Q131 Stephen Barclay: Is part of that devolving more of the decision making to the services individually, rather than doing things in the centre?
Bernard Gray: Part of the Levene process is devolving the decision making to the services. Part of the work that I am doing is to ensure we appropriately expose to people the cost of their decisions.
Q132 Stephen Barclay: I wanted to come on to a slightly different issue. There is limited value in having equipment if you do not have the weaponry to go with it. We just had Libya, which will have used Brimstone missiles and various other bits of stock. What mechanism does the Department have to ensure its balance of weapons stocks reflects the time taken to replenish them?
Ursula Brennan: Admiral Lambert might be better to advise on this than me. There is a group that reviews weapons usage against readiness and future threats, so that we have an assessment of how we think we stand, what we have on the stocks, what we could get access to speedily, what we think we might be facing in the future.
Vice Admiral Lambert: There is a Stockpile Working Group, and it looks at not only the stockpiles of weapons that are required, but how long it takes to fill up those stockpiles.
Q133 Stephen Barclay: Is there a matrix that informs that decision?
Vice Admiral Lambert: Yes there is, and that is something that is changing. We used to procure quite a lot of our weapons as a complete stockpile, i.e. we would work out how many weapons we might use over a 30 year period and then build a huge stockpile. We are looking at doing that smarter by looking at whether, in certain areas, we can buy enough for initial use, and then enough for the time it takes to replenish, and then have some extra. That is all worked out within the Stockpile Working Group.
Q134 Stephen Barclay: If that matrix is wrong, and we do not have enough stocks, who is the individual accountable for that?
Vice Admiral Lambert: The person who is openly responsible, if we do not have a big enough stockpile for what we are involved in, is CDS.
Q135 Stephen Barclay: He sits on the group reviewing?
Vice Admiral Lambert: No, the work is reviewed at the two star level, and I can provide you the name of the person who is responsible for that working group.
Q136 Chair: We have gone round most things. I just want to quickly get answers to this: we hear that things are changing, and you have heard a general welcome in the Committee for that. However, if I look at this Report, and it is a complex one, we are still doing the old things. For example, we are buying four fewer Puma helicopters, presumably to stay in budget. We are buying three fewer A400Ms, presumably to stay in budget. Chinook aircraft: we said we were buying 22; we are now buying 128. And we cannot get any sense out of you about how many Joint Strike aircraft we are buying, but we were going to buy 36, and we think you are buying 10, 12-something like that. Where is the evidence that things are changing?
Ursula Brennan: In terms of the numbers of items purchased, you went through a number of them there; I do not think all of those are decisions that we took in the past 12 months. Some of those have been taken over time. We have been clear-I hope we have-that until we get ourselves into balance, one of the things we look at is what gives us the best capability results, what gives us the best affordability and what gives us the best value for money.
We bring those three things together, under advice from Admiral Lambert, and conclude sometimes that it makes sense to stick with the capability, but to buy fewer of them; sometimes in the past we have postponed things; and sometimes, in the SDSR, we have cut things. The decision to buy fewer items is one we make if it gives us the best capability result for the cash that we have available to us.
Q137 Chair: I would scarcely describe it as a value for money decision, because if I just take the one, I do not know where the decision was taken, on the A400M-which struck me as not being one of the most radical bits of equipment to buy, but maybe you are going to tell me something else-we knocked out three of those. I cannot remember the figures; unit cost is up 46%.
Bernard Gray: Needless to say, the A400M story is complicated, but it was a fixed price contract, let with Airbus by a consortium of eight9 nations, if I remember correctly. A bit like the Astute story, it was more technically demanding to develop than the company had originally estimated. It has cost Airbus a considerable sum of money. I do not know precisely how much, because they have not disclosed it, but it is billions of euros and not millions. The development of that aircraft has cost them a considerable amount of money.
As part of the renegotiation process of whether or not we should recommit to a contract-this is a couple of years ago rather than now, which is why I am slightly fuzzy on it, because I was not here at the time-the relevant staff at the time did an extremely good renegotiation with Airbus to allow us to continue in the programme, reducing our off-take to manage our cash flow, but fundamentally reconfirming the prices. I cannot remember, because I was not there, why that 46% number is there-whether that is against original expectation. What I do know is that the value proposition we have on the table is extremely good, because most of the loss has been incurred by Airbus, and the price of the aircraft we are going to get represents very good value for money. I think they did a good deal. I cannot explain to you why that number increased. The increase that has occurred in the last 12 months is down to foreign exchange, because this is fundamentally fixed in euros, as a euro product.
Q138 Chair: Why don't you buy forward on foreign exchange?
Bernard Gray: We do.
Ursula Brennan: We do.
Bernard Gray: We hedge our foreign exchange exposure, but you cannot remove that risk forever. What you are doing, effectively, is averaging it over time. There has been a significant depreciation of sterling, as we know, which has many beneficial aspects as far as the UK is concerned, but one of the bad things is, if we are contracting for some euro stuff, it is going to cost us more money in the end.
Q139 Ian Swales: Can I ask a question about resources? It is not that long since the MoD finally got a financially qualified person in the top financial job. What resources do you have on this important financial side, given what you have just been talking about, and also given the point you made early on about the audit rights that we have with suppliers? What is our capability to deliver on that?
Bernard Gray: I mentioned the strengthening of the project management side, where I now have four three-star officers. The other change that I made at the same time was to up-weight the level of the financial director of my organisation from a two star to three star officer. I have run a competition, and we have just appointed a person from the private sector, who will be joining us in the New Year, as a more senior Finance Director than we have had before. That person is a qualified chartered accountant, I believe.
Q140 Ian Swales: That is just about to happen.
Bernard Gray: Yes.
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8 The Department are purchasing two attrition replacements, therefore the original buy was 24 (22+2) it is now 14 (12+2).
9 There were 7 launch nations for the A400M programme: UK, Germany, Spain, France, Turkey, Belgium and Luxembourg. There are currently six Partner nations: UK, Germany, Spain, France, Turkey and Belgium.