HC Deb 31 January 2001 vol 362 cc184-5W
Mr. Hancock

To ask the Secretary of State for Defence (1), pursuant to his answer of 21 December 2000,Official Report, column 249W, on Type 45 destroyers, if the DFM contract resolves conflicts between (a) the prime contractor's incentives to deliver the first batch at a price below the maximum price, (b) the additional cost of employing two yards to design and assemble the first three ships and (c) an unsolicited proposal from BAE Systems Marine for sole sourcing of the assembly of the Type 45 ships; and if he will make a statement; [147531]

(2) pursuant to his answer of 21 December 2000, Official Report, column 248W, on the Type 45 destroyer, what incentives there are in the DFM contract for BAE Systems Electronics to deliver below the maximum price; and if he will make a statement. [147528]

Mr. Hoon

This is a matter for the Chief Executive of the Defence Procurement Agency. I have asked the Chief Executive to write to the hon. Member.

Letter from Sir Robert Walmsley to Mr. Mike Hancock, dated 31 January 2001: I am replying to your questions to the Secretary of State for Defence about the Type 45 Destroyer Demonstration and First of Class Manufacture (DFM) contract. This matter falls to me to answer within my area of responsibility as Chief of Defence Procurement and Chief Executive of the Defence Procurement Agency. The DFM contract has a successive target arrangement which incentivises the Prime Contractor to deliver below the maximum price by increasing the profit he can earn as his costs decrease. This contract does not envisage an alternative procurement strategy or the unsolicited bid. The pricing of this contract matches the existing procurement strategy, in which there is an integrated project design team composed of personnel from Vosper Thornycroft and BAE Systems Marine, with work on the first three ships distributed among the two companies. Although it could be argued that there is some additional cost for the first three ships inherent in this strategy. we believe this to be easily outweighed by the benefits of subsequent competition for which it provides. Any alternative procurement strategy would have to be judged against these broader criteria, not just the price of the DFM contract. Any change to the procurement strategy would need to be approved by the Ministry of Defence and would require the contract to be re-negotiated.