HC Deb 28 July 1964 vol 699 cc1231-6
The Minister of Aviation (Mr. Julian Amery)

Sir John Lang has now reported on the circumstances of the Ferranti Bloodhound I contracts. This report will be available in the Vote Office this afternoon. In the light of Sir John Lang's findings, my Department reopened with Ferranti Ltd. the question of a refund to be made to the Government by the company on these profits.

Ferranti Ltd. has offered to refund a total of £4¼ million. Its offer has been accepted and discussions will now take place with regard to the discharge of this liability. The correspondence relating to this will be published in the OFFICIAL REPORT.

I should like to thank Sir John Lang and his colleagues for their efforts, at my request, to make this interim Report available before the end of this Session.

Mr. Lee

Will the right hon. Gentleman say when Sir John Lang reported? Is he further aware that his statement today is nothing like as informative to the House as was the Daily Express last Thursday morning and the rest of the national Press this morning? Will he confirm Mr. Pincher's account that, in fact, a total profit of £5,770,000 was made on Bloodhound Mark I, or 82 per cent.?

Is the right hon. Gentleman aware that the habit of the Ministry of Aviation leaking information to the Press has become a virtual torrent and is bringing the debates and discussion in the House into disrepute? In view of the scandal associated with this huge profit, will the right hon. Gentleman say whether he proposes to accept Ministerial responsibility for it and, if so, what action he proposes to take?

Mr. Amery

I hope that the hon. Member will withdraw his totally unfounded accusation of leaks from the Ministry of Aviation. Sir John Lang's Report was sent to us with a letter from him on 15th July and was, therefore, received in our office a little over a week ago. It has been published as soon as possible and I have given the House as soon as possible the information about the attitude which Ferranti Ltd. proposed to take towards it. I think that all other points will best be dealt with in our debate on Thursday.

Mr. Lee

On a point of order. In view of the fact that, by your Office, you are given the power to protect the House and its Members, may I ask, Mr. Speaker, whether you would set up an investigation into the copious leaks on these issues which the Press have been receiving in the last few months so that the House and the country may know the source of this kind of information?

Mr. Speaker

I cannot do that. If the House resolved that I should, then, of course, the position would be different, but at present I cannot do it.

Sir J. Eden

Has my right hon. Friend yet formed an opinion as to what use will be made of the £4¼ million? For example, will it be earmarked to compensate those industries which have suffered substantial losses in defence and other contracts with the Government? Can my right hon. Friend say what is likely to be the effect on Ferranti Ltd. of this decision? Is it not vitally important that we should develop to our fullest capacity the electronics and computer industry in this country, and should it not get every possible support from us for the successes which it achieves, particularly in exports, rather than be singled out in this vindictive way by hon. Members opposite?

Mr. Amery

I am well aware of the importance of the electronics industry to the whole of this country's position in advanced technology, and we have no intention of penalising Ferranti Ltd. in any way. We have made this clear in our exchange of letters with the company. We have accepted, in the circumstances, the repayment which it has offered.

Mr. H. Wilson

Does not the right hon. Gentleman feel it right to pay a very handsome tribute to the Comptroller and Auditor General and to the Public Accounts Committee, but for whose vigilance;, when his own officials were not vigilant, we should not have had this refund for the taxpayer of £4¼ million?

Mr. Amery

I gladly agree with the right hon. Gentleman. Thanks to the activities of the Comptroller and Auditor General, a situation which could have been one of considerable loss to the taxpayer has been prevented from so becoming.

Mr. Lubbock

May I ask the Minister to treat this matter of the leak with the gravity which it deserves? Will he say what investigations he has so far undertaken into the sources of the leak? I entirely accept his assertion that the leak does not come from the Ministry itself.

Secondly, may I ask him what action he is taking, in the light of Sir John Lang's Report, to strengthen his technical costs department so that this kind of enormous error does not take place again in the future?

Mr. Amery

I hope that I shall be able to deal with the second part of the hon. Gentleman's question at some length in the debate on Thursday.

I have satisfied myself that there was no leak in the Ferranti case from the Ministry of Aviation.

Following is the correspondence:

21st July, 1964.

Dear Mr. Ferranti,

You will remember that during the period October to December 1963, we had several discussions about the profits made by your Company on certain contracts for the production of components for the Bloodhound Mark I missile system. When Sir John Lang was asked to carry out an inquiry into this matter, however, we agreed that any further discussion should be deferred until after his report.

This has now been received and I enclose a copy herewith. In the light of its observations I must ask you whether you are now prepared to make a refund to public funds in respect of the contracts covered by Sir John's report.

Yours sincerely,

R. G. K. WAY.

Sebastian de Ferranti, Esq.,

Ferranti Limited,

Hollinwood,

Lancs.

Ferranti Ltd.

Hollinwood,

Lancashire.

28th July, 1964.

Sir Richard Way, K.C.B., C.B.E.,

Ministry of Aviation,

Horse Guards Avenue,

London, S.W.1.

Dear Sir Richard,

Thank you for your letter of the 21st of July, 1964. As you know when this matter was first raised with me I said that we had never had any desire to make more than fair and reasonable profits on defence contracts, and that our aim has always been, and will continue to be. to perform those responsibilities which H.M.G. might choose to place with us in the most efficient and economical manner. I also indicated a readiness to make an "ex gratia" payment to settle the matter.

There are a number of factors to be considered in arriving at what would be a proper repayment. The contract was for the production of an entirely new type and design of weapon system of which neither we nor the officers in your Department had had previous experience. Exceptional inspection standards were demanded. An exacting time schedule was set. The work therefore carried special risks, but it was nevertheless completed on time and met the very high performance standards which the Department required.

We were able to achieve exceptional production efficiency by closing another department of our business and transferring its technical and production team to the Bloodhound work as soon as production could be started. When the Bloodhound work comes to an end we shall be faced with heavy terminal expenditure. Neither of these factors is taken into account in calculating the costs charged to the contract, but which nevertheless represent substantial expenditure which we have to incur.

The profit allowance by the Ministry of Aviation included in the contract price was £810,353, but, as you pointed out in your evidence to the Select Committee, contractors are entitled, and are expected to augment the profit figures allowed in fixed price contracts by achieving economies in the operating costs allowed for by the Department at the time when the prices are agreed. Whilst I cannot accept all the findings of the Lang Committe either so far as they concern my own company or the Ministry officials, I recognise that the profit arising on the Bloodhound I contracts was greater than we expected when those contracts were negotiated.

In order finally to dispose of all aspects of the Bloodhound I contracts between us we are willing to make a refund in respect of these contracts of a total of £4,250,000.

I would like to discuss with you arrangements for the discharge of this liability.

I would be grateful if you could assure me that there will be no discrimination against Ferranti Limited so far as future contracts are concerned in consequence of what has happened.

Yours sincerely,

SEBASTIAN DE FERRANTI.

28th July, 1964.

Dear Mr. Ferranti,

Thank you for your letter of 28th July, 1964.

I fully understand the points you make regarding the unique production problems which you faced in carrying out these contracts; and I recognise the success you achieved in overcoming them.

I am glad to know that in order finally to dispose of all aspects of the Bloodhound I contracts you are prepared to refund a total of £4,250,000 and I am ready to discuss with you arrangements for the discharge of this liability.

I can assure you that there will be no discrimination against Ferranti Limited in the allocation of future contracts.

Yours sincerely,

(Sgd.) R. G. K. WAY.

Sebastian de Ferranti, Esq.,

Ferranti Limited,

Hollinwood,

Lancs.