to go back to the AWACS very quickly. You said earlier that the Wedgetail was considerably cheaper. Is that after adding in or ignoring the opportunity offered to you by Airbus, which included the provision of four new booms for Voyagers, which would offer air-to-air refuelling capability?
Sir Simon Bollom
Within the price? Four new Voyagers?
Mrs Moon
Perhaps you could go back and have a look, Sir Simon, and make another assessment of what the contract actually contained.
Sir Simon Bollom
Sorry; could I just ask you to—
Chair
I think it would be useful to do that in correspondence.
Sir Simon Bollom
I was not entirely clear what the question was.
Chair
We need to move on. Martin can come back on that if he wants to, and then he can move on to his question.
Martin Docherty-Hughes
Simon, which shipyards are unable to build the fleet support ships in the UK?
Sir Simon Bollom
It on depends how the winning contractor wants to address the build and if they want to build it as a whole ship. The modern way of doing things is to build it in blocks. I am an aircraft engineer, not a shipbuilder, but I guess that, if they built it in blocks, there is an opportunity to distribute that work around a number of yards in the UK.
Martin Docherty-Hughes
And then build it all completely at Rosyth?
Sir Simon Bollom
It would probably be somewhere like Rosyth or Harland and Wolff.
Martin Docherty-Hughes
Forgive me, Sir Simon, but this sounds like Groundhog Day. I have only been in this Parliament since 2015, but it is like a revolving door of “Yes, Minister”. Knowing the history of shipbuilding in this country as I do, I see what seems like consistent disengagement from industrial policy by the Ministry, and clear decisions to disinvest, from my perspective, in shipbuilding capability across the UK. You talked earlier about the prosperity issue, which has been mentioned by other Members, and I will go into that in the next question. Cammell Laird, Portsmouth, Swan Hunter and Harland and Wolff could also probably do unit sections, along with Scotstoun, but Rosyth is probably the only place where the whole ship could be built or put together as units. Clearly, it is only Rosyth—
Sir Simon Bollom
Or Harland and Wolff.
Martin Docherty-Hughes
Possibly. Okay. Given the gaps with the refits for the new aircraft carriers, we are saying that we will just leave those empty until the next refit. That will be the same for shipyard workers in either Rosyth or even Harland and Wolff.
Sir Simon Bollom
In the context of FSS?
Martin Docherty-Hughes
In the context of the fleet support.
Sir Simon Bollom
That has to get to a point where we make a decision, and if a UK bidder wins it, then the problem—
Martin Docherty-Hughes
What if a UK bidder does not win it because the UK has decided to put it out to tender? What does that say about the prosperity agenda, in terms of the industrial policy of the MoD and its impact on prosperity?
Sir Simon Bollom
At the same time, Type 31 will be in play, and that is also an opportunity for a whole variety of shipyards in the same way as FSS.
Martin Docherty-Hughes
Let’s go on to the Type 31, then. Why was the programme paused in July?
Sir Simon Bollom
Insufficient compliant bidders. I cannot really go into the issue for commercial reasons, but it was about financial stability, and we decided to relax some of the restrictions that we had asked for. It was about risk transfer and about joint and several liability, so we changed those conditions and we have relaunched the PQQ.
Martin Docherty-Hughes
Will this mean a delay in them coming into service?
Sir Simon Bollom
No. 2023 is still the target in-service date for this platform.
Martin Docherty-Hughes
How many compliant bids were received, and from whom, when the new tender process closed on 20 August?
Sir Simon Bollom
The PQQ response was last Friday, and the evaluation on that will be completed by the end of this month.
Martin Docherty-Hughes
Would you be able to advise the Committee at some point as to who—
Sir Simon Bollom
If I can, I will.
Martin Docherty-Hughes
What discussions have you had with the defence industry about whether the price and delivery timescales are achievable?
Sir Simon Bollom
Extensive. Do you want me to elaborate?
Martin Docherty-Hughes
A wee bit, if you want.
Sir Simon Bollom
We used a process called value management, which was brought in from the private sector. Basically, that involves engaging in a pre-procurement exercise with potential bidders on what our aspirations are in terms of capability and what they think they can deliver as shipbuilders. We went through that value management phase for close on nine months, with constant interaction with potential bidders.
Martin Docherty-Hughes
You said that value management came from the private sector. What element of the private sector did it come from? Was it the shipbuilding private sector?
Sir Simon Bollom
It is widely used in construction, facilities, and large capital programmes. It is not really about building the ships; it is a way of engaging with potential bidders.
Martin Docherty-Hughes
Could the price constraints make capability an issue, in terms of exports?
Sir Simon Bollom
One of the core parts of the Type 31 strategy is modularity. It was termed Type 31e—export—so we want a modular open-systems architecture that allows potential export customers to quickly integrate what they need on to the ship. We are designing it at the outset to be plug-and-play.
Martin Docherty-Hughes
You used a term earlier on: “being a market follower”. I am wondering if the Type 31 is a market follower, because if you look at the French examples—I think they are called the FTI frigates—they are already operational, they are being exported, and they have ASW capability that the Type 31 lacks.
Sir Simon Bollom
This will not be a high-end frigate. It would not be suitable for doing anti-submarine operations; that is Type 26 territory. Type 31 would be much more limited than those high-end capabilities.
Martin Docherty-Hughes
Let’s go on to the Type 26, then, and the deals with the Australian and Canadian impact. Will the recent Type 26 deals with Canada and Australia impact on the UK Type 26 and Type 31 programme—for example, through pressures on the availability of skilled workers?
Sir Simon Bollom
That is a good question.
Martin Docherty-Hughes
Coming back to the prosperity agenda.
Sir Simon Bollom
There is definitely a massive prosperity opportunity for the UK here. The Australian piece will, of course, be built down in Adelaide. BAE Systems Australia will take forward the specific requirements that the Australian navy has. Theoretically, it is reasonably self-contained, but it is a risk that there is bound to be some pull on our Type 26 programme. BAE Systems is very much aware of that; so are we as a customer, and we will be watching this carefully.
Martin Docherty-Hughes
You talked about prosperity for the UK, but there will also be a great agenda for Canada and Australia. At this moment in time, the Canadian yards are advertising in the papers in Scotland for the workers of BAE Systems in Scotland. That has a profound impact on my constituents in West Dunbartonshire, as well as in the city of Glasgow and surrounding areas, and for the rest of the UK shipbuilding industry. Has it crossed anyone’s mind that Canada and Australia are going to start taking the workers from the yards that you are not going to fill because you are not going to give them contracts for the fleet support?
Sir Simon Bollom
I don’t think we have necessarily made that connection. Both Australia and Canada—
Martin Docherty-Hughes
Forgive me, Simon, but shipbuilding history in these islands is ancient, and it is a revolving door.
Sir Simon Bollom
At this stage, the Australia and Canada contracts are some way away from cutting steel.
Martin Docherty-Hughes
So why are they advertising in Scotland for workers from those yards?
Sir Simon Bollom
I would need to have a look at what they are advertising for. My concern, which I mentioned earlier, was about design engineers and naval architects; those are the sorts of skill sets. I acknowledge that there is a risk here. We understand there is a risk and we need to ensure that, as you say, we do not denude the capability that we need to deliver Type 26 and to sustain the capability into the future. But there is a market out there, and you can’t forbid people to travel. As far as I am aware—although I will take this away—there is no migration to either Australia or Canada, but we are aware of the risk.
Martin Docherty-Hughes
Okay, let me just put this in context. As the son of a shipyard worker on a yard that no longer exists on the Clyde—there used to be quite a lot of them—take my word for it, Simon: people move quite quickly in terms of this. It is a live issue and it impacts the infrastructure of the future. Again, it comes back to a long history of the same stuff happening, consistently, time after time. Are there any plans to alter the out-of-service dates for the Type 23s?
Sir Simon Bollom
Not at this stage. The Type 23 is definitely the workhorse of the Royal Navy; getting Type 31 in from 2023 to 2028, with the Type 26s starting to arrive from 2024 onwards, is essential to ensure that we can continue with the Type 23 out-of-service dates.
Martin Docherty-Hughes
Extending that lifespan of the Type 23 will put more strain on our budget. Is that sustainable? We have already talked about the other black hole in the envelope that you will get from the Modernising Defence programme.
Sir Simon Bollom
We talked about Sentry. When platforms get to the end of their lives, it gets progressively more expensive to life-extend them. That is very much in our mindset and that of the Royal Navy as well. That is the drive to get the Type 31 and Type 26 in on time.
Martin Docherty-Hughes
And you believe that is sustainable in the long term and its impact on the budget is sustainable?
Sir Simon Bollom
Sustainable, meaning will we meet those dates? At this stage, I see no reason why not.
Martin Docherty-Hughes
Financially sustainable for the budget.
Sir Simon Bollom
To be clear and ensure I am answering your question, we have the money in the programme to deliver the Type 31 and the Type 26. If they deliver to time, we have enough money in the support lines to take the Type 23s up to those dates. If, as your question suggests, we were to delay on those new acquisitions, clearly that would put a strain on the Type 23s and cost us more. That is not budgeted for, which is why we have to hit those dates.
Mr Francois
Simon, on F-35, is the MoD still committed to buying 138 aircraft?
Sir Simon Bollom
One hundred and thirty-eight is still the programme of record and we are paying our composite share on that basis.
Mr Francois
So far the MoD has committed up front to buying 48 F-35s. How much will that cost?
Sir Simon Bollom
I think we have a session in January on the cost of the F-35 programme.[1]
Mr Francois
I am not waiting until the new year. How much do they cost?
Sir Simon Bollom
I am reluctant to get into a debate on this. Do you mean how much does each individual aircraft cost?
Mr Francois
What is the total cost of those 48 F-35s?
Sir Simon Bollom
I do not have with me today the cost of those 48 aircraft. Some of them are still subject to the negotiating process.
Mr Francois
But you are the head of DE&S. Who should we ask if you do not know? You are responsible for it, right?
Sir Simon Bollom
Absolutely.
Mr Francois
Good. So if you are responsible for it, what is the cost?
Sir Simon Bollom
I haven’t got the cost here with me today.
Mr Francois
Okay, I’ll tell you. It is £9.1 billion, and I am not the head of DE&S. That is roughly just under £200 million per aircraft. This is known as the plane that ate the Pentagon. Are you confident that you can maintain that cost ceiling of £9.1 billion or do you think it might go up?
Sir Simon Bollom
In terms of the acquisition and the price points—forgive me I do not know what information has and has not been disclosed on that. I know you have had this conversation before. I was responsible for F-35 as COM (Air) in my previous guise. There is a curve that shows the target costs for each of the LRIPs that determine the production sequence of the F-35. For each one of those LRIPs the unit cost has been below what we budgeted for and predicted for each one.
Mr Francois
So we have got £9.1 billion for 48. What is the total cost of all 138?
Sir Simon Bollom
I just don’t have that information with me today.
Mr Francois
Just to confirm beyond peradventure, because I am getting slightly confused now, you are not responsible for submarines. We have established that.
Sir Simon Bollom
I’m definitely not responsible for submarines.
Mr Francois
You are not responsible for ISS, but you are responsible for the F-35 programme. Yes or no?
Sir Simon Bollom
You’ve asked me that before and I answered yes.
Mr Francois
Good. In which case, what is the cost?
Sir Simon Bollom
I will go back to my previous answer, which is that I am afraid I did not come here prepared to answer detailed questions on the F-35. I don’t have the costings with me.
Chair
In that case, you can write to us on that.
Sir Simon Bollom
I believe we have a session on it.
Mr Francois
Hang on. I just have a couple more questions and then I will gladly hand over. Have you decided yet what the remaining configurations will be of the remaining aircraft?
Sir Simon Bollom
A versus B?
Mr Francois
Or C.
Sir Simon Bollom
Or C.
Mr Francois
But no, you haven’t.
Sir Simon Bollom
No.
Mr Francois
When do you envisage taking that decision? Clearly, that will have quite an important effect on the equipment plan because the B is a lot more expensive than the A. So when will MoD announce which variant it wants to buy for the remaining 90?
Sir Simon Bollom
Combat air mix will be looked at as we go through with the FCAS programme. Tempest has already been announced, so we will be looking at new concepts versus F-35s. I cannot tell you when the MoD will make a definitive decision on what combination of variance it will buy. I doubt whether we have got a programme of record for 48. I suspect there will be a number of incremental decisions over time as we understand the threat better and understand the capabilities we have got. It will be in that sense rather than a big bang.
Mr Francois
Last question: can you confirm that the F-35 is the second largest by value procurement programme in the equipment plan after Dreadnought?
Sir Simon Bollom
I believe it is.
Mr Francois
In which case, if you will forgive me sir, I am a little surprised that it is the second biggest programme on your watch and you have come to this Committee and do not even know how much it costs.
Sir Simon Bollom
Well, I think this Committee has had quite an extensive dialogue on F-35 and the costs with my colleagues, which is why, I believe, we have set up for January to come and talk to you about that in private.[2]
Chair
Okay. Graham Jones will just finish off on this and then move on to his own questions.
Graham P. Jones
Just on the F-35, we have spent £9.1 billion, and you say that we are below the cost curve, on the first tranche, so do you expect the final cost of the first 48 to be less than £9.1 billion?
Sir Simon Bollom
Clearly, we are not just buying aircraft; we’re buying a sustainment package, an op support package, training—
Graham P. Jones
The presumption there will be that you have said that the cost of the aircraft is below what was anticipated. You are now telling me that the cost of the maintenance programme has risen, comparatively. That’s what you have just said in the last few words.
Sir Simon Bollom
I don’t think I have. I said that, in terms of the unit—
Graham P. Jones
You might not think you have said that, but that is what everybody else is hearing.
Mr Francois
Correct.
Sir Simon Bollom
Okay. That was not what I intended, so thank you for—
Graham P. Jones
I think you need to be clear in what you do say and perhaps a bit more focused in your answers.
Sir Simon Bollom
Thank you for that advice.
Graham P. Jones
So will we be underspending the £9.1 billion, given the fact that we are below the cost curve?