Q101 Chair: Commodore, how long are you staying in your job?
Commodore Beverstock: Can I just clarify something to Mr Barclay before I answer that question? I do not want you to be left with the impression that I do not have oversight or membership of the committees of the individual projects that affect my capability. I am either a member or chair of the various programme and project boards across all the lines of development of all the things that affect my capability. There is a wide span of those, and it takes quite a lot of effort to keep that, but I and my team are involved in all the things that affect it. How those decisions and recommendations go through the senior levels of the MoD is a different question for the PUS. Ma'am, can I take your question?
Q102 Chair: How long are you in post for? A year.
Commodore Beverstock: I have been in this post since October last year. I am here for what will be a normal three-year appointment unless I am told otherwise. It is worth bearing in mind, if you look at my history, I came to this job on the back of a two-year appointment inside the submarine enterprise. I am effectively a poacher turned gamekeeper.
Q103 Nick Smith: Mr Gray, listening to your remarks following questions from Mr Barclay, it seems to me you provided some clarity in the bit of the organisation that you now head up. It appears to me that down the corridor it is still a little muddled; you do not have the same level of clarity or length of service for important post holders. What is your perception?
Bernard Gray: You must understand that there is a significant restructuring of the centre of the Department going on in response to Lord Levene's report. I have the luxury that Lord Levene did not recommend anything for my area and I got on with my plans. Lord Levene has recommended significant changes to the way that the Equipment Programme is managed by the MoD, putting a lot more of it with the forces' Front Line Commands. The PUS, Admiral Lambert and everybody else are currently working through what the structural implication of that is, who should sit where and what they should be responsible for.
I would agree with them that I would not go around making a lot of interim changes when, in 12 months' time, I am going to then lay down a new structure. It may be that we were non-compliant with something over the course of the last 12 months; because Lord Levene has intervened, it may be a situation where we will be sitting here in 12 months' time saying, "This is the clarity; this is the role of the SROs in a post-Levene world.' They have a degree of change I have not had.
Q104 Fiona Mactaggart: One of the most reassuring things I heard from you, Mr Gray, was your referral to the fact that, in the future, there will be more batch purchasing; I do not know if I have the language right but in my kind of shopping it is a bit of a shift from couture to high street. Am I right?
Bernard Gray: Pret a Porter as it were.
Q105 Fiona Mactaggart: Will that change be the thing that is illustrated in figure 10, which is that when you reduce the number of any piece of equipment, the cost of each individual bit has gone up, sometimes hugely?
Bernard Gray: Unfortunately, it is not straightforward. If we buy something off the shelf, we will be paying some proportion of the development costs; it is not that we would avoid the development costs that somebody else has paid, we will just pick up some proportion of it depending on what that programme happened to be. The difficulty with just going to an off-the-shelf, batch-purchase process, which is not possible in all cases anyway, is that you may be causing industry, either here or abroad, to maintain capacity against some time when they may get an order from you, for which they are then going to charge you. What is the insurance premium and overhead that they are going to charge you for keeping something going on the basis that they might get an order?
Also, it is not completely straightforward because we have seen that just running a competition and letting a contractor build something is not always a spectacular success; we have spent most of the time debating two particular projects that have exactly those characteristics. Saying, "We will buy something from you off the shelf, and we will take your assurances about how it works" is not always what it appears to be. The move to a more flexible position is a good and sensible thing. In a tough world, being prepared to compromise our requirements somewhat-to say something that is 80% of the answer is better than nothing-is a sensible thing for us to do, but it is not a black and white issue.
Amyas Morse: Just to be clear, you were making reference to batches earlier on, and there is a distinction with those early projects, which were not really off the shelf; they were specifically designed. That is part of the trouble. To be clear, that is different from something that has already been designed, which you might have adapted for your purposes.
Bernard Gray: Regrettably, suppliers have a way of representing a finished product as having characteristics it does not always have.
Amyas Morse: Okay.
Q106 Fiona Mactaggart: I ask this, because in your earlier response on submarine contracts, you talked about the cost of capacity at Barrow and the skills gap. I am very interested in risk. It seems to me that at the moment the Department is bearing risk, and maybe it should, for maintaining the skills that are needed in defence procurement, and is bearing risk in the capacity in relation to yards like Barrow. I want you to tell me about the cost of that risk and who bears it-is it industry, or the taxpayer? It is quite an important risk. What is the plan for it?
Bernard Gray: Ultimately, if we want a capability, the Government ends up bearing the risk at some level. If we want submarines, in the end we have to pay for it. We can put in things that try to incentivise people, but, fundamentally, if they make a mess of it, we either decide to walk away and leave them to it, or we decide how we are going to correct it. It is similar to having a builder around to your house who makes a mess of the job; you cannot say, "All the heating system has gone out of my house, therefore I will just live without it". As the house owner, ultimately you want to live in that house, you want a heating system in it, and you are going to have to either come to an arrangement with the original contractor or get another contractor in. You do not have the option of saying, "I will walk away from the house." We are ultimately owning the risk in that sense. If we want a nuclear deterrent, we are in some sense underwriting a capability to get it. You are then down into: what is our best route? The submarine enterprise is a somewhat unusual activity in the sense that we probably could not buy nuclear submarines from anywhere else in the world, even if we wanted to. I do not think it would be possible to contract with the US, for example, to buy submarines from them, for a variety of reasons. In order to have those submarines-if, as a nation, we choose to have them-we have to build them, and we need the competence to do so.
Q107 Chair: Why is it impossible to get them from the US?
Bernard Gray: They would not sell them.
Commodore Beverstock: There are international agreements that would prevent this.
Bernard Gray: The fundamental point being: you have to be a responsible nuclear owner, and you cannot just go and buy something off the shelf and hope it works having read the manual.
Q108 Chair: I do not know who manufacturers them in the US. Is it BAE?
Commodore Beverstock: It is a combination of two yards Northrop Grumman and Electric Boat at Groton.
Q109 Chair: In a global world, I can see that you want to protect your nuclear capability on a national boundary, but I cannot see that the industry operates nationally any more.
Bernard Gray: For a variety of reasons I do not want to get into here, I do not believe that that would be technically possible.
Ursula Brennan: There are technical, commercial and legal issues. There are things that we can buy overseas, and we do, but there are certain capabilities-and the nuclear deterrent is the prime example of this-you either have or you do not, and if you do, you build it in the UK. If you are going to build it in the UK, there is no one else in the UK buying nuclear submarines.
Q11O Matthew Hancock: Are you sure about that?
Ursula Brennan: Reasonably confident.