Oral evidence: Procurement Update, HC 2114
Oral evidence, 21 May 2019.
Witnesses
Andy Cooper and George Kunder.
Chair
Good morning and welcome to this special session on defence procurement. It will deal with a small number of quite significant current procurement issues. The session will be divided into two. The first 25 minutes or so will deal specifically with the management of GE Power Conversion UK Ltd in Rugby. I invite our two witnesses to introduce themselves. Exceptionally, as I believe you have some good news for us, we have agreed that you should make a short initial statement. Please introduce yourselves and go straight into that.
Andy Cooper
Good morning. My name is Andy Cooper and I am the managing director for GE Power Conversion in the UK and I am based in Rugby.
George Kunder
Good morning. My name is George Kunder and I am the chief operating officer for GE Power Conversion. I am based in Berlin, Germany.
Chair
Thank you. I should also acknowledge the presence of your local MP, Mark Pawsey, who is here today. Who would like to make the opening statement?
Andy Cooper
I will. As the Committee knows, GE Power Conversion announced its global restructuring plans back in December 2017, which covered a number of countries, not just the UK. As part of that plan, a proposal was put forward to close our Leicester Road site in Rugby, which manufactures large electric motors and generators. That closure would have affected up to 197 jobs. The consultation on the proposal at a local level was delayed until autumn 2018 to allow the site more time to win new contracts, but unfortunately not enough business was forthcoming, so we opened a local consultation on closure in October last year. At the same time, we continued our discussions with the Ministry of Defence, DIT and BEIS, and other customers and stakeholders, to see if a way forward could be found that would keep the site open. Having personally worked at the site for 35 years, I am very pleased to say that last week, we reached an agreement with the Ministry of Defence that will allow the Leicester Road site to remain open. We therefore closed the consultation yesterday and I informed all our employees. The agreement with the MoD is focused on bridging the gap between the low volume of work that we see today and expected future orders. While the nature of the agreement is a confidential matter between GE and the Secretary of State, I can inform the Committee that it provides acceleration of the Type 26 batch 2 order to allow us to start manufacturing in January 2020. We expect the order to be confirmed in Q1 next year. To achieve that, we will require some level of advance funding. The first part of that is already in place. The second part of the agreement is a package of related work, the scope of which is confidential because it affects operational warships. Reaching this agreement ensures that the site will remain open and, importantly, key capabilities and skills will be retained in the UK. This is a significant step forwards. It will secure jobs that would otherwise have been lost. Unfortunately, some commercial work will still transfer from Rugby to Nancy in France in order for us to remain competitive. We estimate that approximately 80 jobs may need to be removed. I assure the Committee that GE recognises the value of Rugby and the value of the facility there. Finally, we would like to thank the UK Government, the Ministry of Defence, DIT, BEIS, Mark Pawsey MP, and members of the Labour party and Unite, the union, for their help in reaching this point. Where we have landed is, in our opinion, in the best interests of the defence industry in the UK, and we look forward to moving forward with the agreed programme of work.
Ruth Smeeth
Hi, and thank you for coming. While welcoming some of the content, I find the timing of your announcement politically quite interesting given your position in front of us today. It seems awfully convenient. Can you tell us how we got to this point, given that people’s lives have been left hanging, and given the impact on the workforce and on Rugby? How did we get quite this far, with GE leaving it this long and engagement happened only a week before you were due in front of this Committee?
Andy Cooper
First of all, when this was originally proposed at a European level back in December 2017, we looked at how we could solve the problem in a different way. We took a very proactive stance and we talked to customers and the MoD, DIT and BEIS to see whether a solution to the problem could be found. We first engaged with the MoD in December 2017. We started our discussions with DIT and BEIS I think in January. In the briefing pack that we shared with the Committee, I think the last page has a timeline of all the various meetings and discussions that we had. They progress right the way through 2018. We had something like eight meetings with the MoD and countless phone calls, and three or four meetings with DIT and BEIS. We have entertained a number of visits from people, including the right hon. Jeremy Corbyn and other members of the Labour party. Mark Pawsey has visited the site at least five times in the last year, all to try to find a solution to a complex business problem. That ultimately led to us reaching this agreement last week. The fact that we managed to sign this agreement last week is purely coincidental with this meeting.
Ruth Smeeth
Of course. Can we step back then? You are saying that Leicester Road will remain open for the foreseeable future. How long is that?
Andy Cooper
How long can any business predict that they are going to stay in business? We have a very viable and clear pipeline of work. I would say that we have a pipeline of work that is more visible now than we have ever had in the past. If we look at some of the naval programmes that are going ahead, not just with the UK Navy but overseas navies, including America, we can see a pipeline of work going out into the 2030s, so I am very confident.
Ruth Smeeth
You are confident even with the reduction by 80 of your manufacturing workforce, which leaves you a manufacturing output of 82 that you are retaining.
Andy Cooper
Approximately 80 roles will be removed.
Ruth Smeeth
And about 80 will be retained doing some of this work, so you are cutting your workforce in half.
Andy Cooper
Close to, yes.
Ruth Smeeth
What about the sustainability of the site in terms of skillset, given that your workforce will be cut in half? Is that feasible?
Andy Cooper
The Rugby site is effectively two sites. We have 625 people across the UK involved in a variety of industries, and then of course we have that manufacturing facility as well, so we are talking about 12% of the total UK—
Ruth Smeeth
We are talking about the long-term viability and sustainability of the Rugby site. You are removing 80 of the workforce. You will have to forgive my cynicism; it is just that I had the Kidsgrove site in my constituency, which you closed, promising that work would be redeployed, some of it to Rugby, and some of it to Berlin. It is now being moved from Berlin to France. There seems to have been no continuity of workforce planning in the past three years. I would like reassurances about the long-term viability of the site.
Andy Cooper
I can reassure you that we are refocusing the business at Leicester Road. With some of the commercial work that we have done in the past, we have struggled to compete, and we are not the only company; we have seen one of our competitors move manufacturing to the Czech Republic. We are very good at building the sort of speciality machines that few companies are able to build. That is how we have managed to get ourselves into this world-leading position with naval propulsion machines. Our focus for the future will be more on those specialist, large machines, and innovation.
Ruth Smeeth
GE has had to sell significant parts of its UK businesses in the last 18 months, including, I should declare for the record, my soon-to-be ex-husband’s; he worked for part of GE. Is Power Conversion up for sale?
Andy Cooper
I don’t know whether you want to answer, George, but this is speculation in the press.
George Kunder
There has been speculation in the press about the sale of Power Conversion for 18 months or two years. GE continuously evaluates the portfolio, but for now, it is all speculation.
Ruth Smeeth
You will understand why many of us would be concerned, when we are talking about long-term sustainability, about the promises that you are making about the pipeline, if there is the potential that GE will not be responsible for some of these contracts.
George Kunder
We understand. To add a little to what Andy said about the sustainability of the site, fundamentally, what we have agreed to still aligns with the broader global strategy that Power Conversion embarked on a few years ago to address systemic overcapacity in our manufacturing and in our production facilities around the world, and to refocus our portfolio around a couple of key market segments. What we agreed to on the Leicester Road facility is still maintained in that strategy, and it has allowed us to refocus the site so that it is a naval and special machine factory. That retains the skill sets and capabilities needed to execute on those production machines, but allows us to address our global overcapacity issue.
Ruth Smeeth
I have several more questions, but I’ll get lynched by my colleagues if I go on.
Chair
Before I bring in Johnny Mercer, may I get one point clear? Has it been your position all along that you would have stayed open to the extent that you are intending to stay open if this Type 26 business had been brought forward in the way that it now has been?
Andy Cooper
A number of things have changed since the original proposal in 2017, not just to do with batch 2. The success of BAE’s global combat ship with Australia and Canada is a key change. Also, President Trump’s US shipbuilding policy helped to give us visibility; Type 26, batch 2, added to that.
Chair
What I am trying to get at is: did the MoD offer you the opportunity to do this business earlier, in the way that it now will do this earlier? When did it first make that offer to you? Or was it willing to bring this work forward all along?
Andy Cooper
As I said earlier, we have been engaged in discussions with the MoD since December 2017. One of the conversation topics has been around whether it is possible to accelerate batch 2. Then there has been a lot of discussion of the business case around that, the value for the taxpayer, whether it makes sense—
Chair
We do not have a lot of time; we don’t need to embroider it. All I am trying to ask is when the MoD first offered to accelerate the batch 2 work.
Andy Cooper
In terms of an offer, that is going back a few weeks and months, but ultimately it all came together in an agreement that we signed last week. Until the agreement was signed, it was not clear whether it would be acceptable either to Government or to GE.
Chair
But had it always been your position that if they brought forward this work, you would be more likely to keep the factory open? If so, when did they confirm that they would be willing to accelerate this programme?
Andy Cooper
The MoD has been open to looking at this for some time, but it needed to come together into a final agreement that resulted in a business case that could be taken to the Minister to get approval.
Chair
Right. So it is not that the MoD has refused to consider bringing this work for some considerable time.
Andy Cooper
Absolutely not. The MoD has been engaged and we have had positive discussions for the 17-month period.
Johnny Mercer
George, I think you answered a question from my colleague Ruth about whether GE Power Conversion was up for sale. It is quite a straightforward question: is it up for sale or not? You sort of said that it was speculation and you are re-evaluating your business, as every business does in this country on a daily basis. It is quite a simple question. Is it up for sale: yes or no?
George Kunder
No.
Johnny Mercer
Thank you very much, that’s very helpful indeed. What will happen if the Type 26 order is not confirmed in the first quarter of 2020? What will the knock-on effect be for you?
Andy Cooper
The agreement we have reached is very clear on timing. As I said, we have the first order already, to allow us to start ordering components to start manufacturing in 2020. We have absolutely no reason to believe that the times agreed in that agreement will alter. We have certainly acted on that agreement; that is why we closed consultation yesterday and told everybody.
Johnny Mercer
Obviously I do not anticipate this, but what are the potential outcomes of it being delayed? What are the possibilities? Obviously we do not want it to be delayed, and we do not want that Type 26 order not to be confirmed, but what would happen if that did happen?
Andy Cooper
I think the key thing is that the UK Government have stepped in to support British industry, have done the right thing for the defence industry and have made clear commitments about the timing of the order. It is clear to us that—
Johnny Mercer
Okay but I am asking you to entertain the possibility that the Type 26 order is not confirmed. I understand what Government are doing and what the intention is. Separate from that, what would happen if the Type 26 order was not confirmed in the first quarter of 2020?
Chair
Would the future of the site be at risk again?
Andy Cooper
No. We have said clearly now that the consultation is closed. We have told everybody that the site is staying open. If something were to go wrong with this agreement, clearly that would be an issue and we would reassess the business and look at other work that we are doing. As far as the site is concerned, the future is clear.
Johnny Mercer
Brilliant, thank you. How much preparation do you need to be ready for the Type 26 work?
Andy Cooper
We are already manufacturing the first batch—we have already built the first two ships, pretty much. We still have some of the motors in the factory and some of them are on a land-based test facility. This is very much a cut and paste of what we have already done.
John Spellar
Taking the naval part that will be basically what the site will be doing, once you have completed that process, how much of the work in the factory will be classified?
Andy Cooper
The naval work that we do for the Royal Navy is all classified, with varying degrees of certification—some of it is official sensitive, some of it is secret and some of it is UK eyes only. We will do other work there as well. It will not be just about Navy; as I said, we will be focused on some speciality machines in certain niche markets that we see opening up and that are attractive to us.
John Spellar
But most of it will probably be classified.
Andy Cooper
A good portion of it will be Navy work.
John Spellar
You also mentioned earlier the very welcome success with orders in Canada and Australia and the potential with the US navy. All those are Five Eyes countries of intelligence.
Andy Cooper
Correct.
John Spellar
Is it not extraordinary to want to move work of that classification out of a UK environment?
Andy Cooper
We have to remember the global situation that we were in. There was a downturn in the oil and gas market, and the commercial marine market had collapsed—there was a 50% overcapacity in shipping. Those were very much markets that we were involved with. At the time of this proposal, Australia and Canada were not visible—the timelines were not visible—and the US shipbuilding policy had not been produced. Quite honestly, we had seen Type 26 batch 1 being delayed, and we had entered into a prolongation agreement on that. The timing around batch 2 wasn’t clear and we suspected that we wouldn’t get our orders until 2022, or maybe beyond that. We therefore started thinking about how, faced with that reality, that work could be transferred to another unit.
John Spellar
But it has been quite clear for some time. The Australian deal was signed several months ago, and Canada’s was signed shortly thereafter. It seems slightly strange, given the very specialist and secret nature of it—with good reason; it is such good kit—that you would move it out of a Five Eyes-classified environment.
Andy Cooper
That was one of the key developments since the original proposal—the timing around those and BAE’s success with those two programmes.
John Spellar
Doesn’t that run counter to the deed poll that was signed between the company and the Ministry of Defence when the company came into GE ownership, which said that no transfer or disclosure by whatever means of UK-protected material should be made outside the UK companies or outside the UK?
Andy Cooper
This would have been one of the challenges that we would have discussed with the Ministry of Defence and our prime contractors had this agreement not have been reached.
Chair
You say that it would have been discussed, but, with respect, you had signed a legally binding agreement that said that all this classified work and material had got to be in the UK. We haven’t time to go into all the rest of it—it is all about security clearances for staff. You were proposing to close the factory, take all that and put it down in Nancy, where there were significant security issues, to put it mildly. That would have been a breach of the agreement, wouldn’t it?
Andy Cooper
No, it wouldn’t have been a breach of the agreement.
Chair
Why not?
Andy Cooper
Because the agreement was clear about the conditions that we were obliged to comply with, one of which was maintaining the capability. We always anticipated that the design would remain in the UK. The IP would remain in the UK, in accordance with the deed poll. What we were talking about was manufacturing the machine in Nancy. Had we gone ahead with this, we would have had to have complied with the various cyber-security and security regulations that the MoD would insist upon. That includes how drawings were managed on the shop floor as the machines were made to ensure that the security was not breached.
Chair
I’m sorry, but the deed poll says that there will be no transfer or disclosure by whatever means of UK-protected material.
Andy Cooper
Correct.
Chair
Are you saying that no protected material would have been transferred to Nancy?
Andy Cooper
Correct. That’s right.
Chair
Okay. It will be interesting to see what the definition of that is. Any more, John?
John Spellar
No.
Martin Docherty-Hughes
You talked earlier about the 80 jobs that were lost by moving commercial work to Nancy. Are you able to redeploy them at all? Could you also say a bit about how you define commercial work, which John spoke about earlier? Does it include anything defence-related or classified?
Andy Cooper
In terms of redeployment, we would of course look to see whether we could redeploy staff to other GE units or assist them in getting jobs elsewhere. We have already transferred 20 people to other GE units around the Rugby area.
Martin Docherty-Hughes
Is that out of the 80?
Andy Cooper
No. It is out of the original 197.
Martin Docherty-Hughes
I assumed that you would have done the work to redeploy them by now.
Andy Cooper
No, we will continue to do that. There are something like 400 open positions in GE businesses in the UK. We will continue to support our employees if they are suitable for those roles. We also work with an external outplacement company that comes in and helps them write CVs and fill in job applications, and organises job fairs. We got those in last week to start with an introductory meeting with anybody who was interested, to understand what services they offer. This is something we have done in the past.
Martin Docherty-Hughes
And about the commercial work? Is any bit defence-related or classified?
Andy Cooper
No. It is oil and gas-type applications—generators for offshore production units, or other oil and gas-type applications. Maybe commercial marine, such as generators that you see generating power on an LNG tanker, for example.
Martin Docherty-Hughes
Thank you.
Chair
I have got Mark, and then Ruth to wind up.
Mr Francois
We were told last month that more than 70 people had left the company recently because of the uncertainty about your future. What are you doing to get them back, and/or to replace the skills and experience that have walked out the door?
Andy Cooper
We recruit apprentices into the company to build the skill base. We are very fortunate that we are located directly opposite the technical college in Rugby. As a former apprentice, I trained at that college. It was in a different location then, but that is how I came into the company. My job as the managing director, now we have reached this agreement, is to grow the business, focusing on the specialised machines. Hopefully, some of the 80 people who, unfortunately, we need to let go will come back into the business at some point in the future.
Mr Francois
Very quickly, Mr Kunder has given a direct answer to my colleague Mr Mercer’s questions, saying that the business is not up for sale. That will be reassuring. If that is the case, what is the most positive thing that you can say to this Committee and all the employees—and, indeed the Royal Navy—who rely on you about the future of your company and the Rugby site?
Andy Cooper
Having been there myself for such a long period of time, I am incredibly proud of the things that we do and the position we have got ourselves into in the naval business. We produce the world’s leading electric propulsion motors, not just for the Royal Navy but for other navies, including the US Navy on their new Zumwalt-class DDG-1,000 machines. It is extremely positive that so many navies around the world want to come and talk to us. As far as I am concerned, the future of the Rugby site is extremely positive, not just for the factory that manufactures machines, but also for the engineering officers involved in our other industries.
Mr Francois
So you believe the future is set fair for Rugby?
Andy Cooper
There are tremendous opportunities for us in the UK in the markets that we serve.
Mr Francois
You have had tremendous support from your local MP; we all know that. Lastly—then Johnny may have one more—are you bidding for the fleet support ship contract, and if that is awarded, do you get that work whoever wins it, or do you only get work if the UK consortium gets it?
Andy Cooper
We are bidding for the FSS programme, and I very much hope that we will be the provider for the electric motors, and that we will build them in Rugby.
Mr Francois
Is that on all the different consortia, or are you only part of the UK bid?
Andy Cooper
That is a commercially sensitive discussion that I wouldn’t want to entertain in this open forum, but we are bidding in the programme, absolutely.
Chair
Can I confirm another point? If you had moved this work to Nancy, you wouldn’t have been able to provide engines on the same specification as you are providing now, would you? There would have had to be a change in the type and size of the engine, and the UK would have no future capability to make large engines for naval shipping, would it?
George Kunder
On our strategy with moving the work to Nancy, we would have been able to deliver an equivalent machine that would be produced today. The reason that I am able to say that is because the original timing of the delivery of the batch 2 Type 26 motors was far enough into the future that it would have allowed us to transfer the capability and know-how to Nancy, and to get the appropriate permissions and qualifications from the MoD, BAE and other customers to be able to support that. What has changed is now the timing of batch 2 has accelerated. That does not require us to make that change, but—
Chair
You said it would have been an equivalent engine, in the sense that, once built and fitted, it could do the same job, but it would have involved considerable redesign to the frigate, wouldn’t it?
George Kunder
No.
Andy Cooper
No.
Chair
Weren’t the dimensions different?
George Kunder
No.
Andy Cooper
No. I understand where you are going, because in the previous meeting there was some discussion about the vacuum pressure impregnation tank. In Nancy they have VPI tanks for their machines. We have tanks in the UK. The Type 26 motor that we design and build in the UK would fit inside the tank in Nancy. However, the motors that we have made for Type 45 and the QEC aircraft carriers are larger than the tank in Nancy, so we would have had to have procured a new tank and installed it in Nancy so that we could manufacture the identical machine.
Chair
Ah. So it is not the case, as we were told in a previous hearing, that because of the different technology that the French were looking to employ, it could mean a larger motor, and the whole design of the ship would have to change to accommodate the larger size.
Andy Cooper
No.
Chair
That was never going to be the case.
George Kunder
That was not the case.
Chair
Okay. We will take it as that.
John Spellar
Mr Cooper has given us a positive view of the future of the site. Mr Kunder, is that view shared by you and indeed by GE corporate?
George Kunder
Yes, it is, very simply and directly. I say that because what we have been able to achieve here in the last week and formalise with MoD is a rejuvenation of the facility. The site will be converted into a naval and UK service shop that is going to be very focused, and it matches well with our future strategy around getting our footprint to be the right size for the broader global business. I am quite pleased with the result. We are happy about that.
Ruth Smeeth
A final question, Mr Kunder, on your answer about whether Power Conversion is up for sale. Bloomberg is reporting that it is up for sale for $1.5 billion, which would be half what you paid for it in 2011. Are you categorically saying that that is not true?
George Kunder
What I am saying is that there has been speculation in the global press for the last 18 to 24 months about Power Conversion, just as there is a lot of speculation about other GE businesses. We are evaluating different options, but nothing has been formalised and no decisions have been made. Our main focus right now is to continue on with our overall business transformation at the Power Conversion level within GE. This decision with Rugby is part of that. It is different from what we proposed, for sure, but we also feel that where we are going now is fully aligned with our transformation strategy. In the background, we continue to evaluate all the options available—
Ruth Smeeth
That is not quite the “no” you gave us earlier on, but thank you very much.
Chair
Thank you. That concludes the session. I thank you both, gentlemen. We will now change over to the next panel. Examination of witnesses
Witnesses
Stuart Andrew MP, Sir Simon Bollom KBE CB, Air Marshal Richard Knighton CB and Rear Admiral Paul Marshall CBE.
Chair
Welcome to the new panel of witnesses, including the Minister. The running order will involve a couple of brief questions about the A400M and the Wedgetail procurement. We will then have a few more questions about General Electric and Rugby, and will then proceed to the fleet solid support ships issue. Please briefly introduce yourselves.
Air Marshal Knighton
Air Marshal Richard Knighton. I am Deputy Chief of Defence Staff, military capability.
Stuart Andrew
Stuart Andrew, Minister for Defence Procurement.
Sir Simon Bollom
Simon Bollom, chief executive, Defence Equipment and Support.
Rear Admiral Marshall
Rear Admiral Paul Marshall, senior responsible owner for Type 31, Type 26 and fleet solid support.
Mr Francois
Minister, as a warm-up we have a quick-fire round for you on the A400M. In February 2019, I tabled a number of parliamentary questions on the programme. From that, we know that the Ministry of Defence are ordering 22 A400Ms, all of which I think have now been delivered to Brize Norton, or have nearly been delivered. The procurement cost of those 22 aircraft was £2.6 billion, and the total cost over the life of the programme is estimated as being £6.7 billion. I take it you are not contesting any of that?
Stuart Andrew
No, that is correct.
Mr Francois
Good, so we start on the same page. Of those 22 aircraft, on average how many are operationally available at Brize Norton on any one day?
Stuart Andrew
Can I say that I welcome the Committee’s interest in this? I have a partner nation meeting in a couple of weeks’ time. As you know, this has been a challenging project, and the interest of this Committee will be useful for me to lay it on thick to industry, because, frankly, availability has not been good enough.
Mr Francois
We are happy to oblige. The question is: how many?
Stuart Andrew
At the moment, there are five in retrofit, because some of these were the earlier models that were produced. Two or three are in maintenance, so there are 13 aircraft, but six of them are serviceable. You will, of course, be aware that considerable pressure has been put on Airbus to improve the availability of these aircraft. The main issues include the engine gearbox, the engine itself and the heat detection systems. Of the 20 aircraft we currently have—the other two will be delivered in 2020 and 2021—16 will be improved with those systems. That will involve a six-month period. The other issue is the electronic data system, and that has been an availability issue. We are hoping that by the end of 2019, seven or eight aircraft will be available.
Mr Francois
Right. There is a point here about terminology. You said that six were serviceable out of 20. That is less than a third. With respect, I did not ask how many were serviceable; I asked how many were available. How many are available on an average day at Brize Norton?
Sir Simon Bollom
At the moment, they are working on the basis of four task lines, and between six and seven aircraft support those four task lines.
Mr Francois
How about if I tell you that I have it on very good authority that, on any average day at Brize Norton, two are actually available and able to fly? Two out of 20, or 10%. Isn’t that a disgrace?
Sir Simon Bollom
I do not recognise the two. I have the statistics over the past six weeks—
Mr Francois
I have that from engineering aircrew who work on the aircraft, Sir Simon. Presumably they know what they are talking about, because they service the aircraft, don’t they? Secondly, how long does it take from cold to start up the aircraft? As you say, it has a very complex computer system. Minister, if you start it from cold, how long does it take to prepare the aircraft for flight?
Stuart Andrew
Personally, I do not know the answer to that question.
Sir Simon Bollom
Neither do I.
Mr Francois
You don’t. Does anyone know the answer? On average, it takes three hours, because of all the problems and complexities of the computer system, which Airbus has never fixed, despite years of trying. Three hours to get the aircraft in the air. Airbus has lost a vast amount of money on the aircraft, and has still not got it right. Have you ever attempted to recover liquidated damages from the company because of the aircraft’s chronic unavailability?
Sir Simon Bollom
The liquidated damages clause in the contract applies to late delivery. In terms of aircraft availability, we do not have an availability service with Airbus, as I am sure you know, and therefore claiming liquidated damages against a contract that isn’t there is not what we can do.
Mr Francois
So we have no legal recourse. The aircraft can be delivered on time but not work, and we have no legal comeback.
Sir Simon Bollom
We do not have an availability service on this aircraft. That is not untypical of the way we have procured aircraft in the past. We have got an unstable technical baseline with this one. As the Minister has pointed out, aircraft are going through a retrofit programme. We have separate support arrangements to the procurement contract.
Mr Francois
I promised the Chair that I would be brief, so I have only a handful more questions. The Committee often gets quite irritated that on the one hand, the MoD permanently pleads penury, but on the other hand, it spends vast amounts of taxpayers’ money from a very tight budget on kit that does not work properly. Why have you spent £2.6 billion on an aircraft that is about 10% available? Why did you do that?
Air Marshal Knighton
Shall I take that, Minister? What the Government decided in the 2000s was that we were going to extend our air transport fleet, and A400M was the product that we went for, alongside sustaining the C-130s and the C-17s. You may recall that back in the 1990s, when C-130J first came into service, it had very similar problems to what we have seen with the A400M. We had problems with its ground maintenance system and some of its maintenance manuals, and some of the stuff didn’t work. So the point you make is absolutely right—that the performance we are getting out of this aeroplane is not acceptable, is not sufficient and does not meet our requirements—but I think there is good evidence to suggest that the situation is going to improve, and I am confident that this aircraft will prove to be world-beating. We would like it to be world-beating today, but more work has to be done on it.
Mr Francois
Is it true that pilots on the A400M squadron are attempting to transfer to the C-130J or the C-17 squadron, or to leave the Royal Air Force, because they rarely get an opportunity to fly?
Air Marshal Knighton
I am not aware that that is true at all, no.
Mr Francois
Well, I think it is, because a pilot told me. So, £2.6 billion from a hard-pressed Defence budget on an aircraft that is, in my humble opinion, a total dog. What are you doing to put it right?
Stuart Andrew
May I say that I have had contrary conversations with many of the pilots. They actually recognise the ability of this aircraft, when it is working properly—
Mr Francois
That is the whole point—
Stuart Andrew
Absolutely, and I get that. That is exactly why, as I have mentioned, we are having a partner nation meeting. There is a plan in place, and we are starting to see improvements in it, but we need that to speed up so that we can rely on this. The pilots I’ve spoken to have said that the aircraft has great capability. It has supported operations, particularly in terms of the hurricane in Mozambique. It has been able to land in very difficult circumstances. They do recognise the ability of this aircraft and are quite pleased with it. What we have got to do is put pressure on to get the availability better. Now, by the middle of next year—
Mr Francois
Minister, there is a difference between the theoretical capability of something and what it can actually reliably do. They may theoretically be highly capable, but most of the time they are unavailable. The computer system doesn’t work properly, and there are issues with the gearbox, as you have already mentioned. Can we please learn lessons from this ridiculous procurement and, hopefully, do a better job next time than we have done on this? Can you at least give us that assurance?
Stuart Andrew
Of course—absolutely. This has not been a project that has been easy to handle. It is presenting a lot of difficulties, but I want to make it clear that there is a plan in place to make the changes that we need to see and to improve the availability of the aircraft. Certainly, by the end of this year, we will have seen an incremental improvement and, by next year, even more improvement.
Chair
Martin, very briefly. You wish to come in now.
Martin Docherty-Hughes
I know you won’t be able to answer this straightaway, Minister, but you might want to write to the Committee. Over their lifetime, these planes will need to be repainted, I assume. Most systems for controlling corrosion in military aircraft use an organic coating system, which of course includes hexavalent chromium. Could you write to the Committee explaining why we might still be using that material, and whether it will be used in future for these aircraft? That will be much appreciated.
Stuart Andrew
I will certainly undertake to do that.
Chair
Is there any last word on this?
Sir Simon Bollom
I would like to reinforce that this is not just a hope that the availability improves. The computer system that you referred to is the off-board maintenance data system computer, not the aircraft itself. It is true to say that that is an essential interface with the aircraft and it has not worked properly. That means that the ground crew have to use a paper-based system, which is one of the causes of the unavailability for operations. Those problems will be fixed by the end of October. A number of the modifications will be embodied by the end of this year. I am very confident—I am quite happy to come back on that—to say that the availability of these aircraft will have improved by the end of this year. I do not accept that it is a dog. I have got some availability statistics, Mr Francois, which I would be happy to share with the Committee.
Chair
Perhaps you would like to reflect on various lines of questioning we have had today and write to us afterwards. We will duly publish that correspondence. Let’s move on to Wedgetail. Gavin, please.
Gavin Robinson
Good afternoon, Minister. You know that we have been in dialogue with you quite considerably around Wedgetail and the concerns of the Committee around single-source tender. Could you indicate to the Committee why, as procurement Minister, you are paying Boeing to buy their own aircraft second hand, rather than procuring them yourself?
Stuart Andrew
The reason for that is that it became an opportunity for us to have these two aircraft, which means we can get on with the acquisition as quickly as possible. There is an urgent need for this. Last Thursday, I was at RAF Waddington and met crews on the existing flights that we have. It is clear that this is a platform that really needs updating to support our armed forces and improve the capability that we have. Those two aircraft that are available are still under negotiation, I should say. There is a limit to what I can say about the purchase of those two, but it is so that we can get on with the process of procuring them quickly.
Gavin Robinson
It would be incongruous if we were paying Boeing to pay this price that we could pay ourselves.
Stuart Andrew
As I say, the negotiations are still going on at the moment.
Gavin Robinson
But you will bear that in mind.
Stuart Andrew
Of course.
Gavin Robinson
How confident are you that modification will take 24 months?
Stuart Andrew
Very confident. We have gone through a rigorous process with Boeing to test this. It will be very thorough, but we are very confident that it can be delivered in the 24 months.
Gavin Robinson
What is the difference between modifying new aircraft and the second-hand 737s? Is there a timescale for those?
Sir Simon Bollom
It will be pretty much the same. As part of the process, Boeing will take these aircraft in and give them a thorough overhaul—a C check—and restore them to the same configuration baseline as the rest of the fleet.
Gavin Robinson
Sir Simon, you knew the Minister knew that answer; he could have given it to us himself.
Sir Simon Bollom
I was just giving some support.
Gavin Robinson
Minister, as I referred to, this Committee have had difficulty around this contract. When you were before us on 6 November last year, you indicated that, in your meeting with the president of Boeing International, you had stressed the need for UK content and benefit for the UK supply chain. Why are we relying on the good will of Boeing to deliver that?
Stuart Andrew
I do not accept that we are just relying on good will. There is a tremendous amount of work going on to hold Boeing’s feet to the fire to make sure that they are doing everything they can to maximise the opportunities for the UK supply chain. Very recently, 40 UK businesses went over to the United States to get significant training by Boeing in how to compete in many of the competitions they will be running.
Gavin Robinson
With respect, Minister, that is a generalist approach across the whole panoply of their products. We are talking about this single-source contract and the consternation that this Committee has had about the way it was entered into, and about the firm commitment that there would be UK content and benefit for the UK supply chain as part of it. On 25 April, you wrote to the Committee: “Sub-contract competition will be maximised and Boeing are already actively engaged”. What have we learned so far?
Stuart Andrew
These sorts of contracts are still ongoing at the moment in terms of what is being bid for, but we have seen a significant announcement in terms of the work that will be going on at Marshall, and I expect to see benefits equal to, if not greater than, those we saw with the P-8. That has brought significant investment to Lossiemouth; we have seen the support network that will be available up there. In addition, we expect that Marshall will benefit from future exports that they will make for other countries.
Gavin Robinson
Minister, I do not intend to go into specifics, and you and I have both had the opportunity to have private conversations about aspects of this contract. Do you agree that he who pays the piper calls the tune?
Stuart Andrew
Yes.
Gavin Robinson
Will you commit to this Committee that, as the negotiations proceed, you will be robust in defending UK interests, defending UK industry and ensuring that the UK benefits when we are spending our taxes on this contract?
Stuart Andrew
I will not commit that I will be; I already am. I make sure I meet regularly with—
Gavin Robinson
But it is a work in progress.
Stuart Andrew
It is a work in progress, absolutely. This is an ongoing dialogue; it is not just a one-off.
Gavin Robinson
And Boeing should be in no doubt as to your position, as the person who is paying the piper.
Stuart Andrew
Boeing were left in no doubt in the meeting I had just last week.
Gavin Robinson
Thank you.
Mrs Moon
I have two questions. When you were here before and we discussed Wedgetail, we pointed out that the production line had stopped on building this particular aircraft. You said that was not true and that it had not stopped. Why are we now having to buy second-hand 737s for modification if the production line is still in place?
Stuart Andrew
That line is fully operational. This is just providing us with an opportunity to get these aircraft, which we need urgently, quicker. I will bring in the Air Marshal, who perhaps can expand.
Air Marshal Knighton
Just a couple of things. I think we got ourselves slightly confused about the definitions of the production line when we came to you before. The production line for 737 Next Generation—NG—aircraft is continuing. That has not stopped. The modification of those aircraft to turn them into E-7s is something that has not been done for several years, but, having done it several times before for several different customers, we have a great deal of confidence in the ability of Marshall in the UK—in Cambridge—to do that work with Boeing and Northrop Grumman to deliver the capability on time.
Mrs Moon
I see. The production line to do the modification has not been in production for seven years, so, clearly, nobody has been buying this for seven years.
Air Marshal Knighton
I said several, not seven, years.
Mrs Moon
Okay—for several years, then.
Air Marshal Knighton
The modification has not been done on 737s to turn them into E-7s for several years. As I said, we are confident, because it has been done multiple times before, that we understand the situation. The design of these modern aircraft is all done in three-dimensional models using computer-aided design. With modern technology, it is much easier than it used to be to ensure that we are able to implement modifications that have been done previously. We are very confident in the ability of Marshall, with Boeing and Northrop Grumman, to deliver on time.
Mrs Moon
You are aware that this Committee is not happy or confident in this decision, and we will monitor this closely. Given what we just heard in relation to the A400M, it could be said that you do not have the best history in this area, so this will continue. Can we have from you a rundown of the value of all contracts currently held by Boeing with the Ministry of Defence, and the value of offset work on each contract? Can we have that updated on a bi-monthly basis please, given you say you are in these very confident negotiations with Boeing? Quite honestly, many on this Committee think this is a rip-off company that is ripping off the British taxpayer. We are not happy and not confident in the quality of its promises. Can we be given regular updates that might hold its feet to the fire in relation to offset, so that it does not carry on its current practice of ripping off the British taxpayer?[1]
Stuart Andrew
I am happy to provide that to the Committee. I have always tried to answer any correspondence that we have had from the Committee. There are certain things that I want to try to get across, as a starter, and that I want to see even more—that is a message I continually put across to Boeing. Boeing invested over £250 million in the UK on infrastructure alone in 2018. That is 22 times more than it did in 2016.
John Spellar
What do you mean by infrastructure?
Stuart Andrew
We have the stuff that is going off up at Lossiemouth.
John Spellar
Of course, but any contractor would have to build that in Lossiemouth. That is not new capacity or particular manufacturing—it is a maintenance facility that it has to have. This is double counting.
Stuart Andrew
If I could carry on, I was going to say that we now have the factory in Sheffield, which is the first that the company has in Europe. The company now has the most advanced hangar anywhere in the world at Gatwick and, as I say, the strategic facilities for the new P-8s up at Lossiemouth. We know it has added at least 600 direct jobs to the UK over the last four years and directly employs 2,400 people today.
John Spellar
Where?
Stuart Andrew
All over the country.
John Spellar
By new venture or by acquisition of existing capacity?
Stuart Andrew
Those are directly—
John Spellar
New or just taking over companies and taking over responsibilities, but not bringing in new work?
Stuart Andrew
I will have to double-check that because I would not want to give the wrong information. It has also been independently verified that it supports more than 75,000 jobs in the UK. That said, I recognise the importance of ensuring that there are maximum opportunities for UK industry. That is why we are working with UK industry, so they can take on those opportunities. Also, we want them to be competitive enough to be able to win many of those contracts.
Mrs Moon
How can they be competitive when you are doing single-source contracts and there is no competition?
Stuart Andrew
I think we explained that this is about the capability and availability.
Mrs Moon
But you prejudged! You have already decided—it does not matter what anybody has.
Stuart Andrew
A deep analysis was made of what is available for the work that the E-7 will be doing. There was nothing that was tried and tested that was able to match it, and it is an urgent requirement. When I was at RAF Waddington last week, I met a member of the aircrew who had just come back from serving with the Royal Australian Air Force. He was of the view that we have certainly made the right decision, because he has flown on the E-7. He has seen its capability and contrasted it with what we have at the moment. It is not an easy decision to go single source, and it is further down the list where we choose to do that, but it is only because no other viable option was there for us to use, given the capability that is needed. At the end of the day, our responsibility is to provide the right equipment for our Air Force.
Chair
I don’t think we want to go too far back into history, but I remind you gently that we had representations from Saab, for example, who had an alternative system. Their complaint was not that they did not win, but that they never felt they were truly allowed to compete. I remember them saying to me at the time that their feeling was, “If you’re not going to let us compete properly, for goodness’ sake tell us and we won’t waste our time.” There was an awful lot of feeling that the thing had been sewn up for Boeing before the process got under way. You have got to try to dispel that perception.
Stuart Andrew
I understand that completely. What I think I spoke about at the time, and what I spoke about just now, was proven capability. The plan that Saab came up with was for two radars on the aircraft—that was the platform they were suggesting. That has never been done before. Just as with the A400M that we were talking about, we do not want to find ourselves in a situation where we have to spend more and more money because we are trying to make something work that has not been proven, given the urgency of the capability we need.
Mr Francois
The E-7 does work; the A400 doesn’t.
Stuart Andrew
That is my point. The E-7 does work. The Australians have gone through the pain of getting it to the position it is in now. That is why, broadly, it is more of a benefit for the UK taxpayer and, more important, for our armed forces.
Chair
The last question on this topic comes from Ruth.
Ruth Smeeth
This would not have been an urgent contract if we had had the steady drumbeat of orders that this Committee has been arguing for for over a decade. We knew years ago that the E-3 needed to be replaced, yet that was delayed and delayed and delayed. That does not work as an argument, because if your predecessors had actually started the process, we would not have had this urgent need for something that I’m not convinced will even arrive in 24 months—we will see. What I do not understand about your argument, Minister, is what you say about all the new jobs that Boeing has delivered or is delivering. Let’s be clear: if anyone else had been awarded it, there would be new jobs associated with the new contracts. Just because it was Boeing does not mean that Boeing has invented new jobs and brought new contracts here that someone else would not have brought. That is another argument that is not valid.
Stuart Andrew
Of course people would have benefited whoever we had gone through, but we are trying to maximise the potential for the UK industry in the supply chain. I cannot speak for my predecessors about why they did not update the existing aircraft, but one observation that has been made is that those nations that have done that do not now have the sort of capability that the E-7 will be able to provide us with.
Ruth Smeeth
But by your own admission, you would have been using a better capability for the past three years, so I am not sure that that is an argument. If, instead of the cuts in SDSR 2010, you had actually invested when you should have done, you would have had this new capability on the ground already. It would have been manufactured at the same time as the Australian model, it would currently be flying and we would not have the issue that we have in terms of capability with the E-3. We would also have gone out to competition and other companies could have seen what capabilities they could have developed. This would have been a normal contract. I do not understand why Boeing, especially with the P-8 and Wedgetail, seems to be exclusively getting single source, when that is not the case for everybody else, including, as we are about to talk about, with the fleet solid support ships, where we cannot even implement our own policy in terms of ensuring British jobs for British businesses. This is absurd.
Stuart Andrew
I go back to the point that it is about the capability that is available. The decision that I have had to make and that we have had to make as a Department is what capability exists—what proven capability exists. The only real, viable option that was proven was the E-7.
Chair
We must move on to General Electric in Rugby. Minister, you referred, quite rightly, in your earlier remarks in this other context that we have quite a lot of correspondence going back and forth between the Committee and yourself. We appreciate the promptitude with which you reply to our inquiries. But you will know that when it comes to GE and the proposed move to Nancy, that correspondence, as I recall it, seemed to be rather accepting of the fact that it was going to happen. Luckily, and by happy coincidence, it was announced just yesterday—24 hours ahead of this hearing—that we have a deal and a good outcome, and the Royal Naval part of the business has been secured, largely because of the acceleration of Type 26 motor orders. I have a couple of initial questions, and then John in particular will explore how we got to this state where even though we appeared to have a legally binding agreement to ensure that this important capability was secure in the UK, we very nearly lost it. When did you first hear about GE’s plans to move the work to Nancy? Were you consulted—forewarned, in other words—about that before the announcement was made that they were planning to close down and move?
Stuart Andrew
Both Simon and I will need to answer this question, because he has been dealing with this prior to my appointment. But pretty soon after my appointment this issue was raised with me, not least by the local Member of Parliament, Mark Pawsey. I have to say, as I said in the House yesterday, he has been extremely persistent in making sure that we are doing all that we can for this. As soon as that issue was raised with me, I arranged for a telephone call with GE to discuss what the options were. I understood there had been previous discussions, but the plan seemed to be, from their point of view, that they would continue with the decision to move to Nancy.
Chair
Right. Just to pin down this bit—I have a couple more questions to follow—and I appreciate that this was before your time, Minister, but can anybody be clear: was the MoD properly consulted before GE announced that they were planning to close down this plant and move the work to France?
Sir Simon Bollom
I have been running this issue since December 2017, which was the point at which GE notified us of the intent to go into consultation about moving the RMR capability to Nancy.
Chair
Was that notification made to you before it was made public?
Sir Simon Bollom
I think it was in parallel.
Chair
So really they came to you and said, “Well, we are planning to do this. And, by the way, we just put it out on the wire.”
Sir Simon Bollom
They advised us that they were going to go into a consultation.
Chair
It doesn’t sound as if there were any serious, in-depth discussions about the implications of all this before the consultation process was announced and got under way.
Sir Simon Bollom
I became aware of it in December 2017, and they launched the consultation process early in 2018.
Chair
Were there intensive discussions before it went public?
Sir Simon Bollom
There has been some very intensive conversation with GE on not just the rotating machines but the test facility and the engineering capability.
Chair
I know there has been ever since. I am asking—this is a fairly straightforward point. If you are not sure, and I appreciate that you would not want to mislead the Committee—
Sir Simon Bollom
I will need to go and check the timings.
Chair
Will you check it and let us know? All we want to know is how seriously this company was taking its obligations to the Ministry of Defence and this country before it came out into the open with this proposal, which seemed to fly in the face of all the assurances that the Ministry of Defence and the Government had been given by the company when it acquired the plant in the first place.
Sir Simon Bollom
I understand the point and I will confirm the timings.
Chair
That is fair enough. So why did it take so long to reach agreement with GE about bringing forward the batch 2 Type 26 programme to help maintain the Rugby site? In the correspondence we were having, there was not much sign of any progress being made. Was it that you would always have been willing to bring forward the batch in order to save it, or was it that they were asking you to do this and you were reluctant to do it? Who blinked first?
Stuart Andrew
I will let Sir Simon go into greater detail, but I think I am right in saying that right from the outset the offer was to bring forward the Type 26 motor work.
Chair
So it was always the position of the MoD that, if it would help, you would accelerate.
Sir Simon Bollom
Let me put it another way, Chair. We were notified of an intent to go into a negotiation over a move to Nancy. That is when we intervened. To us there seemed to be a real economic benefit in terms of retaining the capability at Rugby. It kept engineering, test and rotating machines together. Clearly, it is a very important part of support to our current warships and indeed our future aspirations: Type 26, potentially Type 31, and FSS. So we entered into a negotiation that essentially was one about the programme assurance that GE was seeking in terms of keeping that viable. You will be aware of the pressures the company is experiencing not just in this country or in Europe, but across the US in a heavy rationalisation programme. We sought to find a deal that was value for money for us and provided us with the right level of capability for the Royal Navy, but equally provided them with a viable business. That process takes time. As part of the deal, we brought forward an undertaking to commit to the batch 2 motors, subject to our internal approval scheme.
Chair
When they were making the offer to take all this to Nancy, were they proposing, as far as you knew, to build one of these special tanks that is such an intimate part of the process? We have a much larger one here than they have in Nancy.
Sir Simon Bollom
That is the test facility.
Chair
That’s right. Were they undertaking to build a new larger one there, or were we going to have to get a different sort of motor?
Sir Simon Bollom
No, they would effectively build to pattern the motors that were then being built at the Rugby facility. So the test facility is more of a development, an investigative capability. It is not just for our ships. It encompasses submarines as well. So that is very much a part of UK freedom of action, but in terms of the manufacture of the motors, it is essentially built to a pattern.[2]
Chair
So it would have been exactly the same motor.
Sir Simon Bollom
It would have been the same motor, but—
Chair
We would not have had to redesign the ships.
Sir Simon Bollom
No, we would have had to go through acceptance testing again, which was one of the arguments that we put forward. We argued very strongly that we had a capability that we understood at Rugby. We did not want to go through extensive qualification on a new manufacturing capability.
Chair
But we would have lost the ability to build motors of this sort in the UK.
Sir Simon Bollom
There are other competitors, but certainly at this scale and to that fidelity we would probably have lost that.
Chair
Okay. Finally from me, what discussions did you have with your Australian and Canadian opposite numbers, Minister, about the proposal, because it would have affected them as well?
Stuart Andrew
Most of the discussions that I have had were with the company itself. As I said at the beginning, we had the initial telephone call and then I asked them to come in to meet with me, and then officials had more detailed discussions at which we brought up the potential opportunities that would exist with both the Australia and the Canada campaigns.
Chair
Were you ever worried about the discovery by the trade unions of Chinese espionage fears in relation to the Nancy site?
Stuart Andrew
No, I wasn’t personally.
Sir Simon Bollom
I had heard that there was a concern. That was not really a key determinant in the decision, which was a business and economic one.
Chair
Hmm. What does that remind me of? Mentioning nothing about Huawei at all, Martin, would you like to take the next question?
Martin Docherty-Hughes
What are you proposing to bring in the Type 26 programme for, and what impact will that have on those programmes?
Sir Simon Bollom
Currently under order are the batch 1, so three ships—the motors for those. What GE sought, entirely understandably, was a continuous production capability and they were keen for us to make a commitment for the batch 2—the next five ships. To achieve continuity, they really needed to start those by the end of 2020. This has been a deal that has been constructed with the prime contractor, BAE Systems, here. BAE Systems has lent into this as well and there will be some long lead time orders that were placed to keep that continuity going. We hope to secure formal approval from the Treasury to procure batch 2 motors by the end of this year.
Martin Docherty-Hughes
Will there be any effect on the procurement budget?
Sir Simon Bollom
No, it is exactly in line with the current budget.
John Spellar
You said just now that you were aware that there may have been a compromise of security at the site. Did you ask our security services for an evaluation of that?
Sir Simon Bollom
No.
John Spellar
Why not?
Sir Simon Bollom
As I said, at the time, I thought there were clear business and economic drivers that would lead us to retaining the capability in this country. At the forefront of my mind was ensuring that we had a good deal with GE. We just weren’t handing them an opportunity without us—the Government—getting a fair return.
John Spellar
But that clearly runs contrary not just to the intention but also to the explicit wording of the deed poll that was signed, the legal agreement that was signed between the Ministry of Defence and the company when it took this over. It was obviously a matter of concern. You had “no transfer or disclosure by whatever means of UK Protected Material shall be made outside the UK Companies”. It also talks about “only personnel with appropriate UK security clearances shall have access”. It is quite extraordinary in the light of that that we did not inquire as to whether this was a secure site. Quite apart from the fact if we are looking at pitching in for work from the United States Navy, let alone the Australians and Canadians, with whom have already secured agreements, it is quite extraordinary that we were not concerned about the security of the site.
Rear Admiral Marshall
Can I help Sir Simon there? From a military capability perspective, what is important for Type 26 is that we have a really good anti-submarine warfare capability. We are looking for quiet motors. In our judgment, protecting that was about the design, which would remain in the UK, and the testing and evaluation of the signatures, which would also remain in the UK. For the manufacture, the understanding was that, before any movement of the manufacturing capability to France could take place, the company would need to satisfy our security regulations. Obviously, that has been overtaken by events.
John Spellar
But there were question marks over it. You said they needed to satisfy. There were question marks over it in open source and yet we did not inquire from our security services as to whether this should be a matter of concern. Talking just about manufacture, that presumes the Chinese cannot reverse engineer, which they actually seem to be rather good at.
Rear Admiral Marshall
I think the deal that has been done has overtaken that sequence a little bit.
John Spellar
I am talking about how, at the time we were considering this, we had a legal agreement, which the Department— perversely, I would argue—would not undertake to enforce on the company to bring them to the bargaining table. Yet they did not even make the basic inquiries about matters that they had clearly envisaged were necessary because of all the security elements they wrote into the deed poll, which the Government previously felt necessary to get signed before they would okay the takeover of this British facility by GE.
Rear Admiral Marshall
Those discussions were ongoing at the time and, now that a satisfactory outcome has been concluded, that is no longer an issue.
John Spellar
Sorry, what discussions were ongoing?
Rear Admiral Marshall
That the move of the manufacturing facility to Nancy would have to satisfy our security requirements.
John Spellar
But it didn’t. Why would we want to move from a site that is contained within the UK and has UK security classification, which would also be helpful to satisfy our Five Eyes partners? Why would we contemplate letting that move to a site where there were serious question marks that we did not see fit to explore?
Rear Admiral Marshall
I think we were exploring them.
John Spellar
I don’t think you were.
Sir Simon Bollom
There are two ways of doing this. We could have come up with an argument, I suppose, for why they absolutely could not move it, and then stood to risk being in a negotiation where we would carry all the risk in terms of retaining that onshore capability. Instead, as I said, we looked at the business and economics of that, and I think we have come up with a value-for-money deal that benefits us and them. It is really important to point out that the deed poll that you referred to was not a guarantee that GE would retain that capability onshore between us and GE; the deed poll was between GE and Converteam, which was the predecessor to GE in using that plant.
John Spellar
But didn’t the Ministry of Defence sign that off as well?
Sir Simon Bollom
No. As far as I know, we did not.
John Spellar
There was no involvement by the Ministry of Defence in that?
Rear Admiral Marshall
As I said earlier, the Ministry of Defence would absolutely need to be satisfied that the security requirements for the transfer of protectively marked material had been met before the move of the manufacture to Nancy.
John Spellar
The operation will be maintained in line “except in so far as the Ministry of Defence has separately agreed otherwise in writing”. That seems pretty explicit to me.
Stuart Andrew
The point is that we were trying to get to a position where we did not need to get to that stage. We were trying to secure the plant by looking at all the options in front of us. We have now reached that point. Had we not been successful with that, that stage would follow the stage of looking at the security arrangements. We were trying to work with the company to see what we could do to safeguard the Rugby site, and that is what we have managed to achieve.
Rear Admiral Marshall
That would not have included any transfer of material protectively marked UK Eyes Only .
Chair
All that I can suggest is that if you think you have had a bit of a rough ride over this today, it would have been a heck of a lot worse if you had not just managed, coincidentally, to reach an agreement 48 hours before this hearing. We are very glad that you did.
Stuart Andrew
I think that was more coincidence than backward judgment.
John Spellar
There are heightened security concerns with Russia. Does the plant not also undertake contracts with the Russians and are the Russians not regularly on site?
Stuart Andrew
Which site?
Chair
Nancy.
Stuart Andrew
My point is that we had not got to that stage.
John Spellar
You don’t need to. You should have just played your card on that.
Stuart Andrew
This is important. We were trying to secure the future of this site. That was our primary aim, and that is what we have managed to achieve. If we had not been successful with that, of course all of those elements would have been looked at.
Mr Francois
Providence has been kind to you, Minister.
Stuart Andrew
And, in fairness, a tremendous amount of hard work by officials, who have been working really hard on this. I have put in personal time on it, but the officials have worked incredibly hard.
Mr Francois
Fair enough.
Chair
We acknowledge that. We look forward to more coincidences of happy outcomes shortly before future Defence Committee hearings.
Stuart Andrew
I wish that I could be so lucky, Chair.
Chair
Let us see. It happened once before on the closure of IHAT, which was announced 48 hours before our embargoed report on the need to close IHAT was published. Let us move on to the fleet solid support ships.
Ruth Smeeth
Minister, does any other nation agree that fleet solid support ships are not warships?
Stuart Andrew
A number of other countries do, such as Australia and Norway, which procured their ships from abroad.
Ruth Smeeth
They procure them, but in fairness, Minister, that was not the question. The question was not about where they procure them from; it was about their classification.
Stuart Andrew
I do not know whether they classify them as that, but it is for those countries to make that determination.
Rear Admiral Marshall
I think it is a really good question, and the Royal Fleet Auxiliary is slightly unique in the UK. We are very proud of the Royal Fleet Auxiliary and it enjoys that sponsored reserve status. There is the United Nations convention on the law of the sea. The definition of a warship effectively says that they are clearly marked as warships of a nation and commanded and crewed by regular service personnel of that nation, which the RFA is not. In the case of France and Australia—and many other nations, actually—their support shipping and auxiliary shipping is crewed by regular service personnel.
Ruth Smeeth
Okay, I understand that, but how they will operate with the aircraft carrier—that is slightly disingenuous, in terms of the role that they will fulfil. If we did not have the Royal Fleet Auxiliary, they would be operated squarely under your auspices.
Rear Admiral Marshall
That is absolutely correct, but there is the policy matter, which I think Air Marshal Knighton will pick up on, that for the purpose of the national shipbuilding strategy we define warships as frigates, destroyers and aircraft carriers.
Ruth Smeeth
If it is going to war—if a ship is going to be part of our defensive capability and could be targeted as part of the British Navy—it is a warship. That would be fundamental to who we are, where we are, and why it should be built, and why it should be viewed as sovereign capability. My actual point is that I and several other members of the Committee believe we are hiding behind definitions. This is a warship. It should be built by sovereign capability, because it is a warship. I have one further question before handing over to Martin. There has been a recent FOI request about the number of jobs that the FSS would guarantee in the UK. It is between 11,600 and 16,400. I think, not just in terms of our defensive capability but our sovereign skills capability, when we are talking about the number of British jobs that would be linked to this project, it is perverse that we are not considering that in our decision making—or are we? Are you about to give us more good news at a Select Committee hearing about decisions that we will be making about who is actually going to be awarded the FSS?
Air Marshal Knighton
There are a couple of things that I would mention. The first is that there is still a UK consortium that is in the competition for fleet solid support, so if team UK win they will clearly secure that work in the UK. I am afraid that we do not have with us the details about where those estimates came from, in terms of those numbers. The second thing is that I brought with me a copy of the Treasury’s Green Book, which sets out the rules and processes by which the Government decide in a competition how they should choose the winning competitor and what factors they should consider. The policy is very clear about the national value framework, as it is described. That allows us to consider a whole range of factors associated with the procurement and working out which of the potential competitors we should choose. However, what is quite clear in that policy, which has existed over many years across Governments of different colours, is that a straightforward question about UK jobs does not equate itself to the long-term prosperity of the UK, necessarily, so that straightforward demand-side labour force requirement is not a factor that the Government consider in any of their procurements.
Ruth Smeeth
The Government are wrong not to consider that within their procurement. If you look at military aerospace, and at all the other issues we touch on in terms of procurement, every pound that we invest in defence aerospace equates to several pounds back to the Exchequer. There is a direct correlation between British jobs and British investment, and British defence capabilities. It is not an argument that is going to stack up with this Committee in terms of jobs, but much more importantly it is about the retention of sovereign skills as we seek to leave the European Union. By potentially outsourcing these jobs to another country, we are undermining our sovereign skill base. Minister?
Stuart Andrew
First of all, we have a significant shipbuilding order for UK shipyards. Over the next 10 years we are spending £60 billion on ships and submarines, which is going to enable us to keep many of the skills and capabilities that we need—quite rightly, as you say—in the United Kingdom. What we are trying to do here is to make UK industry even more competitive; not just to win UK orders but also looking at some of the international competition. They have to be so, because part of the strategy is very clear that they can’t just rely on the MoD for orders. If these yards are going to be successful and sustainable, we need them to be competitive in other markets too.
Ruth Smeeth
Minister, why are you so interested in competition for this project but not for Wedgetail? Why does competition work for one sector and not for another?
Gavin Robinson
Or P-8?
Ruth Smeeth
Or P-8.
Stuart Andrew
As I think I said at the time, those two are proven capabilities when no others existed. That is why we went with those single source. I think I made that point.
Ruth Smeeth
There are proven capabilities on nearly everything you buy, but some you are choosing to put out and some you don’t.
Stuart Andrew
But not on E-7. As I say, the first starting point for us, in terms of procurement, is a competition. That is what we will start off with first, but if we find ourselves with varying circumstances, such as the proven capability that is available and the need for the Armed Forces, in terms of how quickly we need it, then we will have to look at other options. That is why we took the decision on the two that you just talked about. Trying to secure the long-term future of our UK shipyards is something that the shipbuilding strategy is all about. I think we all want the same thing; it is just how we get there. It is trying to look at how we can make those shipyards more competitive, so that hopefully, with competitions such as the Type 31, if we are able to make a really good product that will be exportable, there will be future opportunities. The shipyards and the UK defence industry need to be as competitive as possible, so that they can win those international orders as well as UK orders.
Ruth Smeeth
Given that everyone pulled out of the Type 31 round last time, and we are just starting again with the Type 31, the idea that things can only be competitive if you actually settle on a price that is deliverable, there has to be a level of engagement here. I am more concerned that we seem to be looking at each of these in isolation and not at the overall picture. We do have a shipbuilding strategy, but I am not sure that we are taking this seriously. From my perspective—and, I think, from the Committee’s—it comes back to the E-7. We need a steady drum beat of orders, rather than the fits and spurts of what we are doing. That is why we need the FSS to take us through this period from the end of the Queen Elizabeth type to, hopefully, the Type 31, because otherwise people are going to be made redundant in the middle. Keeping our sovereign skills so that there is a steady drum beat is incredibly important. The skillset at Barrow is different from that on the Clyde for this; we are talking about very different skills. I am going to pass over to Martin before I get into trouble.
Martin Docherty-Hughes
It is like Goundhog day. Minister and members of the panel, do the examples of France and Italy show that there is a choice over the classification of fleet solid support ships as warships? I would note that they have both already built and exported the FREMM frigates, which are the principal rivals to what will be the Type 31e. Both have diversified shipbuilding bases, which can literally turn their hand to anything, whether it be what we used to do on the Clyde—being a son of Clydebank, I know that we built ocean-going liners and warships at the exact same time, even though we have absolutely nothing left now—yet BAE Systems in Clyde has been told that it can’t build a Type 26 and a Type 31 at the same time. With the confusion around the fleet solid support, we also have an industry that says it wants to do something. Why doesn’t the MoD support it and the taxpayer, in the same way they have done in France and Italy?
Air Marshal Knighton
I am not quite sure who has told BAE Systems. You said that BAE Systems had been told that—
Martin Docherty-Hughes
I was led to believe that it had been told that it can’t bid for both the Type 26 and the Type 31 at the same time.