HL Deb 28 July 1964 vol 260 cc991-6

3.54 p.m.


My Lords, with your permission, I will repeat a Statement that has just been made in another place by my right honourable friend the Minister of Aviation. The Statement reads as follows: "Sir John Lang has now reported on the circumstances of the Ferranti Bloodhound I contract. 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. have offered to refund a total of £4,250,000.

"Their 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."

My Lords, that is my right honourable friend's Statement. I may perhaps add that copies of the report are available in the Printed Paper Office.

Following is the correspondence referred to in the Statement:

"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,


Sebastian de Ferranti, Esq.,

Ferranti Limited,



"Ferranti Ltd.



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 Committee 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,


"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,




My Lords, I am much obliged to the noble Earl for letting us have this Statement. Those of us who have to comment on it were glad to have the opportunity to see the Statement earlier and also the correspondence that is going to be published in the OFFICIAL REPORT. I thought it rather strange that the letter making the offer should be dated to-day, July 28, the same day as it is made to Parliament, and that it appeared in the Press before the Statement was made in Parliament. I thought that was exceedingly curious. It is not, of course, possible—and I think my noble friends behind me would agree—to make any detailed comment at this stage, nor is it the right thing to do in view of the business we have to discuss in the House to-day, but I think we ought to study the Sir John Lang report when we get it from the Printed Paper Office. We may learn something more from it. At present, so far as I can see, the great responsibility for this matter is going to lie on the Government themselves. We may have to come back to it at some future date.


My Lords, obviously we cannot discuss a document we have not even seen. It will be equally obvious in all quarters of the House that we shall want to consider at some stage, in all its aspects, the whole question of the placing of these experimental contracts and the terms on which they are placed. Those of us who have been Defence Ministers know how difficult that often is and how much more complicated it becomes as all the new scientific developments become more complex. What I should like to put in the form of a question is: will it not be for the benefit of all of us and of the country that people should not take this up as a Party issue? There may be a great deal to be criticised in this matter, and if it is not made a Party question constructive criticism will come quite as much from one side of the House as another. We should be able to approach it and give full consideration to it with a view to seeing that, whoever has the placing of these contracts in the future, they may be placed on the most businesslike and effective basis that they can be.


My Lords, may I ask the Minister whether there is in the report of the Lang Committee proposals for improvement in the accountancy or methods of controlling the handing-out of contracts by the Government with a view to this not recurring? It looks as if in this case the firm was more efficient—and I am all in favour of efficiency—than the Government were in the handling of the nature of the contract. The other point is that, by courtesy of my noble friend the Leader of the Opposition, I have seen the correspondence. There is a letter or letters from Sir Richard Way who, I gather, is a civil servant, in which he appears to be conducting the correspondence personally, because it does not carry the usual introductory phrase: "I am directed by the Minister of Aviation", et cetera. Therefore I ask the question whether the Minister of Aviation authorised these letters or not, because the form of them is very unusual in Civil Service transactions, assuming that Sir Richard Way is a civil servant.


My Lords, in reply to the noble Earl the Leader of the Opposition, I should like to say that I entirely agree with him and with my noble friend that we can best discuss this matter more fully when we have all had more time to read Sir John Lang's report. Perhaps I should mention, in part answer to my noble friend and in answer to the noble Lord, Lord Morrison of Lambeth, that Sir John Lang's report covers only the first part, properly speaking, of his terms of reference. The second part of his terms of reference read: and to recommend whether any changes in organisation or procedure are necessary to ensure better assessment of prices for similar contracts in future. Sir John Lang will be making a further report covering that aspect of the matter, and I understand that he should be able to make that report by the Autumn. But that is awaited. Perhaps I should add, though it is implicit in the present report of my right honourable friend the Minister of Aviation, that he has already instituted a comprehensive review and taken certain action, parallel with that review, to avoid this type of situation in future.

As regards the second point raised by the noble Lord, Lord Morrison of Lambeth, I can confirm that Sir Richard Way is a civil servant. He is Permanent Secretary of the Ministry of Aviation, and I am quite certain that the correspondence with Ferranti had the full approval of my right honourable friend.


My Lords, would the noble Earl perhaps make representations to his right honourable friend that what strikes us prima facie is that it is an extraordinary thing that such a margin of £5 million should be discovered long after the payment for the contract was made? There seems to be great fault in the Departmental or ministerial side of it, Why should all this money be paid out without ascertaining what the profit was?


My Lords, of course I shall be glad to convey the noble Earl's observations to my right honourable friend, but I think that we are now verging on that substantive criticism which he was anxious to avoid without a perusal and study of the report itself.