HL Deb 20 December 1983 vol 446 cc615-22

4.27 p.m.

The Chancellor of the Duchy of Lancaster (Lord Cockfield)

My Lords, with permission, I will repeat a Statement made in another place by my honourable friend the Minister of State for Industry. The Statement is as follows:

"Mr. Speaker, with permission, I will make a statement about the contract between Britoil and British Shipbuilders.

"In December 1981 Scott Lithgow contracted with Britoil to produce a semi-submersible drilling rig. The contract value was £88.6 million, and the contractual delivery date was April 1984. Construction began in February 1982.

"By March 1983, British Shipbuilders had provided for losses of £43.8 million on the rig. The then Chairman, Sir Robert Atkinson. warned that performance and losses at Scott Lithgow were unacceptable.

"On 31st October 1983, Britoil were sufficiently concerned about progress on the contract to issue through its agents a notice requiring Scott Lithgow to demonstrate within 30 days that the rig could be completed by February 1985.

"Scott Lithgow responded to Britoil by arguing that, despite the undoubted delays on the contract hitherto, completion would be possible within the terms of the contract.

"However, on 19th December a notice of cancellation was served on behalf of Britoil on the basis that Scott Lithgow had not demonstrated that the rig could be delivered by February 1985.

"British Shipbuilders have responded to the cancellation notice by disputing its validity, and I understand that they have now instituted legal proceedings. While British Shipbuilders and Britoil are considering the next step in this negotiation, all work on the rig will be stopped. British Shipbuilders are instructing suppliers to suspend work on contracts relating to the rig. Up to 2,000 members of the workforce are involved in construction of the rig. The remainder of the workforce—approximately 2,250 men—are employed on two other contracts: one for BP and one for the Ministry of Defence. It is British Shipbuilders' intention that these contracts will continue.

"Unemployment in this area is already high and a further increase of the scale implied by the cancellation of this order would be a matter of deep concern to the Government. My right honourable friend the Secretary of State for Scotland has this morning met the Scottish TUC and told them that he would of course seek to do all he can to alleviate the very real distress that would be caused in the local community. However, the offshore industry is highly competitive and customers insist upon contractors—including management and workforce—delivering on quality, price and time. Regrettably, Scott Lithgow so far appears to have been unable to satisfy Britoil that it can fulfil its obligations on this contract."

My Lords, that completes the Statement.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having repeated the Statement made in another place. He will perhaps forgive me if initially I say that the Statement is set out in terms that amount to a debonair detachment from the real problems that are involved. The Statement is indeed a very grave one. There is not only the possibility that 4,000 people will be unemployed ultimately as a result of the loss of the contract. There is also the possibility that a mortal blow will be dealt at the whole oil rig construction industry in the United Kingdom. These are matters which should be of considerable concern to the Government. They cannot leave things exactly where they are.

It is difficult when matters are at issue between parties, as at this time they appear to be between British Shipbuilders and Britoil, to elicit from published statements much information as to the relative culpability of either party. As is well known, when contracts are delayed certain rights attach to the customer. These often give rise to disputes between the parties as to the real reasons why there have been delays. Anyone who has had experience in construction generally or in the building construction industry well knows that there can be changes or modifications in design half way through the contract or defaults in the case of nominated sub-contractors at certain parts of the contract, all of which can contribute to delay.

The statement that by March 1983 £43.8 million had been lost on a contract the total value of which was £88.6 million is absolutely astounding. The loss cannot be accounted for merely by restrictive practices on the part of the workforce, which is an argument that may be in the minds of some noble Lords. There must have been a considerable miscalculation. As I understand it, the contract is about 30 per cent. complete. It requires considerable explanation as to how half of the contract value has been lost within the first year of the work. Did the noble Lord or his right honourable friend know in the spring or early summer of 1983 that those losses had already taken place? If so, surely that merited active intervention by the Government to see what was going wrong.

The noble Lord states that his right honourable friend the Secretary of State for Scotland has today met Scottish TUC representatives and told them that he will do all he can to alleviate any hardship that might conceivably arise. However, another statement has been made by the Secretary of State on BBC radio, which the noble Lord may or may not he able to confirm. It is to the effect that there is still a six-week breathing space before matters become absolute and still the possibility of negotiation between the parties. If that is so, far be it for me to say anything that will in any way prejudice the success of these negotiations. But, if there is a six-week breathing space—and I hope that the noble Lord will he able to confirm this—I suggest that, in view of the national importance of this industry, it is the Government's duty at any rate to investigate the claims being put forward by the respective parties and to assist them in arriving at a solution. The matter certainly cannot be left where it is.

On this side of the House we hope that the Government will accept that their responsibility is to do everything that they can—if necessary by ministerial guidance and advice—to ensure that some settlement is reached within the six-week period. In particular, they ought to investigate the position in regard to the representations made by Britoil about requesting British Shipbuilders to demonstrate that it could complete by February 1985. In shipping terms that is known conventionally as the "drop dead" date. According to the statement, Scott Lithgow argues that it could complete, whereas Britoil says that it is not satisfied. Surely there is scope for investigation by the Government in that matter. I sincerely hope that they will take active steps to do that.

Lord Taylor of Gryfe

My Lords, I, too, should like to thank the Minister for his Statement. In many senses the situation is a tragedy. It seems that this Christmas is associated with tragedy, and this particular tragedy appears to be self-inflicted. I live within a few miles of Scott Lithgow's yard and can readily visualise the real depth of the tragedy in a district which already has 20 per cent. unemployment. The number who will be thrown out of work on the loss of this particular contract will be about 2,000. The viability of the whole yard will also be brought into question since it has on its books only the two remaining contracts mentioned by the Minister. That would probably mean that the number of people unemployed would be increased by 4,000 as a result of the closure of Scott Lithgow. Ships have been built there at the tail of the bank since 1711.

Is the Minister aware that in that yard British Shipbuilders spent £13½ million last year in modernising the plant? This decision reported today represents a colossal waste, not only of its investment of public money but also of thousands of skilled workers who are being thrown on the scrap heap. Has the Minister taken into account, when he makes the calculations reported in the Statement, the national implications of this decision? In Scotland we have been building up a new industry, based on our experience of North Sea oil. Does he realise the implications of the closure if this rig, which is one-third completed, is towed away to Japan, South Korea or France for completion? This would have very serious implications, not only for Scott Lithgow but for the whole image of this new industry on which so many of our hopes in Scotland are based.

Will the Minister accept that while he recites a very sad story of delays, this is, in fact, a very highly sophisticated rig? In fact, it is the most advanced rig in the world. It is dealing in technologies of which we have little previous experience. The rig is designed to work in depths of 4,500 feet in the hostile waters of the Atlantic, and this has never been previously achieved in this new technology without anchors. Will he accept that there are probably responsibilities on all sides for the difficulties that have now arisen? Will he also accept that it is easy but not always helpful to attribute all the difficulties and blame to the workforce of Scott Lithgow?

Will the noble Lord accept that the closure of Scott Lithgow and the closure of the rig building activities at that yard have serious implications for the steel industry in Scotland and also implications for Ravenscraig? Will the Minister tell us a little of what the Secretary of State for Scotland promised in his negotiations with the TUC? To be helpful in relieving distress is one thing: to intervene in this serious situation and to try to knock heads together is another. I hope that it is that positive approach, rather than the prospect of social security, that is going to be offered by the Secretary of State for Scotland.

Finally, will the Minister read The Scotsman of today—a newspaper not unfriendly to the Government? It says that, those who sought to allocate blame for the difficulties now facing Scott-Lithgow were following an irresponsible quest which can produce only a fruitless outcome". It points out: The customer and the supplier will desert their social and industrial responsibilities if they do anything other than to seek to resolve their differences…". This dispute is between two industries in which the state has a substantial responsibility. British Shipbuilders is 100 per cent. state owned. Britoil is 48 per cent. state owned. Is it beyond the capacity of Government to bring these industries together before this tragedy has its full impact on the Clyde? I hope that the Minister will encourage us a little on this account.

Lord Cockfield

My Lords, I am grateful to the noble Lords, Lord Bruce of Donington and Lord Taylor of Gryfe, for their comments. The noble Lord, Lord Bruce, said that the Statement indicated "a debonair detachment". I must take issue immediately with his comment. The Statement said specifically that a further increase of the scale of unemployment implied by the cancellation of this order would be a matter of deep concern for the Government. I agree entirely with the comment of the noble Lord, Lord Taylor of Gryfe, that this is a tragedy. It is a tragedy for Scotland. It is a tragedy for British Shipbuilders. It is a tragedy for the management. It is a tragedy for the workforce. Let there be no question about that.

But, equally, it is a clear illustration of what happens when people are not prepared to come to terms with the problems of the world in which they live. There have been great deficiencies, both in management and on the part of the workforce in Scott Lithgow. I am not attempting to apportion blame. I could go into the matter in great detail. The noble Lord, Lord Bruce of Donington, admitted that it was not merely the result of restrictive practices. I agree with him. The restrictive practices have played a considerable part. We are threatened, in fact, with a national strike in order to maintain restrictive practices, which hardly seems to be the right way of dealing with the kind of problems with which British Shipbuilders is faced.

There is a long history of difficulties in the Scott Lithgow yard. It has made very large losses over a period of years. There is nothing new about this. All of these facts are on the record. They appear in the published accounts of British Shipbuilders. Over the years, since nationalisation, Scott Lithgow has lost£165 million, which is 38 per cent. of the total losses made by British Shipbuilders. In the year 1982–83 alone—these figures are in the published accounts —Scott Lithgow lost £66 million out of a total loss by British Shipbuilders of £117 million. So there is no question but that the problems confronting Scott Lithgow have been well known, have been the subject of a great deal of discussion in the press, and, indeed, have been raised in this House by my noble friend Lord Lauderdale, who has repeatedly pressed me on the progress being made in this field.

The noble Lord, Lord Bruce of Donington, asked if this was the end of the United Kingdom's off-shore rig capacity. The answer is "No". Within British Shipbuilders there is Cammell Laird, which has an established position in the construction of both semi-submersible and jack-up rigs. Harland and Wolff also has suitable facilities for mobile off-shore structures. In the private sector, UIE at Clydebank has an excellent record and there are a number of other firms with a good record in this field, including Highland Fabricators and McDermott's who are jointly building a floating production platform for Sonoco, and Howard Doris who have tendered in competition with Cammell Laird for Sun Oil's semi-submersible floating production facility. So there are other facilities available.

So far as the merits or demerits of the case are concerned, a writ has been issued. The matter is now before the courts and it is sub judice. It is not therefore open to me to comment on the merits of the cases put forward either by British Shipbuilders, on the one hand, or by Britoil, on the other. The noble Lord, Lord Bruce of Donington, referred to a six weeks' breathing space before these matters become finalised. Here again, one of the major issues in the litigation is whether or not the notice of cancellation served by Britoil is a valid notice. The noble Lord will not therefore expect me to comment further on that.

The noble Lord, Lord Taylor of Gryfe, made a passionate plea for intervention by the Government. But the simple truth of the matter here is that this is a commercial dispute between British Shipbuilders and its customer. A very substantial loss has already been made. There are likely to be further losses incurred. The Government have provided a very large amount of finance for British Shipbuilders and this was a matter which I touched upon in the Bill that your Lordships recently passed dealing with the borrowing powers of British Shipbuilders. But as regards an individual order, it is not right for the Government to intervene.

Lord Beswick

My Lords, the noble Lord says that it is simply a dispute between Britoil and Scott Lithgow. But has the noble Lord done the sums about the cost to the British Government if the rig is cancelled? What would be the additional loss which would have to be met by the Government? What would be the loss in revenue from the income tax which otherwise would be paid by the workers? What would be the cost to the state of maintaining those workers if they were thrown out of work?

Lord Cockfield

My Lords, the noble Lord believes that the Government should intervene in this individual case. We do not think it is a matter for the Government to intervene. As far as British Shipbuilders as a whole are concerned, their total loss last year was £117 million, of which not less than £66 million related to Scott Lithgow. Exactly what the future level of losses will be, either for Scott Lithgow generally or in relation to this particular order, must depend upon the outcome of the litigation.

Lord Beswick

My Lords, with respect, I did not advance any opinion as to whether or not the Government should intervene. I asked a question. I asked, first, what would be the direct cost to the Government of the additional loss: secondly, what would be the cost to the Government of the loss of revenue if the workers are no longer earning; and, thirdly, what would be the loss to the Government if the Government had to maintain these workers by way of social security.

Lord Cockfield

My Lords, I am grateful to the noble Lord for not advocating that the Government should intervene. As regards the rest of his questions, I did, frankly, answer them. The financial consequences depend upon the outcome of the litigation and any negotiations which may take place between British Shipbuilders and Britoil.

Lord Howie of Troon

My Lords, will the noble Lord the Minister accept that not many of us in this House see him as being detached from this problem, debonair or otherwise? At the same time, will he realise that his Statement seemed to chide the management and the workforce, and they alone, for what must be a very complex problem, and that that hardly seems sufficient in the circumstances? Will he turn his mind to some of the matters which my noble friend Lord Bruce of Donington raised? What part, if any, was played in these regrettable delays by design changes or other alterations in the requirements of the customer? What part has been played by delays or difficulties in supply by sub-contractors, whether nominated, as my noble friend said, or otherwise? What part, if any, has been played by the difficulties among suppliers? All of these matters are important, and all of them contribute towards something which the noble Lord the Minister has quite rightly recognised as a tragedy. However, in view of the difficulties of the situation will he recognise that, while he says that he blames nobody, he does seem to blame two groups when they may not be entirely to blame?

Lord Cockfield

My Lords, no man is an island entire unto himself, and any tragedy which occurs affects all of us. I do not think that there is any dispute between any of your Lordships on that point. Nobody is attempting to pretend that this situation is not a tragedy. There is a point of difference as to the extent to which the Government ought to intervene in a situation of this kind, but let me not pursue that any further at the present juncture.

The noble Lord raised a number of specific points. I entirely agree with him that they are all important, but they are all points directly related to the litigation which is now in progress, and it would therefore, I fear, be improper for me to comment upon them.

Lord Bruce of Donington

My Lords, I should like to press the noble Lord a little further. When the noble Lord made reference to the breathing space referred to by me, he did not at the same time confirm or deny that it was his right honourable friend who, according to the BBC, said that six weeks remained to consider and settle the matter between the parties. Will the noble Lord confirm or deny that those words, or substantially those words, were used by his right honourable friend? On the assumption that they were used, surely the noble Lord will agree that, notwithstanding the observations he has correctly made about matters sub judice, it would be in order for the Government to assist the two parties to arrive at some agreement during the six weeks which, according to his right honourable friend, remain for the matter to be considered and settled between the parties?

Lord Cockfield

My Lords, I have not seen the text of the statement to which the noble Lord refers, and I would hesitate to make any comment upon it, particularly as one relevant point is when the statement was made. I do not want to go into an excessive degree of detail on this, but the contract provides for notice to be served within a 30-day period. The contract can extend 300 days after the delivery date. Some of the points in issue in the litigation are whether valid notice was served within that 30-day period and whether or not the rig could be completed within the further 300 days allowed under the contract. But we are treading on very thin ice at the moment because the whole of this matter is the subject of litigation, and I really ought not to comment further on the merits or demerits of the arguments being advanced.

Lord Wilson of Langside

My Lords, in that situation, can the Minister tell the House whether any estimate has been made of how prolonged or otherwise this litigation is likely to be, and whether or not any action is open to them to expedite the matter?

Lord Cockfield

My Lords, the answer to the noble and learned Lord's first question is, I fear: No, I do not know how long it will take. The noble and learned Lord himself is well aware—and I have to be very careful—that sometimes the law proceeds with greater speed than it does on other occasions. The Government have no plans, and nor. indeed, are they in any position to intervene in the litigation.