BRISTOL SIDDELEY ENGINES, LTD.

HL Deb 22 March 1967 vol 281 cc768-75

4.4 p.m.

LORD SHACKLETON

My Lords, with permission I will repeat a Statement made in another place by my right honourable friend the Minister of State at the Ministry of Technology regarding Bristol Siddeley Engines. It was as follows:

"I think the House will wish to know that Bristol Siddeley Engines Ltd. have repaid to the Department a sum of £3.96 million. The effect of this repayment has been to reduce the profits which the firm made on sales at fixed prices, totalling approximately £16½ million, under a number of contracts for the overhaul of certain types of aero-engines in the years 1959 to 1963. The repayment also includes an adjustment for the fact that, by mistake, double payment was made for certain work carried out on some of these contracts.

"The Department's staff had called in 1964 for information about past costs before agreeing further prices. The attention of the senior management of the company was then drawn by their staff to the high profits and they very properly brought this matter to the attention of the Department.

"The cause of the excessive profits was that in each year the firm submitted very high quotations which the Department's cost estimating staff did not detect as being above a fair and reasonable level. I have been assured that the Board of the company who, of course, carry the ultimate responsibility for this repeated over-quoting, have given it their particular attention. The Department itself might have been expected to notice this over-quoting; I am satisfied, however, that to some degree this lapse can be attributed to pressure of work and staff shortages at the time.

"This case emphasises how necessary it is that Departments should obtain the right to equality of information with contractors when prices are being negotiated. This is an issue on which Her Majesty's Government has been in negotiation with industry for some time and on which clearly an early decision should be taken."

LORD WINDLESHAM

My Lords, the House will be grateful to the noble Lord for repeating that Statement to your Lordships. It discloses an extremely serious fault in the administration of a Government Department and the failure to control costs. It also raises the much wider and more controversial question of excess profits, whatever they may be, (the words "fair and reasonable" appear in the Statement), on contracts with public bodies, as in the Ferranti case. Although the failure to detect the over-quoting is serious enough, in all conscience, the double payment that is referred to in the early part of the statement suggests incompetence on a totally different scale, and I think the House is entitled to a little further information on the comment that by mistake double payment was made for certain work carried out on some of these contracts.

The second question I have to put to the noble Lord, Lord Shackleton, concerns the doubt that is left in the mind of anyone who has heard this Statement as to the dates when these errors took place. The period 1959 to 1963 is referred to. Does this mean that the contracts were signed in this period for aeroengine maintenance and overhaul, and that work has been going on beyond 1963, and perhaps is still continuing to-day, or does it mean that all the work was completed in the years 1959 to 1963?

The Statement also makes reference to the fact that in 1964 the Department called for information about these costs. They first got wind that something was wrong in 1964. We are now in March, 1967, which at the very least is three years further. So what has been happening since then?

LORD SHACKLETON

My Lords, the noble Lord is putting a very bold face on it. It scarcely needs me to refer to the laxity—if there has been laxity—of the Department under the previous Administration. Indeed, I will spring to their defence. I understand that these overpayments took place in the years 1959 to 1963; and the excessive charging took place during that period. The extent to which, without equality of information, it is possible to detect an excessive rate of profit where information is not readily available seems to me to be a difficult question to answer. To my mind it raises quite serious and, I believe in this respect, personal issues of commercial morality. Certainly as one who has had a good deal of experience in business, I make this particular comment.

The fact is that when the matter was brought to the attention of the board of Bristol Siddeley Engines, Ltd., they then saw fit to inform the Ministry of Aviation. In fact it came about as a result of the Department's insistence on being given certain information so that they might judge the suitability of future contracts—information which they had some difficulty in getting. This information came to light early in 1964. The full extent of it was not then realised and there was a good deal of discussion as to what the appropriate rates of profit should be. I would not suggest for one moment that there has not been some failure on the part of the Department. I would certainly accept this. They have, of course, as was made clear at the time of the Ferranti case, had to cope with great difficulties, shortage of staff and very heavy pressure. Such failures as there have been are not considered to warrant disciplinary action. I am only glad to say that in a situation in which we have regard to prices and incomes, the £4 million which would otherwise have been lost to the taxpayer has been regained.

4.11 p.m.

LORD OGMORE

My Lords, we on these Benches are disturbed at the Statement which has been made by the noble Lord, Lord Shackleton. In the first place, we should like to know, as this apparently all took place during the period of the late Conservative Administration, whether the present Labour Administration are taking any steps to see that it does not happen under them. Secondly, we should like to know whether there is any fraud in this case. It seems to us rather odd that there can have been a double payment. It might be possible to have an excess payment, but how somebody can be paid twice for the same engines is very difficult to understand.

Thirdly, it seems to us disturbing that when the matter was discovered it was not discovered by the Department or their officers; it was presumably discovered by the company's officers, who very rightly and properly brought it to the attention of their seniors. Does not that indicate a great lapse of zeal and expertise on the part of the officers of the Department themselves? I do not think it is any use for the Government to try to shuffle off liability and responsibility by saying that the officers had a lot of work to do. We all have a lot of work to do. This is what they are paid for. We should like to know why it was the company who discovered it and not the Department.

LORD SHACKLETON

My Lords, I was not sure which Government the noble Lord was referring to. I must stress to the noble Lord that for a long time, certainly over many months, the Government have been asking for equality of information, and talks have been going on in regard to this matter. It is an established practice in relation to contracts, for instance, in the United States. The noble Lord asked me, in particular, whether unfortunate events like these, of which the Ferranti case was a much more acute example, for it occurred in a single payment—this, after all, arose over a four-year period—could occur again. I would again stress the extreme importance of obtaining equality of information. Certainly it is necessary for the Department, and therefore the Government, to accept responsibility for part of this.

Bad bargains were struck for a number of years. The contracts required that prices should be fair and reasonable, and the profits in this case clearly indicate that they were not fair and reasonable. Measures have been taken to improve the efficiency of the Department and to strengthen it. I can only say that the long-term solution is the one I have suggested. Certainly the Department, and no doubt also those who deal with Government Departments, are aware of this. Let me add that of course the Auditor-General would in due course have had access to some of this information, but it came out sooner through the voluntary initiative of the company.

LORD CARRINGTON

My Lords, may I ask a further question? To be honest, I do not think that there is really much Party political capital to be made out of this sort of issue. These things, regrettably, happen under all Governments, and I think the noble Lord might be a little careful. I think it might even happen under a Liberal Government—if one can conceive of such a thing. It is quite a long time since this over payment was first discovered; it is getting on for three, years. Can the noble Lord say why it has taken so long for this to be investigated, and for the matter to be put right? And can he say whether additional steps have been taken, other than the steps taken at the time of the Ferranti overpayment, to prevent this sort of thing happening again?

LORD SHACKLETON

My Lords, I certainly follow the noble Lord in what he said. I may have made one misstatement. I think I said early in 1964; in fact it was late in 1964. So it is a period of two years. The Department did put in hand an investigation, but the work of checking through transactions covering several years, and in a Department which was already overworked, was complicated. The check was not completed until September, 1965, and subsequently the final figures were agreed with the audit of a well-known independent firm of auditors.

Steps have been taken, following the report of the Lang Committee on the Ferranti case, to improve the position in the contracts department. I must say that I think the department is under heavy pressure; and while it is inconceivable that this sort of thing could ever happen under a Liberal Government, I agree it is conceivable that it might happen under a Conservative or Labour Government. I can only repeat that the answer must, in the long run, be equality of information. Steps have been taken to improve the position. I should not like to suggest that the Government are entirely satisfied about the position of the department concerned, which carries very heavy reponsibilities and discharges them, I think (and I have gone into this at some length on earlier occasions), with great expertise and thoroughness and public spirit. The fact is that the department is not as strongly organised as we wish it could be.

LORD SILKIN

My Lords, may I ask two questions? First, how many contracts are involved; and secondly, could my noble friend say something in reply to Lord Ogmore's question about the double payment?

LORD SHACKLETON

My Lords, I cannot tell the noble Lord how many contracts were involved. I will say something about the double payment—and I apologise to the noble Lord for not having dealt with this point. Separate contracts are placed for the stripping and overhaul of engines and for the repair of engine components, and because of a change made by the firm in their procedures some part of the work of stripping assemblies into components ready for repair was charged for under both contracts. This was brought to light in the course of a full investigation carried out by the Department's staff. The agreed refund effects complete repayment of the sums charged twice, and it is estimated that this double charging amounted in all to about £½ million. The noble Lord will recall that the total repayment is £3.96 million.

There has been no difficulty in settling this part of the matter. As soon as it was established that there had been overcharging, and the figures had been sorted out, there was immediate repayment; and there is, of course, no suggestion that this was done other than by mistake on the part of the company. The extent to which the Department ought to have spotted the double payment is very difficult to say now. It is, of course, possible to confuse a situation of this kind. I do not doubt that in the long run the Auditor General would probably have got on to this, but on the whole it is clearly a matter in which, as between customer and supplier, the customer relies on the fact that he will not be charged twice for the same item, even if he goes only into a department store.

LORD PARGITER

My Lords, has not a great deal of the trouble which has arisen in this case, and in similar cases, been due to the abolition by the previous Administration of the Ministry of Supply, the dispersal of highly skilled staff among a number of Departments, and the insistence of these Departments on managing their own affairs when it would continue to be done better by the Ministry of Supply? Has not the result been that the job has not been done so efficiently? In view of the fact that there was, and so far as I know still is, a most efficient Government aero-engine maintenance factory at Treforest, might I also ask whether their services could not be used to greater effect, rather than that these excess profits should be paid back to private companies?

LORD SHACKLETON

My Lords, although interested in the noble Lord's suggestion, coming from his great experience, I should not really have liked to conclude that it was as a result of the abolition of the Ministry of Supply. But certainly I note the point he has made. It may well be that there was some rundown of essential staff. So far as maintenance is concerned, there are a number of different repair and maintenance arrangements for all three Services. I rather think that the Royal Navy do their own engine servicing, but probably not all. The Royal Air Force puts the work out to the industry and where a particular firm is the maker of the engine there is an obvious advantage in putting it there. It is a long while since I heard the argument on Treforest, but I note the noble Lord's point, and I will, if he wishes, go into it further.