Defence Reform Bill

Public Bill Committee, 5 September 2013.

Examination of Witness

Graham Brady (Conservative, Altrincham and Sale West)

We will now hear oral evidence from Lord Hamilton of Epsom. Before calling the first Member to ask a question, I remind all hon. Members that questions should be limited to matters within the scope of the Bill and we must stick strictly to the timings in the programme order that the Committee has agreed. I hope I do not have to interrupt any Members mid-sentence, but will do so if needs be. I welcome Lord Hamilton and call Alison Seabeck to ask the first question.

Alison Seabeck (Labour, Plymouth, Moor View)

Thank you Mr Brady. May I say on behalf of my colleagues how delighted we are that you are chairing this Committee? Thank you, Lord Hamilton, for coming to give evidence. The proposal set out by Bernard Gray for a Government-owned contractor-operated organisation was first mooted in 2009. Do you think the playing field has changed since he first looked at this? Several of the witnesses we saw on Tuesday felt that a number of his concerns had been dealt with, such as budget overheating. In fact, what we were left with were skills. Therefore, Lord Levene’s suggestion, which is DE&S-plus, bringing in expertise from business would, perhaps be a viable option. Do you have strong views on whether or not the GoCo is the route we must go down?

Russell Brown (Labour, Dumfries and Galloway)

Good morning, Lord Hamilton. A number of reforms have taken place since Bernard Gray’s report, particularly in terms of devolving acquisition authority to the individual service chiefs. Why, in your view, is the GoCo level being considered despite some of these reforms? To what extent could further reforms within the Ministry of Defence improve the existing public sector model? Finally, will the comparison of the GoCo option against the public sector comparator be sufficiently rigorous?

Damian Hinds (Conservative, East Hampshire)

Good morning, Lord Hamilton. How many bids do you think there will ultimately be for the GoCo, whether from individual companies or consortia?

Damian Hinds (Conservative, East Hampshire)

Given the structure of the industry, do you think it can be a number sufficient to make it truly competitive?

Damian Hinds (Conservative, East Hampshire)

If you take individual companies rather than consortia, how many do you think would be capable of taking this on?

Damian Hinds (Conservative, East Hampshire)

Finally, is there an advantage to being a consortium rather than an individual company in this project?

John Woodcock (Labour, Barrow and Furness)

Lord Hamilton, thank you. I want to follow up on that point. In one sense, the process has already started; we are looking forward to hearing from the Minister what the level of interest has been. If only two consortia reached the serious bidding stage, would you have competition concerns?

Tobias Ellwood (Conservative, Bournemouth East)

I am aware of four or five companies that are toying with this idea, a number of which are based in the States. In a previous sitting we asked whether that really matters. I do not think it does in this international context; however, the British public may desire to have a British face on this, particularly because it is the first time this is being done on this scale anywhere in the world. Do you have any concerns about that, and would you prefer to see a British face on it?

Mark Pawsey (Conservative, Rugby)

One of the concerns that has been expressed about the establishment of the GoCo is whether the commercial skills exist in the public sector to manage such a massive contract. In your experience, does the MOD have the skills to manage it?

Mark Pawsey (Conservative, Rugby)

Is that a structural problem?

Mark Pawsey (Conservative, Rugby)

I am more interested in the ability of the civil service to negotiate with skilled negotiators from the private sector. Is there a mismatch of skills, and could it derail the process?

Mark Pawsey (Conservative, Rugby)

Are you confident that will happen?

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

First, welcome, my lord. If a Reservist works for a GoCo, will that lead to a conflict of interest? Will they be too close to the process?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

You alluded to the need for Chinese walls between the companies that take responsibility for the GoCo and may also be part of the procurement process. How significant do you think are the concerns that some in industry have expressed about information security in the GoCo and in the procurement and tendering process?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

Are you aware of concerns among UK allies about the GoCo approach?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

Do you draw a distinct line between European partners and potential north American partners?

Tobias Ellwood (Conservative, Bournemouth East)

You mentioned QinetiQ, which plays a very interesting role here. It is at arm’s length from the Government and has its own shareholder base and so on, but it is the procurement body, if you like, for the armed forces. Indeed, when I last visited it, it was making a very clever bit of netting to stop rocket-propelled grenades from hitting Warriors. When I visited BAE Systems, it was building exactly the same thing. It did strike me as odd that two procurement operations were happening at the same time without any sort of connectivity. Where do you see the future of QinetiQ if GoCo were to be pursued?

Penny Mordaunt (Conservative, Portsmouth North)

As a private company, the delivery company—the GoCo—will be interested in making a profit. Might there be a conflict between that and the wider policy requirements that we might wish to see, such as the protection of sovereign capability, supporting small and medium-sized enterprises, the promotion of exports, and perhaps decisions about where we invest in research and development? Do you think that there is a potential conflict there? How do you think the GoCo could be incentivised to address those concerns?

Penny Mordaunt (Conservative, Portsmouth North)

A quick supplementary on sovereign capability: what would you say were the chief concerns that a GoCo should be looking at, in that respect? Do you think that we have a clear enough view of what those capabilities might be?

Tobias Ellwood (Conservative, Bournemouth East)

I do not want to get drawn into the cruise missile argument. I do not think that one exists at the moment; that is the trouble. The procurement process would be about 17 years, and that is why the option has been removed.

Tobias Ellwood (Conservative, Bournemouth East)

I wanted to challenge and probe on buying off the shelf, because that goes to the heart of the debate. There was an awful lot of buying off the shelf taking place in Afghanistan. Thinking back—colleagues may want to join in—there was the Cougar, the Vector, the Jackal and the Ridgeback. Eventually, we went for the Mastiff. There were a series of fast UORs, which cost an awful lot of money. We ended up buying something that we had sold a lot of at the tail end of Iraq. It is not only that. You say that the Americans are ahead of us; they use the mine-resistant ambush protected vehicle, which is built by BAE Systems, a British company. Do you really believe that there is so much value in buying off the shelf, rather than thinking a little more cognitively about the armed forces’ long-term requirements?

Graham Brady (Conservative, Altrincham and Sale West)

We should not stray too far into particular procurement questions, enjoyable though that may be, and should instead keep to the structure proposed in the Bill.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

I hope I am not going to cut across your advice, Mr Brady, but I represent Plymouth, Sutton and Devonport, which includes a dockyard and a naval base. On buying kit off the shelf, do you think that a maintenance programme should go with that? If we buy something from the United States of America, should it also be maintained by the Americans? I would be very nervous about that, representing as I do a city and a dockyard that has the nuclear licence for refuelling and maintaining nuclear submarines.

Julian Brazier (Conservative, Canterbury)

I would like to ask you about the through-life point, but would first like to ask about a more fundamental point that will tie into that. It seems that we are deluding ourselves if we just move the problem to the left, because it is still there. When any contract is made and then managed by a new entity, there must have been a proto-contract first between whatever remains in the MOD—the central staff and what is left of the procurement function—and the new entity, the GoCo. The GoCo, which will be composed of people who are much more commercially astute than the MOD, knows that the larger the price that is pencilled in for an incentive contract, the better the return on it. If it can get a big price in there, it will be able to deliver on time and on budget, and can get a nice bonus out of it. Before we come to the through-life problem, what makes you think that for that initial up-front contract the MOD will be any better at negotiating the price with a GoCo than under the current arrangements? We considered this yesterday in the Select Committee on Defence.

Julian Brazier (Conservative, Canterbury)

No. Let us deal with single-priced contracts first. Just under 50% are dealing with a single-source contract, and we have a new arrangement for that in the Bill. What makes you think that, in dealing with a single-source contract, having the negotiations centrally with a much attenuated staff and a new contractor—a contractor who specialises in doing nothing else; it exists as a bidding and management entity—will be any more successful? These are specialist parts of organisations that are being brought in. Why think that we will manage that contract any better than the existing arrangement?

Julian Brazier (Conservative, Canterbury)

Let us move on to through-life costing. Given that money that is made over to a GoCo up front is much more attractive than money that may be made 15 years along, having a GoCo manage these programmes almost by definition means taking one’s eye off the through-life ball, which you rightly identified as being central to successful procurement.

Russell Brown (Labour, Dumfries and Galloway)

Lord Hamilton, may I quickly come back to buying off the shelf? If I may use a military term, do you foresee any collateral damage to our defence industrial base in the UK from us buying off the shelf?

John Woodcock (Labour, Barrow and Furness)

May I ask you about your views on the Reserves, which you expressed in strong terms in your written note? Looking at the engagements of the British Army over the past 15 years, if you were speculating on how the Army could have carried out those engagements if it had the model that is being proposed now, do you think that things would have been very different?

John Woodcock (Labour, Barrow and Furness)

I will resist being drawn into a debate on the deterrent, but presumably, if the Army is unable to carry out an engagement on the scale of Afghanistan and Iraq in future, that will have significant consequences for the country’s standing as a military power.

Graham Brady (Conservative, Altrincham and Sale West)

We have only three minutes left, and I am keen to bring the Minister in, so I would like quick questions and answers.

Julian Brazier (Conservative, Canterbury)

Lord Hamilton, why do you think that the Americans, Australians, Canadians and New Zealanders all successfully make use of Reserves on a much larger scale than we plan to, while facing the same sort of economic pressures and the same sort of world as us?

Julian Brazier (Conservative, Canterbury)

But all five major employer organisations, from the Confederation of British Industry to the Federation of Small Businesses, are supporting it. That is just an observation.

Graham Brady (Conservative, Altrincham and Sale West)

The last question is from the Minister.

Philip Dunne (Conservative, Ludlow)

Lord Hamilton, thank you for your characteristically robust performance this morning, which has been both informative and entertaining. I have two quick questions for you. First, taking you back to your fundamental point that the defence budget is overstretched, do you think that the GoCo option is likely to provide better value for money in making the resources achieve the procurement that we require than leaving it within the DE&S public sector option? Secondly, do you think there is any problem in principle with being a pioneer among those nations with substantial defence interests, if we decide to go down this route?

Graham Brady (Conservative, Altrincham and Sale West)

That brings us to the end of the allocated time for this witness. Thank you, Lord Hamilton, for your time and your helpful answers.

Examination of Witnesses

Graham Brady (Conservative, Altrincham and Sale West)

Good afternoon. I welcome the witnesses to the Committee. For the record, could you introduce yourselves, please?

John Woodcock (Labour, Barrow and Furness)

Gentlemen, thank you for taking the time to come and speak to the Committee. We just heard Lord Hamilton, a former Defence Minister, expressing his concerns that the Reservist model outlined in the Bill will inevitably significantly reduce the capacity of the British Army to carry out engagements in the future. Is that a view that you share and accept, or one that you would challenge?

John Woodcock (Labour, Barrow and Furness)

Thank you. Is it your emerging view that you have no concerns about reduction in capacity through the changes? I thought that was slightly different from what the CDS had recently said.

John Woodcock (Labour, Barrow and Furness)

One final supplementary: has the process of engagement with the armed forces on the Bill been good so far? What are the challenges, very briefly, for the different services arising from this proposal?

Tobias Ellwood (Conservative, Bournemouth East)

You are at the sharp end of this; you have got to make it work, one way or another. This is, as has been said, a huge cultural change to the relationship between the Reserves and the Regulars, and there are critics. Have you just accepted this—said “Yes, Sir”, turned to the right and fallen out—or have you been involved in the Bill? Have you had the opportunity to raise any concerns?

Penny Mordaunt (Conservative, Portsmouth North)

My question follows some of the points that the hon. Member for Barrow and Furness raised. I think it is very important that we look at the principles that underpin what this Bill proposes as regards Reserve forces. Really, my question is directed to the major-general. Can you tell us, from your experience of being in the Reserve, or perhaps from case studies that you have dealt with, what Reserves bring to that whole-force capability?

Alison Seabeck (Labour, Plymouth, Moor View)

You talked about appropriate lead-in times. That will surely change according to the role the individual is to fill. How difficult is it for you to sell to employers the idea that one employee may require a longer lead-in time because the training they require is more complex, whereas another may only need a few weeks, or, if they are a cyber-expert doing work that is parallel to your needs, could be transferred almost instantaneously?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

What is plan B?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

So there is no Plan B?

Stephen Gilbert (Liberal Democrat, St Austell and Newquay)

There are already issues with recruitment and retention. Are you confident that as the process goes forward, some of those issues can be resolved? We have seen reports this week.

Mark Pawsey (Conservative, Rugby)

I want to ask about a small matter that could lead to some confusion, which is the issue of the renaming the Reserve forces: the Army Reserve will become the Regular Reserve and the Territorial Army will become the Army Reserve. What are your views about that change and the rationale behind it?

Mark Pawsey (Conservative, Rugby)

Do you not accept that we are creatures of habit and that people will be using the term “TA” in 20 years’ time, as we heard in evidence on Tuesday?

Tobias Ellwood (Conservative, Bournemouth East)

This is a massive cultural change. One source of numbers that can be lent on is that of the Regulars who leave the Regular forces and could be encouraged to sign up; in fact, some members of this Committee, including me, were in the Regular forces and are now in the Reserves. What percentage is that, currently? Are there any designs to try to increase that number, given that you have done a lot of training and there is a lot already there?

Tobias Ellwood (Conservative, Bournemouth East)

Do you know what the percentage is of those who serve as Regulars who choose to sign up straight away?

Tobias Ellwood (Conservative, Bournemouth East)

May I ask about the RAF? It is very noticeable among those of us who, for instance, have travelled to Afghanistan with the Americans, that when we go up to the cockpit, do our courtesies and say thank you, we are often met by a Reservist pilot, who perhaps works for American Airlines but serves as a Regular. It is noticeable that we are quite limited with regards to allowing our Reservists to fly planes in the RAF. Is there a desire to change that approach?

David Hamilton (Labour, Midlothian)

Quite rightly, Reservists will not have the ability to decide what they do or do not do. Concern has been expressed that, in some cases, Reservists could be used if there were a major industrial dispute in this country. Can you see the danger in that, when we consider that they live in the communities and so on, and have you advised Ministers that that should not happen under any circumstances?

David Hamilton (Labour, Midlothian)

There is no change, then?

David Hamilton (Labour, Midlothian)

That is good.

Julian Brazier (Conservative, Canterbury)

I want to ask you, Sir Stuart, about integration. We had an experiment in assimilation over the last few years—we are the only English-speaking country that has ever tried it—with no Reserve branch in the Army. It was a dismal failure: we lost most of the officers. One of the six key strands in the commission’s report concerned governance and how to devise structures that protected the distinctive interests of the Reserve component. None of that has come through in the White Paper. In fact, the White Paper suggests that the one thing that firmly came through in the Green Paper was that a commitment to permanent outside report by the reserve forces and cadets associations should disappear. May I ask a very specific question on governance? We have far fewer senior Reserve officers in Britain than any other country. Do you think that it is right that the board that appoints people such as General Crackett, General Munro, the Commander Maritime Reserves and the head of the RAF air branch is exactly the same board that appoints their regular counterparts, which has no outside expertise and no Reservist on it?

Julian Brazier (Conservative, Canterbury)

But we have seen a very marked decline over the last two years in the proportion of commanding officer slots in the Territorial Army held by Reservists. We have also seen an increase in the man training day demand on Reservists, which has applied a reverse quality filter and driven a lot of the best candidates out. However, that was not my question. The top jobs—General Munro’s job, General Crackett’s job and the post that corresponds to that of General Munro, the Commander Maritime Reserves and the Commander Air Reserves—are appointed by boards on which there is no Reservist and no member from outside the MOD. They are appointed by the same board that appoints Regular officers. Do you think that that is an adequate arrangement?

Julian Brazier (Conservative, Canterbury)

I do not mean to personalise it but you were responsible for some of the changes there. It is not only that the Reserve branch has disappeared within the medical service and we recommended putting a Reservist in charge of it, but you still—and this is really a question for Air Chief Marshal Peach—have not answered the point. The is nothing laid down anywhere in the current procedure to stop the MOD doing what the Air Force has regularly done, which is simply putting an ex-Regular, who takes one uniform off and puts another one on and has no experience of the Reserve forces at all, into any of those four key posts. In which case, the only remaining check and balance in the system, the one that Lieutenant-General Gregory has described, immediately disappears. This has been the Air Force’s practice for a long time, and the Navy have just done it. With a process chaired and controlled by a majority of Regular officers, there is no input of any sort laid down; it is not even laid down in regulations that they have to be Reservists.

Julian Brazier (Conservative, Canterbury)

But do you accept that it needs to be a different process for those top jobs? If those top jobs are so crucial, as you rightly identified, Lieutenant-General Gregory, in maintaining the interest further down, looking at command appointments and so on, they need to be selected in a different way. They need an outside element and a Reservist element in it.

Graham Brady (Conservative, Altrincham and Sale West)

A very brief answer please; we are short of time.

Julian Brazier (Conservative, Canterbury)

Thank you.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

The Bill proposes to align the timescale by which Reservists can actually be used in order to go on service. Do you think this is going to assist the armed forces? Do you think we are in a position to make sure that our Reservists’ families are going to be well looked after during that process? Because I represent a naval garrison city, I am very aware that the Navy could end up having people all over the place because they have to go on a ship for a certain amount of time, whereas in the Army the situation is different because it is much more related to where things are barracked. How do we manage the families and make sure that we look after them, especially with regard to mental health issues?

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

Yes. The other thing is that my understanding is that there will be alignment for all the services within a set time. Do you think that is right, or do you want greater flexibility? It applies to the Army, which could end up having someone for, say, six months. If you are on naval deployment, you are probably out there for nine months, and I am not quite sure about the RAF.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

Yes, but it is incredibly important to make sure that when they finish their service, they also have downtime and do not just go home. I know a number of people who have gone home, and their wives have frankly gone doolally because their husbands have come back with a different state of mind.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

I came across a Royal Marine in Lympstone who lived in Aylesbury. He went home and talked to his wife, who did not understand about his experiences, so he went and talked to his mates but they did not understand. He needed to get together with his Royal Marine colleagues—guys he had served with—because they understood the mental anguish and experience he had gone through.

Russell Brown (Labour, Dumfries and Galloway)

Gentlemen, we all referred to clause 43, which also gives effect to schedule 6 of the Bill. Under that schedule, any person currently serving in the Reserve and Regular forces will become part of a class of personnel —the second transitional class—to whom the new provisions of clause 43 will not apply. The powers governing their call-out will remain as they currently are under the Armed Forces Act 1996 Act. Did the armed forces request that measure and, if so, what operational benefit will it bring? Are there any potential difficulties in having Reservists serving together when they have been called up for different periods?

Russell Brown (Labour, Dumfries and Galloway)

You have obviously looked at the figures.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

I have a small issue. Reservist families are disparate and are in far-apart places. Do you think there is an argument to produce a website or intranet site where they can communicate with each other through chat rooms and things like that, so that they feel they are not just being left by themselves?

Graham Brady (Conservative, Altrincham and Sale West)

The final question is from Alison Seabeck.

Alison Seabeck (Labour, Plymouth, Moor View)

I have two short questions. First, anecdotally, I have picked up—I am sure other members of the Committee have as well—concerns that former service personnel and people who have been made redundant are being told by employers that they will not be employed if they intend at some point to become part of the Reserve force. That is clearly difficult. We have not touched on the financial incentives and the feedback from employers. Do you think you will be able to pitch that incentive at a level that will make it worth while for employers who are currently saying, “We don’t want you to join”?

Alison Seabeck (Labour, Plymouth, Moor View)

I want to get a final question in; I think you have answered that fully.

There are consequences to not picking up recruitment levels to meet the targets. What assessment have you made of those consequences? Can you tell us what you think they would be if we did not meet the targets for recruitment?

Graham Brady (Conservative, Altrincham and Sale West)

Order. I am sorry; the timetable motion we have is unforgiving. That brings us to the end of the time allocated for the Committee to hear evidence from these witnesses. I thank the witnesses on behalf of the Committee. The Committee will sit again at 2 o’clock to take further evidence.

Graham Brady (Conservative, Altrincham and Sale West)

Good afternoon. We are due to hear evidence from PCS and Prospect. As colleagues will have noticed, Mr Dando is not yet with us; he had some difficulties with his train getting here, but we are told he will be here soon. As soon as he arrives, he can just slot in and join us. We need to make progress because of the timetable. I once again remind members of the Committee that questions should be limited to matters within the scope of the Bill.

Russell Brown (Labour, Dumfries and Galloway)

Good afternoon, Mr Graham. I am sure you will not be too lonely until Mr Dando arrives. How far have you been consulted on the proposals contained in the Bill?

Russell Brown (Labour, Dumfries and Galloway)

What are your main concerns about the Bill and what, if any, changes do you believe should be made?

Russell Brown (Labour, Dumfries and Galloway)

The cavalry has arrived—not that you needed rescuing. Obviously, we are moving here to nine-year contracts, and that is different. Are there concerns about that and about the potential for what might seem to be lack of competition, with only two bid teams?

Alison Seabeck (Labour, Plymouth, Moor View)

It is interesting to hear your comments. You have clearly picked up on comments made by witnesses on Tuesday, about the way in which the playing field has changed since Bernard Gray put his initial thoughts out there—some of the assumptions have changed. As part of your consultations with officials, have you been given any sense of the baseline from which MOD is working in terms of producing an assessment for both the GoCo and DE&S-plus on which it can ultimately judge which model might be the most suitable to take forward. Do you have any understanding of where the baseline is?

Alison Seabeck (Labour, Plymouth, Moor View)

May I ask you both, looking at what might come out of a DE&S-plus or a GoCo, whether any discussion has been had about the potential changes to pay scales for the posts that are envisaged in a GoCo? Have you had discussions about where salary levels might go if the caps are lifted?

Russell Brown (Labour, Dumfries and Galloway)

Can I just come in on the back of what you just said, Mr Dando? I expect that both of you have had experience of work forces transferring from the public sector to the private sector. Will you share with the Committee what you have experienced from that? You have talked about a reduction in salary and terms and conditions. What has been the impact on your members, and what was their experience? How was the business conducted beyond that?

Heather Wheeler (Conservative, South Derbyshire)

I think you have almost answered the second part of my question which was to be about what contractual protections would need to be in place. I think that is an interesting list that you have given us. The first part of my question is this: how confident are you that the Government can maintain sufficient control over a private operator of defence procurement? You have other experiences of that.

Heather Wheeler (Conservative, South Derbyshire)

I hear what you say but I find it interesting that you are almost telling us that it is bad now and that this will not make it better.

Julian Brazier (Conservative, Canterbury)

Just a quick question. Could you just mention those countries?

Julian Brazier (Conservative, Canterbury)

Could you send us a link to that?

John Woodcock (Labour, Barrow and Furness)

Do you at all accept parts of the basic analysis of those pushing for a GoCo that what can be a very significant difference between DE&S and the private companies with which you negotiate creates a mismatch in skill sets?

Penny Mordaunt (Conservative, Portsmouth North)

What, as you understand it, would be the comparator against which the GoCo is an option, and if it comes to fruition, what will be the comparator against which it will be judged?

Graham Brady (Conservative, Altrincham and Sale West)

We have only got another 10 minutes of this session, so unless there is a particular reason why you both want to answer a particular question, it might be best to decide between you.

Penny Mordaunt (Conservative, Portsmouth North)

May I quickly ask what measurements you think should be being taken into account, both in assessing which is the best option and in how that new entity should be judged, whatever that new entity is?

Alison Seabeck (Labour, Plymouth, Moor View)

Clause 4 gives effect to schedule 1 to the Bill, which covers various exemptions that the contractor will be given, for example around health and safety, and because of the specific and often quite specialist and dangerous work that happens on MOD sites. Do you have any concerns about that? Do you see any potential for corners to be cut? From your reading of the Bill, do you think that it is tight enough and clear enough about what the contractors will or will not be able to do?

Graham Brady (Conservative, Altrincham and Sale West)

Russell Brown.

Russell Brown (Labour, Dumfries and Galloway)

I am minded to let my question go, because the Minister has the next question, and I would like to hear the answers to it.

Philip Dunne (Conservative, Ludlow)

You raised some concerns about whether the TUPE regulations would be sufficient for employees to transfer across in the event that a GoCo is successful. Do you have examples of other MOD transformations where that has not been adequate? Would you regard the establishment of the Atomic Weapons Establishment GoCo—it was many years ago, so I understand that it may predate your experience—as a suitable parallel here?

Philip Dunne (Conservative, Ludlow)

Thank you for raising that. I am duly advised and will ensure that our HR people take that on board. Do you want to add anything, Mr Graham?

Philip Dunne (Conservative, Ludlow)

May I go back to my question about AWE? Does either of you represent members in AWE?

Philip Dunne (Conservative, Ludlow)

Is there an example from when that became a GoCo of the problems that you are concerned about now not being addressed?

Graham Brady (Conservative, Altrincham and Sale West)

We have time for one last question.

John Woodcock (Labour, Barrow and Furness)

You mentioned concerns about health and safety in the Bill as it is currently framed. Are there other areas where you estimate that the GoCo approach could have an impact on the many thousands of employees of British defence firms across the country?

Graham Brady (Conservative, Altrincham and Sale West)

I think we are just about at 45 minutes past 2. On behalf of the Committee, may I thank Mr Graham for holding the fort and Mr Dando for doing his best to get here after a broken-down train?

Graham Brady (Conservative, Altrincham and Sale West)

Good afternoon. Thank you for coming to give evidence to the Committee. May I ask you all to introduce yourselves for the record, please?

Damian Hinds (Conservative, East Hampshire)

May we start with a broad question of principle? Is it appropriate for a private company to run public sector procurement, and what reason is there to believe that such an entity would do that more effectively and provide better value for money to the taxpayer?

Damian Hinds (Conservative, East Hampshire)

Do we have any exemplars on this scale?

Damian Hinds (Conservative, East Hampshire)

On a definitional point—I do not know to which of you I should direct this—we are talking about GoCos. In other industries, such as petrol, you have CoDos—company-owned, dealer-operated—and it is obvious who owns which bit of it: the petrol company owns the site, and a dealer operates it. In this GoCo, what is it that is Government-owned, as opposed to licensed?

Alison Seabeck (Labour, Plymouth, Moor View)

Thank you all for coming. You talked about pulling back in-house if Government decided things were not working too well. If you look at the US experience with the lead system integrator model that was undertaken for the future combat system, it was subsequently rescinded. Congress then banned it. The estimated cost of doing all that was $1.5 billion. Clearly we do not want our Government to have to find additional money if we want to put it all back in-house under similar circumstances. What lessons have you learned when framing this legislation from the US example? Can you point us to exactly where in the legislation the protections are to ensure that the British Government and the British taxpayer will not get caught out in the same way?

Alison Seabeck (Labour, Plymouth, Moor View)

No, I accept that, but there is a model in the US where there was a similar sort of set-up. It was very similar; all the evidence is saying that this is not dissimilar

Alison Seabeck (Labour, Plymouth, Moor View)

Right, so there are no additional costs expected if the Government have to bring it back in-house?

Alison Seabeck (Labour, Plymouth, Moor View)

That would be helpful, thank you.

Alison Seabeck (Labour, Plymouth, Moor View)

It would be helpful now, because it is relevant.

Graham Brady (Conservative, Altrincham and Sale West)

As briefly as you can, please.

Alison Seabeck (Labour, Plymouth, Moor View)

Thank you.

Thomas Docherty (Labour, Dunfermline and West Fife)

Mr Gray, would it be fair to say that your conclusion from 2009 has been that a succession of Ministers of both political persuasions have failed to be robust enough with the defence contractors and the service chiefs, and that what is really driving your confidence and belief that this is the way forward is that you think it is the only way to inject robust rigour when a defence contractor such as BAE Systems says, “I can deliver the Type 45 for £500 million,” and that is not true?

Thomas Docherty (Labour, Dunfermline and West Fife)

The problem with that—although I understand why you have travelled down that path—is that there will still be a relationship, if GoCo is a contractor to the MOD customer, whether that be you or your successors. It struck me, in listening to you yesterday at the Defence Committee, that you have a very optimistic view about how robust the GoCo is going to be, back to its customer. I am not sure why you have the confidence that a contractor in a GoCo will be that robust. Can you explain?

Thomas Docherty (Labour, Dunfermline and West Fife)

Or woman up.

Thomas Docherty (Labour, Dunfermline and West Fife)

Who in the world has done this right so far?

Thomas Docherty (Labour, Dunfermline and West Fife)

On procuring, who is your benchmark?

Thomas Docherty (Labour, Dunfermline and West Fife)

Is the problem not—

Graham Brady (Conservative, Altrincham and Sale West)

Sorry—can we move on?

John Woodcock (Labour, Barrow and Furness)

Let me dig a bit further on the incentives question. You are talking about the baseline to save money. What gives you confidence in the new model that Government will have sufficient skills to make sure that that is priced correctly, so that you are not taken for a ride by the GoCo, which says, “Minister, actually it is going to cost £2 billion”, with a sucking of teeth—then, lo and behold, it manages to come in a bit below that and make shed-loads of money?

Russell Brown (Labour, Dumfries and Galloway)

Good afternoon. My colleague has made mention of some of the changes since 2009—the reforms, the balancing of the defence budget and greater delegation to the procurement authority. May I ask you what further improvement is still needed? How can a GoCo offer this improvement with a degree of certainty?

Tobias Ellwood (Conservative, Bournemouth East)

Just pursuing that for a second and the approach of trying to have a rolling control over the budgets, how does that fit in with some of the bigger projects that we see where there are enormous cost overruns, not because they could have been predicted, but simply because you are building kit that has never been built before: the F-35B, the Astute class, Vanguard and so on? There are often unforeseen developments. How does the new GoCo approach ensure that these are tied in or recognised upstream?

Tobias Ellwood (Conservative, Bournemouth East)

Sorry, could I also add that often either the Ministers or the MOD somehow then add bells and whistles to whatever they are building?

Tobias Ellwood (Conservative, Bournemouth East)

On the e-mail system on the QE class, for example. That was a profound change in direction which caused huge cost overruns. There is no way that anyone could have predicted that.

Tobias Ellwood (Conservative, Bournemouth East)

Are you referring to the dockyards being kept open?

Graham Brady (Conservative, Altrincham and Sale West)

I think we need to move on.

Alison Seabeck (Labour, Plymouth, Moor View)

We have heard witnesses, both on Tuesday and today, express concerns about the MOD’s capacity to negotiate the GoCo, full stop, partly because of the issue you yourself have pointed out, that there is a risk that good staff get cherry-picked away and you are unable to attract them to your teams because of pay constraints. How confident are you that you have the strongest team around you at the moment to do that negotiation? Have you had to employ any consultants in order to do it?

Alison Seabeck (Labour, Plymouth, Moor View)

Have you had any conversations with Her Majesty’s Treasury about the budget for that team where you clearly need to keep people and for the DE&S-plus model? Have you had any discussions at all about flexibility and pay scales?

Alison Seabeck (Labour, Plymouth, Moor View)

And terms and conditions?

Russell Brown (Labour, Dumfries and Galloway)

I was about to give you a rest, Mr Gray, and ask one of your colleagues to speak.

Russell Brown (Labour, Dumfries and Galloway)

The explanatory notes to the Bill suggest that if the clause 1 arrangements are pursued, they will deliver a net benefit of £934 million over 10 years. Can someone explain how that sum has been arrived at? How confident are you of making those savings? Are there targets that you want to hit as you move through that period?

John Woodcock (Labour, Barrow and Furness)

Notwithstanding those strands of work, do you not feel that, given that you are at an early stage of the negotiating bidding process—I was captured by your analogy with the e-mails—effectively, this is a Minister coming up to you and saying, “Look, Mr Gray, if you were any kind of man, you would be able to come up with a figure for this for the next 10 years”? Do you not feel that your arm has been put behind your back in coming up with a figure of £934 million? Should we not treat that with a severe degree of caution at this stage?

John Woodcock (Labour, Barrow and Furness)

Can you give us an update in as much detail as you can of where you are with the process of scoping out and selecting consortia for this?

John Woodcock (Labour, Barrow and Furness)

Are you content, Mr Gray, with the two consortia? Does that not raise some competition concerns at the outset?

John Woodcock (Labour, Barrow and Furness)

If the GoCo is in place, is there a plan B that will be genuinely effective for the taxpayer if it failed to deliver on a requirement? I have particularly in mind the fact that BAE in Barrow shipyard has been described as effectively a GoCo. I am not sure whether you accept that. There have been significant cost overruns, and ultimately it is the taxpayers who pick up the cost.

John Woodcock (Labour, Barrow and Furness)

It is unlikely their skills base would remain in place once a GoCo was established.

John Woodcock (Labour, Barrow and Furness)

The team: the engineers and consultants who are in place now.

Graham Brady (Conservative, Altrincham and Sale West)

I think we need to move on.

Damian Hinds (Conservative, East Hampshire)

Mr Burton, you mentioned that the make-up of the two consortia is in the public domain. Nevertheless, for convenience, could you remind us?

Graham Brady (Conservative, Altrincham and Sale West)

Alison Seabeck.

Alison Seabeck (Labour, Plymouth, Moor View)

To be fair, Mr Brady, a lot of the question has been answered by Mr Gray already.

Julian Brazier (Conservative, Canterbury)

Mr Gray, we had a long exchange yesterday in the Select Committee, and I do not want to cover the same ground. I have a couple of quick questions. Are you really satisfied that two companies are enough to have a decent competition?

Julian Brazier (Conservative, Canterbury)

We discussed conflict of interest at length yesterday. For the benefit of this Committee, how will you avoid the problem that a company that is related to a company within one of the consortia that is running the project may be bidding for one of the contracts?

Julian Brazier (Conservative, Canterbury)

Last question. We spent a lot of time on this yesterday, but I must ask it for this Committee. As someone who is agnostic about this, I am open to the idea, but I have real concerns about overseas contractors. How will we cope with the problem of a foreigner working for a foreign company—I am talking about people, and principally about soft intellectual property and commercial in confidence, rather than state secrets—simply going to a job with a defence contractor bidding for a contract the next week? We could pursue them through the courts if they were in this country. How would we do that with a foreigner working for a foreign company?

Julian Brazier (Conservative, Canterbury)

No, let us deal with commercial in confidence.

Julian Brazier (Conservative, Canterbury)

Bidding for one of the contracts that has perhaps been on his desk already. There are straightforward ways of dealing with it in the British system.

Julian Brazier (Conservative, Canterbury)

Well, we are not really dealing with a criminal offence here, are we?

Graham Brady (Conservative, Altrincham and Sale West)

Time is short, so we need to move on.

John Woodcock (Labour, Barrow and Furness)

Eyebrows have been raised about the length of the contracts—nine years—when these big, lucrative or burdensome contracts run for much longer than that. How can we be sure that that can be effectively performance-managed when the final outcome is beyond the renewal of the GoCo contract?

Penny Mordaunt (Conservative, Portsmouth North)

A quick clarification, to ensure that I have understood your response to Thomas and John. There is effectively no “as is” option to choose from because—I am paraphrasing—the status quo is not good, but there is an “as is” option for accountancy purposes, against which you will benchmark.

Graham Brady (Conservative, Altrincham and Sale West)

For what I am afraid must be the last question, Alison Seabeck.

Alison Seabeck (Labour, Plymouth, Moor View)

Can I ask about the bid documents themselves—the selection and marking criteria? I know that this issue was raised yesterday in the Select Committee, and there was concern that there was a reluctance to allow that Committee to see how you were going through the process. Are you able to give us any time scale as to whether that information will be published? It would add value if we could have it.

Graham Brady (Conservative, Altrincham and Sale West)

That brings us neatly to the end of the time available for this session. I thank the witnesses for their assistance to the Committee. We will give the Minister time to move from one end of the room to the other for the next session.

Examination of Witness

Graham Brady (Conservative, Altrincham and Sale West)

If the Minister has caught his breath, I think we can go straight on.

Russell Brown (Labour, Dumfries and Galloway)

Minister, we have a series of questions here and some will be duplicates of what you have already heard and taken part in this afternoon. May I ask you the first question I asked Mr Gray? What has happened since 2009? What further improvement is still needed in this entire system? Regarding the balancing of the defence budget and the whole procurement issue, what more really needs to be done?

Alison Seabeck (Labour, Plymouth, Moor View)

Minister, you will have heard Mr Gray’s response to questions about whether it is appropriate for a private company to run public sector procurement and the specific concerns raised about the ability to respond when we have operational requirements. Are you absolutely confident that you would never be in a situation where the GoCo would say, “Oh, sorry. No, we actually can’t produce that to the time scale that you want” when you have troops in the field desperately in need of that particular piece of kit? I understand that there are penalties: you can pull it back in-house if it does not meet its contractual terms, but do you have any worries at all that you could find yourself in that sort of scenario?

Alison Seabeck (Labour, Plymouth, Moor View)

Within the contract, which we have not seen, I assume that there will be some caveats to ensure that operational requirements are protected and guaranteed, with penalties it they cannot be fulfilled.

Alison Seabeck (Labour, Plymouth, Moor View)

That is encouraging. In terms of the GoCo’s role and its relationship with the MOD, yesterday, to the Defence Committee, Mr Gray—I think he has gone, unfortunately—said that the head of the GoCo would be an additional accounting officer. How will that work?

Graham Brady (Conservative, Altrincham and Sale West)

We have a lot of material to get through with the Minister. I propose to stick fairly rigidly to the lines of questioning that we agreed in advance. If we have any time at the end, I will take other colleagues who have indicated that they want to put questions.

Graham Brady (Conservative, Altrincham and Sale West)

That is precisely why I am keen to ensure that we get through the entirety of the lines of questioning we have discussed.

Heather Wheeler (Conservative, South Derbyshire)

I will be brief. I have two quick questions. Are you confident that the MOD will be able to get the best deal from the contract setting up the GoCo itself? Also, will the MOD be able to retain sufficient skilled staff to retain oversight of the contract to ensure that that is being operated as it should? Do you have a feel of how many employees from the DE&S would be likely to go in the transfer to the GoCo? That is the difference between who is left and who goes.

Russell Brown (Labour, Dumfries and Galloway)

Minister, obviously I posed the question to Bernard Gray about the £934 million net benefit. He explained in detail how that figure was reached. Rather than simply ask you how confident you are about those savings, because I suspect that you agree with him, I want to ask you whether any further work was done beyond the work that Bernard Gray did.

Heather Wheeler (Conservative, South Derbyshire)

I am going to come back to something we touched on a little bit before, which is the international concerns. If we go ahead with the GoCo, how confident are you that we can allay the fears of our allies? That is my first question. My second question follows on from that and may indeed be part of your answer. How can we deal with sensitive information belonging to the Government in effect being protected with our new contractors?

John Woodcock (Labour, Barrow and Furness)

I have one quick supplementary question that will elicit a one-word answer.

Graham Brady (Conservative, Altrincham and Sale West)

Then straight on to the next thing.

John Woodcock (Labour, Barrow and Furness)

How much do you anticipate paying this world-leading engineering firm that is on the side of the Government in this contracting process?

John Woodcock (Labour, Barrow and Furness)

You were here when concerns were expressed by industry about the single-sourcing changes. How do you respond to that? How will the new system incentivise industry and not destabilise the process?

Alison Seabeck (Labour, Plymouth, Moor View)

Lord Currie, in helping to inform this part of the Bill, did a very interesting and thorough piece of work. It is a shame he was unable to come to the Committee. However, ADS came to the Committee and spoke at some length about the industry’s concerns about independence, particularly in clause 13. Have you given any consideration to bringing in an independent element, or having a business representative on the board?

Russell Brown (Labour, Dumfries and Galloway)

I recognise, Minister, that it is Government policy, rightly, to protect SMEs. How will this be achieved under the single-source contract regime? How can we ensure that that policy is carried through?

Alison Seabeck (Labour, Plymouth, Moor View)

I am glad you made that statement about regulations, because the next question is about exemptions that are possible under the new regulations. As we have not seen the new regulations, it is a bit difficult to ask questions, particularly intelligently. However, in the circumstances, can you explain to the Committee a circumstance in which an exemption might be used?

Alison Seabeck (Labour, Plymouth, Moor View)

Okay, but there is no way in which a foreign company could be treated more favourably than a UK company? That was certainly one of the issues raised in one of the briefings we had.

Russell Brown (Labour, Dumfries and Galloway)

When will the regulations and single-source contracts be published in detail, and how much consultation has there been around all of that?

Russell Brown (Labour, Dumfries and Galloway)

So there is nothing out there, Minister, that you are aware of that came forward through the consultation that has not been considered? It has all been dealt with.

Alison Seabeck (Labour, Plymouth, Moor View)

It would be really remiss not to mention the security of IP under schedule 5. Are you satisfied, and can you explain why you are satisfied, that it protects against failure to protect rather than wilful disclosure?

Damian Hinds (Conservative, East Hampshire)

I want to turn to the subject of Reserves. I open with a general question: the impact assessment for the Bill states that the Government intend to ensure that

“The reserves will complement the regulars within an integrated Whole Force, providing military capability in a different way from the past to deliver the range and scale of military forces and skills required.”

Are you confident that the Bill does enough to provide that?

Penny Mordaunt (Conservative, Portsmouth North)

What are the challenges in achieving the desired number of Reservists?

Penny Mordaunt (Conservative, Portsmouth North)

I will raise just two further points. Obviously there has, quite understandably, been lots of discussion around business and small business in particular. Some professions, such as the teaching profession, are affected. In my unit, 20% of my young officers are teachers, and they really struggle to get time off, even though you would think that it is a profession that is well set up, through the supply system, to accommodate that. How will the Bill help in those instances with those professions?

Russell Brown (Labour, Dumfries and Galloway)

Clause 45 makes provision to exempt Reservists from the statutory two-year qualifying period for claiming unfair dismissal from their civilian employment where the reason is connected to their membership of the Reserve forces. What kind of feedback have you had from those currently serving, and potential Reservists, about the extent of that problem? Will this measure resolve it? Is there a risk that this could discourage businesses from employing Reservists?

Russell Brown (Labour, Dumfries and Galloway)

As you indicated earlier, the Department has outlined its intention to gather evidence of that sort of thing—of whether there is discrimination against Reservists. I believe that the aim is to consider further measures in the next armed forces Bill. Would that create any delay or hindrance to the work towards Future Reserves 2020?

Russell Brown (Labour, Dumfries and Galloway)

Can that work run in parallel?

Graham Brady (Conservative, Altrincham and Sale West)

There is time for one more question.

David Hamilton (Labour, Midlothian)

Thank you, Mr Brady. I was hoping to get it in.

On SMEs, I welcome the fact that protection has been put in. When major contractors take contracts and sub-contract to the SMEs, can we consider affording them protection? A small contractor will never complain about the person from whom it has got the contract, but in many cases, the major contractor runs across on to the small one when it makes the bid. That is one of the areas on which the Select Committee on Defence reported some time ago, but it still needs to be addressed.

Earlier, the Minister indicated that changes will take place, with personnel being moved to different places; it sounded like deckchairs being moved. Could you write to indicate the actual numbers and say what protection will be afforded to those workers when they transfer?

Graham Brady (Conservative, Altrincham and Sale West)

That brings us to the end of our allotted time for questions to the Minister. I thank the Minister for giving evidence to the Committee and look forward to him rejoining the Committee when we consider of the Bill.