1. PROGRAMMES DEPENDENT ON BISOPTON—COMPARISON OF LISTS

  1.1 The Committee asked for clarification of why the lists of projects dependent on Bishopton provided by the Trade Unions and by British Aerospace were different to the list provided by the MoD. The committee asked for details of all current contracts with Royal Ordnance. The tables provided at Annexes A and B to the MoD Memorandum of 15 February, therefore, showed the MoD prime contracts that are currently in place with Royal Ordnance, together with details, where these are known, of significant current sub-contracts which have been placed with the company by other prime contractors. This information was checked against data provided by Royal Ordnance.

  1.2 The information provided by the Unions and by British Aerospace is consistent with that included in the Ministry of Defence memorandum. There are differences in presentation, and the Union and British Aerospace tables list separately several elements which are included in the MoD list under a single contract entry. The Union and British Aerospace tables also include some programmes where the Ministry of Defence no longer has a requirement and, accordingly, where no contract is currently in place, and some potential requirements which are still at the planning stage and where the Ministry of Defence has, therefore, taken no decision whether to procure such equipment.

  1.3 The table attached at Annex A shows, for each of the programmes identified by the Unions and British Aerospace, whether or not the programme is included in the memorandum and, if not, provides an explanation as to why it has been excluded. It also indicates where Royal Ordnance Bishopton is involved with these contracts.

2. WEAPON SYSTEMS AND AMMUNITION CURRENTLY IN USE OR IN PROSPECT THAT WOULD ORDINARILY BE PRODUCED AT BISHOPTON

  2.1 Royal Ordinance Bishopton manufactures multi base propellant, which is used in the production of ammunition charges, rocket motors, and aircraft assisted escape systems, such as ejector seat cartridges. Bishopton has, historically, been significantly involved in the manufacture of a range of artillery and tank ammunition charges. However, many of these products are now no longer required because the equipment to which they relate has been taken out of service or because the ammunition natures themselves are now obsolescent.

  2.2 Against this background, the number of future programmes which might have involved Bishopton had it remained open beyond 2000, is limited. Including the three programmes already notified to the Committee, the Naval 4.5" gun ammunition, Seawolf Block 2, and Challenger 2 training round ammunition, we identified 23 possible future programmes which, provided Royal Ordnance won the relevant MOD competition or were selected as a sub-contractor by another company bidding to meet the requirement, might have involved Bishopton as a supplier of propellant. These include future programmes for tank, mortar, medium calibre and small calibre ammunition, rocket motors, and aircraft assisted escape system charges. Many of these possible programmes are at the initial planning stage and have no funding or approval. There is, therefore, no guarantee that these projects will reach production, or that, with competition, any associated contracts would be awarded to Royal Ordnance. It would not be appropriate to release details of possible future programmes in advance of them being formally endorsed and funded.

3. PROPELLANT TECHNOLOGY AT DERA

  3.1 During his evidence to the Committee on RO Bishopton and related matters, Lord Gilbert offered to provide a note on propellant technology at DERA comparing the current level of effort with that of 10 or so years ago.

  3.2 DERA manpower data is not necessarily attributable to specific technologies. Much of the research on energetic materials is generic in nature and can be applied to explosives, propellants and pyrotechnics, covering both gun and rocket systems. However, current DERA staff effort attributable to applied research is estimated at 4.5 people working on propellants, approximately 3.0 people on gun propelling charge systems and 1.5 people on rocket propellant. Work is concentrated on the following areas:

(i)  Insensitive compositions for next generation gun propelling charges.

(ii)  Higher density charge systems and low temperature coefficient propellants for greater overall gun performance.

  Work on both these areas has been in collaboration with Royal Ordnance.

(iii)  A small level of effort on hybrid gel and liquid propellant motors.

  3.3 Corresponding DERA staff effort on longer term propellant research consists of three people studying technology potentially applicable to successor gun and rocket systems. Much of this work is collaborative with industry, primarily Royal Ordnance.

  3.4 Ten years ago, the corresponding figures would have been a total of about 8-10 people on gun propelling charge systems and about two people on solid rocket propellants. These latter figures appear low because, as a result of a decision some 12 year ago, most in-house effort and funding was transferred to Royal Ordnance, who at the time formed an integral part of the research team with the then Royal Armaments Research and Defence Establishment, RARDE.

  3.5 DERA carries out no development, as opposed to research, work on propellants, except work under contract to companies such as Royal Ordnance, although there is none at present.

4. REQUALIFICATION COSTS WHICH WOULD BE INCURRED BY MOD AS A RESULT OF THE CLOSURE OF RO BISHOPTON

  4.1 As explained in the MoD Memorandum of 15 February, and again in Lord Gilbert's evidence to the Committee, the calculation of the premium of £20 million for MoD to keep Royal Ordnance Bishopton open, included a number of elements. These were the extra costs of directing work on the Modular Charge System, and the Challenger 2 training round, *** to Royal Ordnance, offset by net requalification costs, *** which MoD would incur if Bishopton closed. This calculation was based on information from Royal Ordnance about the work required to retain 150 jobs at Bishopton in the short term and MoD's own assessment of the requalification costs which it would incur if Bishopton closed. The extra cost of directing work on the Modular Charge System contract to Bishopton was calculated by Somchem and agreed by Royal Ordnance.

  4.2 MoD estimated the *** premium for the Challenger 2 training round, based on indicative prices for this work provided by industry in 1996. *** Without competition this would undoubtedly be higher. The requalification costs were estimated following careful examination of MoD's forward procurement plans using typical costs of similar procurements.

  4.3 MoD considers these calculations conservative and is confident that they represent the minimum initial premium. Looking further ahead is more speculative, but, if Royal Ordnance requires further work to be directed to Bishopton to preserve the factory for the longer term, the size of the premium to MoD would increase.

  4.4 The Committee asked for additional information on requalification costs. Ordnance Board regulations require all ammunition to be qualified as safe and suitable for Service use. This encompasses qualification costs for new products and requalification costs for existing products. The costs for new products do not impact on the calculation of the premium, because MoD would incur such costs regardless of whether Bishopton was involved in the manufacture. Where an open competition is conducted, any necessary requalification costs are subsumed into the bids. For existing products, the prices of items currently under contract are already set and any requalification costs would, therefore, fall to the contractor, including where Bishopton is a sub-contractor. Furthermore, existing products which have not been manufactured recently at Bishopton would incur requalification costs for repeat orders, whether they were manufactured at Bishopton or not. Therefore, additional requalification costs as a result of Bishopton closing only have an impact on the calculation of the premium where MoD expects to order a product which has been previously qualified at Bishopton and where recent production has taken place.

  4.5 The only planned procurements identified by MoD which fell into this latter category were Sea Wolf rocket motors and the Naval 4.5" Extended Range Round. Royal Ordnance had already announced that the rocket motor facility would close even if Bishopton stayed open, so the *** requalification cost associated with Sea Wolf would be incurred regardless of what happened to Bishopton and did not, therefore, have an effect on the net cost. The requalification cost for the 4.5" ammunition was estimated at *** resulting in a net figure of *** which was deducted from the cost of directing MCS and Challenger 2 training round work to Bishopton, *** giving a net premium of ***, which we are quoting publicly as £20 million. In keeping with the conservative nature of these costings, MoD considers the *** estimate to be the highest likely requalification cost, taking account of the type of the round.

  4.6 As the Committee is aware, the MoD is reviewing ammunition stockholdings. However, as explained above, in the great majority of cases requalification costs are either unavoidable or do not arise for MoD, whether Bishopton remains open or not. Therefore, increasing stockholdings would not help MoD avoid requalification costs. A table is attached at Annex B showing existing products where a future buy is possible, and which would require requalification because of Bishopton closing.

5. INDUSTRIAL PARTICIPATION AGREEMENT BETWEEN MOD AND DENEL FOR THE ERO/MCS CONTRACT

  5.1 The Industrial Participation, IP, arrangement agreed with Denel is for 100 per cent of the value of their contract. IP arrangements usually comprise a proportion of direct IP, work to be carried out specifically on the MoD contract, and indirect IP, which is formed of other defence work to be placed in the UK. Together the direct and indirect elements amount to 100 per cent of the value of the MoD procurement contract. The agreement reached with Denel does not specify the proportion of direct or indirect IP. When the final contract negotiations are complete, further discussions will take place to establish the final composition of the IP package. Regardless of the result of these discussions, the total amount of IP offered will remain at 100 per cent.

  5.3 In advance of the signature of the contract, Denel has already started to place work in the UK which qualfies as indirect IP and will count against the obligation resulting from the agreement. In addition, there is an informal agreement between MoD and Armscor of South Africa to abate the remainder of the Denel IP obligation against some of the IP obligations incurred by UK companies that have won work through the UK/RSA Strategic Defence Equipment Partnership, thereby reducing the amount of work that these companies would need to transfer to South Africa.

WAR STOCKS

  The Committee also posed a number of questions on the policy and plans on War Stocks for tank and artillery ammunition. The answers to each specific question are set out below.

6. What are tank and artillery ammunition war stockpile requirements and what is the basis on which these figures are calculated, differentiating between NATO requirements and UK national requirements? What are the differences, if any, in stockpile requirements for NATO-standard ammunitions and national items like Challenger 2 ammunition?

  6.1 The Army currently has a tank and artillery ammunition war stockpile requirement of *** and *** rounds respectively. These figures are derived using a level-of-effort methodology using the assumptions set out below. These assumptions were derived from operational analysis which calculated the amount of ammunition expended across the battlefield; these figures were then averaged out over the number of tank/artillery pieces on the battlefield to give an average number of rounds expended per equipment per day. The various types of ammunition are each used for different purposes and holdings are balanced to ensure we have the optimum mix. This also takes into account the relative effectiveness of each type for its intended purpose; ***

Ammunition type	Number of equipments	Usage rate (30 days)	Requirement
***	***	***	***
***	***	***	***
Tank total			***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
Artillery total			***

  6.2 These assumptions are consistent with generic NATO stockpile planning guidance. SPG, rates issued to all NATO members. As the Army does not declare all its manpower and equipment for NATO use, however, the NATO stockpile requirement is, in total, less than the national requirement.

7. Has any simulation or war-gaming work been undertaken since the Gulf War to test the robustness of UK tank and artillery ammunition stockpile requirements, and what were the results?

  7.1 Simulation and war-gaming work are currently being undertaken both nationally and by NATO as part of our operational analysis into tank and artillery stockpile requirements. The results of this work are not yet available.

8. What changes to the UK tank and artillery ammunition war stockpile requirements, if any, have been made as a result of the Strategic Defence Review?

  8.1 No changes have yet been made to UK tank and artillery ammunition stockpile requirements as a result of the Strategic Defence Review. Work has been set in hand, however, to review MOD stockpile planning guidance and current holdings to ensure that they are consistent with the outcome of the SDR. This work is due to conclude towards the end of this year.

9. What are actual holdings of such ammunition (expressed in terms that are comparable to the UK's war stock requirement), giving a broad indication of the locations involved (e.g., in the UK, in Germany, elsewhere)?

  9.1 Actual holdings of tank and artillery ammunition are rounds against current liabilities of *** and ***

  9.2 The overprovision of tank ammunition is largely attributable to the reduction in the overall size of the tank fleet since Options for Change. Action is in hand to eliminate the shortfall in the artillery stockpile, and this will be reviewed once new stockpile figures are confirmed.

  9.3 Most stocks are held *** with some forward holdings in support of training, for example in Canada, and in current theatres of operations, such as Bosnia and Kosovo.

10. What studies are underway within the MoD, or funded by the MoD, into tank and artillery ammunition requirements for future warfare scenarios (such as those envisaged under the Revolution in Military Affairs), and what preliminary conclusions can be drawn from these?

  10.1 The study referred to at paragraph 8.1 above will test ammunition requirements for future warfare scenarios through combat modelling. Operational analysis is now underway but initial results will not be complete until May at the earliest. These results will need to be validated and merged with other aspects of the work before the final conclusion of the study at the end of the year. Early indications are that, in future, the stockpile balance ought to shift towards holding more "smart" precision munitions.

11. What is the MoD's view on the importance of ammunition and propellant with low barrel wear characteristics in the sorts of military operations, which it is envisaged are likely to occur in the future?

  11.1 Low barrel wear, helps maintain consistent weapon performance. On operations, it can also reduce the logistic burden by obviating the need for barrel changes in theatre. In the case of the Extended Range Ordnance/Modular Charge System programme, the Somchem product is assessed as delivering the required capability more cost effectively than any of the alterative solutions.