§ The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach)
My right honourable friend the Secretary of State for Defence (Geoffrey Hoon) has made the following Written Ministerial Statement.
I announced yesterday the selection of Kellogg Brown and Root (UK) Ltd (KBR) as the preferred physical integrator for the future aircraft carrier (CVF) project. I am now able to provide further details.
The CVF alliance is based on best practice for the delivery of complex and major programmes in the commercial sector, including construction, oil and gas. Construction of the two biggest warships ever built in the UK is a massively complex project and a formidable challenge for British industry in both technical and managerial terms. Previous investigations have shown that no single company or shipbuilding facility in the UK has the skills or capacity to build the two ships on its own. The carriers will therefore need to be constructed at a number of different sites before transportation to a final integration facility; building and integrating them represents a major challenge which requires special project management skills. In discussion with our current alliance participants, BAE Systems and Thales UK, it was agreed that there was a need to appoint a company—as a risk bearing member of the alliance—to strengthen our approach and introduce innovation to the manufacturing phase. This role has been termed the physical integrator (PI).
We will develop the precise role and responsibility of the PI in consultation with all alliance participants over the coming months—an approach that is consistent with alliancing best practice where each participant's work scope is agreed by the alliance to ensure that work is allocated to the company best able to deliver it in the most cost-effective manner. In broad terms, however, we anticipate that the preferred PI will be involved in developing the build strategy for the carriers.
We put in place a robust competitive exercise to select the preferred PI. A shortlist was produced of candidate companies likely to have the necessary skills and experience to undertake the PI role—Alstom Marine, AMEC, BAE Systems Naval Ships, Bechtel(UK), Kellogg Brown and Root Ltd and Vosper Thornycroft. The requests for proposals issued to the companies in September 2004 set out our general requirements, the submission process and the evaluation criteria. A robust process was used to evaluate the proposals submitted. Each company was required to demonstrate its competence in a wide variety of areas including: successful delivery of projects that had demanding time, 26WS cost and performance targets; an ability to innovate to ensure that all opportunities for greater value for money could be addressed; and to demonstrate a breadth and depth of capability and capacity to manage complex programmes.
The result of the evaluation determined that Kellogg Brown and Root Ltd was the strongest candidate. Kellogg Brown and Root is an established UK-based company which has demonstrated a proven track record of delivering bespoke, geographically spread and logistically complex construction projects; it also has experience of delivering UK MoD projects such as CONLOG, the heavy equipment transporters and temporarily deployable accommodation that were successfully used during Operation TELIC. Kellogg Brown and Root Ltd will also bring extensive experience of alliances from other sectors including oil and gas and infrastructure.
CVF represents a vast programme of work and overall should create or sustain up to 10,000 jobs in the UK. Kellogg Brown and Root Ltd is likely to build up to a 50 to 60 strong team during the assessment phase, largely comprising existing members of that company who have off-shore experience. No final decision has been taken on build strategy but we still anticipate that, subject to value for money, the carriers will potentially be built by a combination of the four shipyards named in January 2003—BAE Systems Naval Ships at Govan. VT at Portsmouth, Swan Hunter on Tyneside and Babcock BES at Rosyth. We would stress that decisions relating to the build strategy will be taken by the PI and the alliance as a whole— including BAE and Thales UK—with the customer, i.e. the Ministry of Defence retaining a final veto.
Bringing the preferred PI into the CVF alliance before the main investment decision is a sensible de-risking measure that will facilitate the formulation of the optimum approach to the ship build of the carriers. Kellogg Brown and Root Ltd will liaise with other alliance participants and work with all potential shipyards and other manufacturing facilities to propose a cost-effective approach to the manufacture of the vessels. This strategy will need to be agreed by all alliance participants including, ultimately, the Ministry of Defence. The MoD, as client, will retain the right to have the final say on all work allocation and selection decisions. Like all other alliance participants, Kellogg Brown and Root Ltd will need to demonstrate satisfactory performance and appropriate alliancing behaviour throughout its appointment. We will now discuss the scope and value with the company before awarding an initial contract to KBR for assessment phase work, which is expected to be of a value of around £5 million. This represents a firm commitment to the alliance approach for delivering the carriers and is an important step forward both for the programme and the CVF alliance.27WS
We will continue to engage with our industrial participants over the coming months as we meld the PI role into the alliance, and the detailed role and responsibilities of all parties are agreed. We are confident that this is the correct decision and remain committed to the alliance approach, which represents the best route for providing our Armed Forces with the equipment promised to them by our target in-service dates of 2012 and 2015. We also remain fully committed to an approach which delivers maximum benefits for UK industry.