HC Deb 02 March 1966 vol 725 cc1301-5
The Minister of Aviation (Mr. Frederick Mulley)

With permission, I wish to make a statement about the pricing of Government contracts.

When my predecessor made a statement on the Second Report of Sir John Lang's inquiry into the pricing of Ministry of Aviation contracts on 9th February, 1965, he said that a number of the conclusions and recommendations about contracts and procedures were in line with views already formed in the Department, and that action on them was in hand.

My predecessor pointed out that others would need a good deal of study; but he specifically welcomed one important recommendation in the Report, which also accorded with the view expressed by the Public Accounts Committee, namely, that there should be equality of information between the Ministry and its contractors up to the time prices are fixed.

Since then the Government have given these matters further consideration, and there have been preliminary discussions with industry. Our view is that equality of information ought, as Sir John Lang suggested, to be secured by means of a contract condition, and that any uncertainties in existing conditions and procedures should now be resolved.

The Government also believe that post-costing, which provides knowledge of the outturn of completed contracts, is an essential part of equality of information—except when contracts are priced by competitive tender. The Lang Report argued that post-costing would conflict with the principle underlying fixed-price contracts, and diminish their effectiveness as incentives. But follow-on orders form a very substantial part of the field for fixed-price contracts, and Departments cannot get full equality of information for such orders unless they have post-costing. Post-costing also provides a valuable check on the reliability of Departments' own estimates and on the pricing information supplied by firms.

It is not of course necessary, nor is it the Government's intention, that post-costing should be used to renegotiate prices for contracts already placed. But post-costing does mean that profits grossly in excess of those allowed for when prices are negotiated—as in the Ferranti case—will be brought to light; and, in such cases, the Government will not be precluded from seeking some reimbursement outside the terms of the contract.

Revised standard contract conditions securing the Government's rights to equality of information—including post-costing—are now being drafted and will shortly be discussed with representatives of industry. Meanwhile, we hope to have the co-operation of all the firms concerned as fresh contracts are placed.

My predecessor also said that the Government would review the profit formula, and would take account of the comments of industry in doing so, as Sir John Lang's Report suggested. The Government are engaged upon their own review, and are now inviting comments from industry. In this review, attention is being paid to the encouragement of efficiency and to incomes and prices policy.

The Government propose to review the situation afresh, in the light of progress in all these discussions, in six months' time, in order to see if further action is needed to secure the rights they require.

Mr. R. Carr

Is the Minister aware that his rejection of the Lang Committee's recommendation on post-costing will cause much concern in industry? Does the Minister accept the recommendation of the Committee that the profit rate should be kept in line with that generally obtaining in industry and, therefore, the need for urgent revision in view of the position in this matter disclosed in the Plowden Report?

Further, is the right hon. Gentleman aware that it is now over 12 months since the Lang Committee recommended a review of the profit formula and that the fact that he can only say that the Government are now inviting comments from industry is a sign of extreme dilatoriness and administrative incompetence on the part of himself, and particularly on the part of his predecessor?

Lastly, does the right hon. Gentleman realise that the losses in industrial efficiency and the waste of taxpayers' money caused by current delays in contract procedure are an utter disgrace?

Mr. Mulley

I think we can dismiss the last point in the right hon. Gentleman's comments—[HON. MEMBERS: "Answer."]—as a foretaste of electioneering. If we want to exchange allegations about incompetence in this field, I should be very happy to do so at any time. The fact is that this is a very complicated matter. Discussions have been going on and we feel that it is only right that industry should have the further opportunity of putting its views on this matter.

Post-costing is widely recognised in the United States as a necessary part of proper incentive and efficient contract procedures. While Sir John Lang deprecated its introduction if it would interfere with the sanctity of already negotiated contracts, he considered that information by this means was very important, and I have said that we are not seeking this power with a view to renegotiating fixed-price contracts already concluded.

Mr. Dalyell

What is the current position about the recruitment of technical costing officers, which concerned both the Lang Committee and the Public Accounts Committee?

Mr. Mulley

One of the difficulties is to get sufficient technical costing staff. The position is rather better now, but we could do with more technical costing officers.

Sir Ian Orr-Ewing

Will the right hon. Gentleman bear in mind that the aircraft industry has been completely disorganised now for 15 months since the present Government came into office as a result of widespread cancellations? Is he aware that many thousands of firms are subcontractors on these major projects, and that they have been suffering uncertainty? Is not it deplorable that after the Government have had this Report in their possession for over a year they are only now coming forward and saying that they intend to review procedures and consult industry? This is hardly the "poised for instant action" which we heard about at the last election.

Mr. Mulley

I hope that the hon. Gentleman does not think that no contracts have been placed because the form of the new contract is under consideration. Contracts have been going on in the ordinary way. The question now is whether we have a new form of contract, and it is that new form that is under consideration.

Mr. Snow

Will my right hon. Friend take it that those of us who remember the defensive attitude of the Conservative Party over the Ferranti case will welcome anything he can do to prevent typical Conservative profiteering in industry?

Sir H. Legge-Bourke

In view of the enormous importance of the research and development aspect of this matter, will the right hon. Gentleman tell us what steps the present Government have taken to see that the recommendations of the Gibb-Zuckerman Report, made nine or 10 years ago, were fully implemented, because, if they had been, many of the abuses would have been avoided?

Mr. Mulley

That matter goes rather wider than this, but we are, of course, pursuing research and development as far as circumstances and finances allow.

Mr. A. Royle

As B.A.C. did not build the VC10s on a fixed-price contract, will the right hon. Gentleman tell the House when he intends to announce the decision he has taken to cancel the other super VC10s on order to B.O.A.C?

Mr. Mulley

I do not see how that arises. The VC10 was a civil contract, and I have taken no decision in the matter at all.

Mr. R. Carr

Why has it taken over 12 months to start on this procedure? Will the Minister at least assure the House that, should he, alas, find himself in the same position in a month's time, he will get on with the job a lot more quickly in future?

Mr. Mulley

I have already made clear that discussions and studies on this very complicated matter have been going on. If my predecessors had spent a little more time on it, we might not have had the Ferranti affair.

Several Hon. Members


Mr. Speaker

Order. We must go on with the business of the day.