Type 45 Destroyers

HL Deb 10 July 2001 vol 626 cc1050-6

5.45 p.m.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach)

My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend in another place. The Statement is as follows:

"With permission, Mr Speaker, I should like to make a Statement about the procurement strategy for the Type 45 destroyer.

"It is almost a year to the day since I announced to the House the decision to procure the first batch of three Type 45 destroyers as part of a planned class of up to 12 ships. The Type 45s will be the largest and most powerful air defence destroyers ever ordered for the Royal Navy.

"Since that announcement we have made good progress. The contract to complete the design and build of the first three ships was placed with BAe Systems on 20th December last year. Design work is also progressing well. An integrated design team—covering the prime contractor, BAe Systems, and the two shipbuilding companies, BAe Systems Marine and Vosper Thornycroft, has been established at Scotstoun for the past six months. A number of key subcontracts, such as that for the Rolls-Royce WR21 engine and much of the combat system, have now been placed. There have been a number of successful test firings of the Aster missile, the ship's main armament, which is being developed with France and Italy.

"Progress, however, towards the shipbuilding subcontracts has been more challenging. The procurement strategy for the Type 45 was based on the allocation of shipbuilding work for the first three ships between the BAe Systems Marine yard at Barrow and on the Clyde and Vosper Thornycroft. Thereafter, it was assumed that both companies would compete for the assembly of batches of follow-on ships.

"At the end of last year, however, BAe Systems Marine put forward an unsolicited proposal for the construction of all of the Type 45 destroyers. We have been examining this proposal carefully to establish whether it offers better value for money for the taxpayer. We have also called on the services of Rand, a highly respected independent consultancy experienced in this type of issue, to take a fresh look at possible procurement strategies for this programme in the context of the future warship programme as a whole.

"For the current procurement strategy to work, the shipbuilding companies need to work closely together during the development and manufacture of the first batch of ships already on order. Co-operation of this kind has not been encouraged by the existence of the unsolicited proposal or by the prospect of having to compete against each other for the second hatch of ships.

"We have been keen to resolve these problems, as has industry. Working with the companies, we have developed a revised strategy which allocates work on the ships between the two shipbuilders for the whole class of Type 45 destroyers. The first of class ship would be assembled and launched at Scotstoun. The focus of design support to the whole class will remain there, with continuing participation by both shipbuilders. The remaining ships would be assembled and launched at Barrow.

"Vosper Thornycroft at Portsmouth and BAe Systems Marine on the Clyde and at Barrow-in-Furness would both build and outfit substantial sections of each ship. The yards would continue to build the same sections throughout the programme to increase efficiency and produce better value for money for the taxpayer.

"The strategy also involves a commitment now to six ships of the planned class of up to 12 ships, doubling the number on order. This larger volume of guaranteed work and stable foundation to the project will allow industry to make long-term investment decisions.

"Subject to the completion of satisfactory negotiations, I propose to adopt this revised approach. We are confident that we can secure demonstrable value for money through this revised approach. We are seeking demanding efficiency improvements from industry. The initial findings of the Rand study support this new approach. It reflects the best features of the BAe Systems Marine bid in terms of learning from experience from one ship to the next, but also preserves the possibility of competition for a number of subsequent defence programmes. The new strategy gives a welcome level of stability to our warship-building industry and, above all, offers the best prospect of achieving the in-service date for the Type 45 destroyer, with deliveries starting in 2007. Any delay would have significant operational and cost penalties.

"Turning to the companies, this approach gives Vosper Thornycroft a defined and significant role in the Type 45 programme. The company will be able to move its operation, as planned, into the Portsmouth naval base and invest in new shipbuilding facilities there. It also provides a solid foundation from which to sustain its export business and enter competitions for future naval programmes. The company estimates that the substantial level of high quality Type 45 work should sustain a high level of some 650 jobs well into the current decade.

"Type 45 work, together with the first three Astute Class submarines and the order for two Alternative Landing Ships Logistic (ALSL) announced last year, should support BAe Systems Marine shipbuilding for the rest of the decade. Based on the company's own estimates, once the construction programme is up and running, work on Type 45 should sustain a steady level of some 1,200 jobs on the Clyde and around a further 900 jobs at Barrow-in-Furness. I understand that, in the light of this package of work, the company has no plans to close any of its yards.

"This revised procurement strategy for the Type 45 destroyer is a further example of the benefits of smart acquisition, involving an integrated team approach by the key industrial partners. The companies involved welcome this new approach. I commend it to the House".

My Lords, that concludes the Statement.

5.51 p.m.

Lord Burnham

My Lords, I thank the Minister for repeating the Statement of his right honourable friend the Secretary of State. We welcome incontrovertibly the announcement for which the Navy has been waiting for far too long. The latest delay has been from December to July. Perhaps I may ask what, in the event, was the use of having the Rand Corporation's report as we have gone back to square one? However, will that report be put in the Library of the House so that we may see and evaluate it?

In the Statement the Secretary of State, with regard to construction, said: Progress, however, towards the shipbuilding sub-contracts has been more challenging". What that means in English is that they have been unnecessarily delayed. I hope, therefore, that the Government will guarantee that the in-service date will not slip any further from 2007. Originally it was 2002. Can the Government give a cast-iron guarantee, not only of this date but also that the Ministry of Defence will build 12 ships? Having said that, I congratulate British Aerospace and Vosper Thornycroft on finally receiving an order, and I wish them well.

In allocating this contract the Government have abandoned all notion of competition. With the Type 23 this brought about major savings. The current policy is a complete U-turn on government policy over the past four years. In May 2000, Sir Robert Walmsley, Chief of Defence Procurement, told the Defence Select Committee that, competition does in many ways stimulate innovation. We have learned from that and we will insist on competition for the Type 45". He also said that, if we do not compete the follow on production order there will be very little incentive for shipyards to improve their performance". With today's announcement, what incentives is the Minister now putting in place?

Only British Aerospace will assemble and launch the first six ships. What is the estimate of the cost savings of operating in this manner over the lifetime of the programme? It seems to me that these savings will be nil; indeed, there is likely to be an oncost.

Perhaps I may turn to the ships themselves. Can the Minister confirm a number of points with regard to their armaments? First, there is no anti-submarine capability when the Lynx helicopter is not operational. Secondly, the Type 45 cannot carry the Merlin helicopter. There is no platform which will allow it to operate from the Type 45. Thirdly, the Type 45 has no close in-range weapons. It has no system such as Phalanx which one might have expected to see. Fourthly, there is no anti-surface capability such as Harpoon. Fifthly, the Type 45 has no land attack capability.

It would seem, therefore, that this contract adds new meaning to the phrase "built-in obsolescence". However, does this not confirm that the Type 45 cannot defend itself and will need protection? Surely, that must be short-termism and very undesirable. Is this not yet another instance of financial micro-management by the Treasury, saving money in the short term but being in the long term extremely expensive and undesirable?

Having made those criticisms, to which I would be grateful for a reply from the Minister, we wish Vosper Thornycroft and British Aerospace well. I hope that both companies will now be allowed to get on with the job.

5.56 p.m.

Lord Roper

My Lords, we, on these Benches, also welcome the announcement that has been made today. We are glad that progress will now be undertaken.

The announcement is an extremely important one, not only in terms of the size of the order, now up from six to a potential 12 ships of the class—I have a question on that matter in a moment—but also, and perhaps more importantly, on the new approach to procurement which it represents and its implications in the longer term for the whole competitive base of British shipbuilders.

The new approach which has been set out today, as I understand the matter, is that instead of dividing an order by ships and allocating some ships to one yard and others to another, is to section individual ships and allocate certain sections throughout the whole of the class to one yard and others to another yard. That is an important development. As the Minister has said, it will perhaps lead to efficiency gains. It does, however, have serious implications for competition policy and the maintenance of a competitive capacity in this country.

There is a reference in the statement to, preserving the possibility of competition for a number of subsequent defence programmes". That seems to me to be critical. Unless we have more than one lead yard able to tender in the future, how will it be possible for subsequent classes of ships to engage in competition?

I am glad that the Government have had the benefit of the independent report from the Rand Corporation. Like the noble Lord, Lord Burnham, I hope that, subject to questions of commercial confidence, it will be deposited in the Library, or, indeed, published when it is available. Does that report indicate the costs and benefits of the new approach, because there are clearly both? Can the Minister give us the current estimate of the total cost of all 12 ships? Furthermore, can he tell us the estimated amount which will be saved by proceeding with this new approach to ordering?

In view of our recent discussions following a Question from the noble Lord, Lord Chalfont, on ballistic missile defence for individual ships, can the Minister tell us whether any plans are being examined to introduce some missile defence for these extremely valuable and critical vessels?

While recognising that the Type 45 is primarily being acquired for air defence purposes, will there be an option to introduce a land assault cruise missile capability if that is desired? Instead of there being "built-in obsolescence", as referred to by the noble Lord, Lord Burnham, how much built-in flexibility is there, so that during the building period of these ships it may be possible to introduce the appropriate weapon systems?

Finally, how far is the increase from six to 12 vessels, as mentioned in the Statement, contingent on the Government going ahead with the decision to order two aircraft carriers?

6 p.m.

Lord Bach

My Lords, I am grateful to both noble Lords for their support for the Statement. A number of points arise from their questions. I shall not be able to answer them all in the time available. If I do not answer all of the major ones, I shall reply in writing.

I want to make it absolutely clear that the Statement referred to the first six ships and not to the 12 ships. The hope is that in due course there will be 12 ships, but for the moment the Statement refers not to the three ships that were talked about a year ago but to the six that are to be ordered.

I was asked about the Rand report. It is an initial report at this stage. Subject to commercial confidentiality, we see no reason why—the Secretary of State said so in another place earlier today—it should not be placed in the Library of both Houses. Rand has been of considerable assistance. It is an independent organisation and is not attached to any of the interested parties. Overall, its figures support the course the Government have decided to take.

Both noble Lords asked about competition. There is no question of changing policy in this field. What matters always is value for money. In almost every case, competition is the best way of finding value for money. But that is not so in every case. We have come to the judgment, supported by the companies and, I think, by the House, that the way to ensure that these vital ships are built, on time—the first ship in 2007—is to take the course that we have set out. Far from being anti-competitive, there will be keen competition, not least for the two aircraft carriers to which the noble Lord, Lord Roper, referred. There is a precedent for not having strict competition in this field. I need refer only to the Astute submarines that were ordered under the previous government without, as I understand it, a full competitive process. We have to accept that, more often than not, competition is right; but occasionally what we have set out is the better way.

I was asked about the armaments. The noble Lord, Lord Roper, was right. Sometimes in the past there has been a tendency to design ships with too much on at the first stage so that by the time they actually come into service we find that reality has moved on and the situations they have to face have altered. The watchword here is flexibility. While the ships continue to be designed and when the first ones are in service there will be provision for the ships to have different armaments. Indeed, it would be possible to have on the ships provision for land attack missiles. There is immense flexibility. That is the way we want it and that is the way the Navy wants it. That seems eminently sensible.

6.5 p.m.

Lord Wakeham

My Lords, I declare an interest as chairman of Vosper Thornycroft. As a consequence, I have been heavily engaged in these negotiations in recent weeks. I hope the Minister is aware that we at Vosper Thornycroft welcome the announcement. We will do everything we can to make a success of building the ships for the Navy, on time and to budget.

Lord Bach

My Lords, I am extremely grateful to the noble Lord for what he has said. We are also grateful for the part he has played in making sure that I could make the Statement today on behalf of the Government. It has needed both of these eminent companies—both are very important in this field—to have weighed up the advantages and disadvantages for them. We are delighted that they have come to the view that they have. I thank the noble Lord and also his opposite number.

Lord Craig of Radley

My Lords, I welcome the statement that we are to proceed with six ships. It is a pity that we have perhaps lost some momentum by delaying the initial order for the first three ships. I still remain a little unclear on the competitive, or noncompetitive, approach. I shall not quote from the Statement but there appears to be a conflict within it. The Minister attempted to answer the two Front Bench spokesmen, but I wonder whether he can be a little more explicit about the MoD's reasons for deciding against a competitive approach. Normally, competition is the right way. The Minister suggested that there were special reasons in this case. Can he be explicit about what the special reasons were in this case?

Lord Bach

My Lords, I am grateful to the noble and gallant Lord for his welcome to the Statement. I shall do my best to answer his questions. There were difficulties with the strategy that arose from the continued problems that industry was having in finding a co-operative way forward. As the Statement says, the significant cause of the difficulty was the impact on the companies of the approaching competition and the existence of the unsolicited offer from BAe Systems Marine. Those two factors together made it somewhat awkward from time to time for the joint work that was necessary to be completed. All that—this is the real reason why we have come to our view—was endangering the in service date of 2007. Any delay to that date would have not only disappointed the Royal Navy but would have disappointed many people who sense that we need these destroyers to come on line as quickly as possible. For those reasons negotiations were gone into between the various parties in order to ensure that the in service date stayed the same.

It was also important for us that both the companies—BAe Systems Marine and Vosper Thornycroft—continued to play an important part in the future building of warships in this country. In order to achieve that, and in order that there can be competition in the future—perhaps between them and others—it seemed to us sensible, given that we wanted to keep the in service date of 2007, to make the arrangement that we have, which will also have the benefit of ensuring that there is employment for both companies well into this decade. For those various reasons, we decided that this was the best policy to follow. But we could not have followed it if either of the companies had said "no". They said "yes"; and that is why I have made the Statement today.

Earl Attlee

My Lords, I am grateful to the Minister for repeating the Statement and I should remind the House that I have a very peripheral interest. The Statement referred to, substantial sections of each ship". What does that mean? Does this refer to a few compartments of a few hundred tonnes, or does it mean a full longitudinal section of each craft?

As regards helicopters, I understand that the Type 45 destroyer will not be able to accommodate the Merlin helicopter. That strikes me as, first, rather a weakness of the ship. Secondly, we know that it will not be possible to bid competitively for subsequent batches of Type 45 destroyers. If, later on, a decision is made that it is essential that Type 45 destroyers should be able to take the Merlin helicopter, that will result in major modifications being made to the ship. However, we shall not be able to use the benefits of competitive tendering for that modification.

Finally, it is worth noting that the first of the class is to be built at the Scotstoun yard, which is a traditional yard and is not covered, whereas the yards at Woolston and Barrow-in-Furness are covered. How will construction be undertaken in the winter? Is the construction to follow the lines of traditional shipbuilding or will it follow a high-tech line?

Lord Bach

My Lords, we are confident that the first class of craft built at Scotstoun will not only be completed on time, but also will be well put together. We have no doubt about that. That was, of course, part of the policy as set out at this time last year. So far as concerns helicopters, in due course there may well be a facility for Merlin helicopters on these ships.