Armed Forces Bill

Lord Tunnicliffe Excerpts

Thursday 3rd March 2016 Grand Committee

[Earl Attlee (Con)]

My Lords, I share the concerns of the noble and gallant Lord, Lord Craig. I am particularly concerned about putting retired servicemen in the frame again after there has been a judicial inquiry. It might be that a subsequent judicial inquiry comes to a different conclusion, but once you have had a judicial inquiry and no prosecutions have arisen, servicemen ought to be able to carry on with their duties, retire and not worry about further legal action; they should not be worrying about further legal action for the rest of their natural lives. I very much support the general thrust of his amendment, therefore, but perhaps it needs some more tests—in particular, in relation to the case we are obviously talking about but not mentioning, that there has been a judicial inquiry.

[Lord Tunnicliffe (Lab)]

My Lords, we recognise that there is an issue in this area, but, according to my understanding of the law, this is not the way to address it. As I understand the application of the law to service personnel, they come under both the military law—the 2006 Act—and the general law of the land. This is not generally a problem, as, by arrangement between the two authorities, a decision will be taken about which law someone is prosecuted under.

I understand—I may not be right—that there are statute of limitation provisions in service law but no significant statute of limitations in English criminal law. There is a considerable statute of limitations in civil claims—a great big schedule—but the application of a statute of limitations in criminal law is limited to summary offences only. In practice, from my brief research this morning, that generally seems to mean motoring offences in magistrates’ courts. To introduce a limitation of this magnitude into the normal body of English law, which is what we would be doing, would be a radical change, and I do not believe the Bill is the right vehicle to introduce such a radical change for one narrow purpose.

Many would argue that we should rethink the whole issue and that the prosecution of historical cases is not sound. The only time I have been in court as a witness, my evidence was useless, because it referred to things that had happened at a meeting—one of about 400 I would have had that year—six years before. I was asked for precise details, and my standard, and absolutely honest, answer was, “I cannot recall”. I have trouble remembering most of the details of last week, never mind 10 years ago. So there is a real evidential case for looking at that issue.

Nevertheless, public opinion is, in many ways, the very opposite at the moment. In many ways, public opinion, particularly in the sexual cases coming before the courts at the moment, is in favour of pursuing historical cases—in one case related to this House, even after the death of the supposed perpetrator. There is a real tension between public opinion and the whole “old evidence” issue, which I think has some validity and which I suspect wider society will need to debate in the years to come.

In our view, a change as radical as this—as I understand it—for such a narrow purpose should not be in the Bill and should not go forward without wide public discussion and analysis and a recognition that it would have to flow right through criminal law. It cannot realistically be related to this single, narrow area.

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[Earl Howe]

My Lords, I can confirm to the noble Lord, Lord Empey, that IHAT—as it is known—will be in place until at least 2019 under our current plans.

[Lord Tunnicliffe]

The noble Earl seemed to say something fairly profound there about support for service personnel who may come under investigation in the Iraq cases et cetera, and about legal and historic pastoral support. Could he flesh that out, particularly the extent of legal support that he sees being provided? I recognise that might require a somewhat delicate answer so a written response could be more appropriate.

[Earl Howe]

I shall be happy to write to the noble Lord with further and better particulars on that issue. I add to the noble Lord, Lord Empey, that the aim of the Iraq Historic Allegations Team is to try to compete the majority of its investigations by the end of 2017. The team believes that that is within its grasp, although it may slip. I hope that is helpful as an indication of the timescale to which it is working.

[Lord Tunnicliffe]

Following the precedent of other Bills, when the Minister writes to me could he copy in any other noble Lord who has participated in the debate?

[Earl Howe]

I shall be glad to do so.

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[The Earl of Dundee (Con)]

My Lords, I support the amendment moved by the noble Lord, Lord Judd, and the noble Baroness, Lady Jones of Moulsecoomb, who cannot be here today. Indeed, they might possibly have advocated discontinuation straightaway. As the noble Lord pointed out, in advancing a strong argument, there is a good case for no longer enlisting 16 and 17-year-olds into the Armed Forces. Most other countries would agree. Indeed, as he has also reminded us, Britain is the only country in Europe, and the sole member of the United Nations Security Council, that enlists 16 and 17-year-olds, yet the amendment provides that we should decide what to do after building up our own proper evidence, such as would accumulate through systematic annual reports produced by the Secretary of State. This balanced approach is commendable, and consequently the amendment is all the more compelling.

However, along with what is proposed, and provided that the discontinuation of enlisting minors were to be supported by further evidence, as envisaged, I wonder if my noble friend the Minister, together with the noble Lord, Lord Judd, might connect a time structure within which the Secretary of State could decide about abolition. In due course, as a result, evidence-based abolition might then ensue, without unnecessary delay or procrastination.

[Lord Tunnicliffe]

My Lords, the amendment from my noble friend Lord Judd is clearly designed to cover the general issue of the recruitment of 16 and 17-year-olds into the Armed Forces. It is worth reflecting on the history in this country of young people in the Armed Forces. In the 19th century, two young men—aged 15, I think—received Victoria Crosses. I have no doubt that on 30 May, my noble friend Admiral Lord West will find some way of reminding us that it is the 100th anniversary of the Battle of Jutland, at which, famously, a young person, Jack Cornwell, Boy 1st Class, won the Victoria Cross at the age of just 16. So before discussing the present terms of recruitment, we must remember that in the past young recruits have played a brave part in the history of our Armed Forces.

Things have changed, however; nobody would suggest it is other than absolutely right that things have changed. In terms of how we represent ourselves to the world, these young people, the terms and conditions, and so on, we must take a thoroughly modern approach. I hope that the approach being taken by Her Majesty’s Armed Forces is satisfactory, but this is an appropriate occasion to test those conditions and receive, I hope, assurances from the Minister. He has helpfully sent us an email, which I will quote from, and I hope he will read those assurances into the record. In his email, he makes a number of points, but I will quote the key ones:

“No-one under the age of 18 can join the Armed Forces without formal parental consent, which is checked twice during the application process … Service personnel under the age of 18 are not deployed on any operation outside the UK except where the operation does not involve personnel becoming engaged in, or exposed to, hostilities”.

The third important point is:

“All recruits aged under 18 are enrolled onto apprenticeships”.

Obviously, it would be useful if that could be fleshed out a little more. The next point is:

“All Service personnel have a statutory right to claim discharge up to their 18th birthday, and the right of discharge is made clear to all Service personnel on joining the Armed Forces”.

Given those assurances, we continue generally to support the recruitment of young people into the Armed Forces. We think it has the potential to provide a good grounding for their future career and life in general.

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[Earl Attlee]

My Lords, I shall speak also to Amendments 19 and 20. This group of amendments explores when a reservist and, in some cases, a regular is or is not on duty, is subject to military law and can be expected to be supported by the MoD. When the Minister has replied, I hope the Committee will have a much clearer understanding of the position.

For most of my active years in the TA—now the Army Reserve—my understanding, and certainly my ethos, was that I was subject to service discipline for the full 24-hour period for which I was to be paid. This applied to both my commissioned and my non-commissioned service. On a Saturday morning, I might be in bed until 0600 hours; I might not be on parade until 0800 hours; work on military activities might finish at 1800 hours; and we might be engaged in social activities, on or off defence premises, at 2200 hours. I am absolutely certain that our ethos was that we were subject to service law all the time and that the chain of command was effective. This state of affairs did not seem to deter anyone from joining the TA, even if they were aware, nor did it encourage anyone to leave. Indeed, a reserve unit is a safe place precisely because there is an effective chain of command, with someone in charge all the time.

Nowadays there seems to be some doubt or uncertainty. Now it is being suggested that reservists are not subject to service law after dismissal parade, even though they are still on defence premises. It seems most odd that one would want to collapse the system of command, control, good order and military discipline at some artificial and very uncertain point in the day, which may also have to be moved back at a later point for some good reason.

There is also uncertainty for reservists when travelling to and from their place of duty. It now appears that they are not under service law at that point, but what happens if some reservists are acting in a way that would tend to bring their service into disrepute, but not so badly as to interest the civil police? If an officer, senior NCO or service policeman chanced upon the incident, they could not take any action because the reservist would not be under service law. In this case of any insubordination to a regular or reserve officer, nothing could be done. One of my amendments calls for a defence instruction and notice—a DIN—on the issue, but the Minister can start by explaining the situation to the Committee and telling us exactly when a reservist is or is not on duty. I am sure that is his intention.

My other amendments deal with the related issue about duty, which is about self-tasking in a range of emergencies. The first point for the Committee to understand is that ordinary service personnel never have the powers of a police constable or a firefighter. There is no need and that is not the role of the Armed Forces, but I and a very large proportion of the Armed Forces, both regular and reserve, are hard-wired to intervene in any form of emergency. The most obvious example is any form of transport accident. We would not fail to prevent an emergency situation deteriorating until the emergency services arrive, and we would do all we can to preserve life and limb, and to promote recovery. However, we are trained to assess risk and not become casualties ourselves. Officers and senior NCOs can exercise a fair amount of command and control just through leadership and personality. More junior personnel will find that they can often be far more effective and willing if they are in uniform.

None of this will be a surprise to the Committee, but what happens if there is not a happy outcome arising from the resolute actions of the serviceperson, whether he is a reservist off duty or a regular serviceperson off duty? I will not weary the Committee with a scenario, but perhaps there is some legal issue despite the serviceperson being compliant with the terms of my amendment. My understanding is that if the serviceperson is not on duty, they are on their own. Of course, various press offices in the MoD will lap up any easy and good news stories, so can my noble friend the Minister confirm to the Committee that, in a civil emergency, a self-tasking, off-duty serviceperson is on his own and there will be no “big firm” back-up from the MoD?

My next amendment is closely related to being on duty. The Committee will recall the failed terrorist attack on a train in France near Arras last summer. The attacker was heavily armed with automatic weapons, but there were no fatalities thanks to the very courageous actions of two off-duty US servicemen who disarmed him. It is important to understand that they could have been killed. They did what we expected them to; they certainly did not wait for any orders or rules of engagement. This type of attack is not a hostage situation, where the tactics would be to drag out the situation and try to make friends with the hostage-taker if at all possible. In this case, it is necessary to destroy or defeat the attacker in the shortest possible time to minimise the overall number of civilian casualties. Such an incident is likely to be particularly messy. The amendment is designed to ensure that a serviceperson who is self-tasked in such a situation is on duty, and in the aftermath will be supported by the MoD and HMG in the same way as if they were on a conventional operation.

It would also ensure that he or she knows that the law recognises in this particular situation that there may be collateral damage. I am not suggesting that the proportionality test of the law of armed conflict can be ignored; it certainly cannot.

The counter to my amendment is that it is not necessary because the law already allows for it. That may be the case but why should a serviceperson who has acted courageously and skilfully be put through all the worry? If the worst happens and they are killed, will the pension arrangements and death-in-service benefits be any different from if they were on duty in the normal way? In such a situation, would it not be better for the serviceperson, self-tasking in such a matter, to be considering military matters, such as estimating the number of rounds fired by the attacker rather than worrying about his or her legal position? I beg to move.

[Lord Tunnicliffe]

My Lords, on Amendment 18, which seeks clarity, we have nothing to add and look forward to the Minister’s response.

Amendments 19 and 20 seem to want to create an individual who is, in terms of rights and indemnities, somewhere between a citizen and a constable, or perhaps a firefighter. That would be a significant new piece of law. It would have to be accompanied by a significant portfolio of training in the management of risk to self and collateral damage. It seems to me that we would end up with the implication that the MoD had some sort of duty of care to make sure that the individual was equipped to behave in some way differently from a citizen, and we would end up in some area of certification whereby individuals would have to be seen to be competent not only in their straightforward military duties but in this self-tasking. There could be almost a proliferation of miniature armies among the citizenry.

I find it difficult to believe—I may be persuaded otherwise—that the complexities and costs of such a concept would justify the benefits. If the Government were to come forward with such a proposal, that would be a different matter. I would expect to see a body of research that looked into the various scenarios in which it might apply. I would expect that research to include an analysis of unintended consequences and how the appropriate ancillary rules would support those consequences, and I would expect extensive consultation. If such a concept were to come forward from the Government, accompanied by that level of analysis and consultation, of course we would have an open mind and treat it on its merits. Introducing such a powerful, new legal concept through an amendment to the Bill is not something we feel we can support.

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I hope, on that basis, that the noble Lord, Lord West, will feel able to withdraw his amendment.

[Lord Tunnicliffe]

The Minister mentioned necessary legislative changes. Is it the Government’s intention to use the Bill as a vehicle?

[Earl Howe]

My Lords, my understanding is that this can be done by secondary legislation.

Armed Forces Bill

Lord Tunnicliffe Excerpts

Tuesday 1st March 2016 Grand Committee

[Earl Attlee (Con)]

My Lords, I remind the Committee that I still have an interest as I will be commissioned until October, when I have to retire.

At Second Reading, the noble Lord, Lord Thomas of Gresford, suggested that we needed to look at the composition and operation of the court martial. The Minister said that it would be a big change to alter these arrangements. However, that is why we have a quinquennial review. The MoD can quite easily change the court martial rules but bigger changes are a matter for us in Parliament.

One of the problems we have with some of the suggestions from the noble Lord, Lord Thomas of Gresford, is that we have very little idea of how either a civil jury or a court martial board works because research is illegal, except for certain criminal investigations. Therefore, the Minister cannot prove that the system is as good as we can make it, and the noble Lord, Lord Thomas of Gresford, cannot show that it is defective—we do not know how the system operates. The difficulty is particularly relevant to the noble Lord’s amendment on majority verdicts. The Committee needs to remember that the board of a court martial is not a jury; it is composed of officers and warrant officers superior in rank to the defendant. My Amendment 11 proposes to permit closely controlled research into how the board works. I envisage that this would take place soon after all normal appeal rights had been exhausted or were time-expired. Members of the board would not be told in advance that they would be contributing to the research, and there would have to be numerous other protections.

In Amendment 1, the noble Lord, Lord Thomas, proposes that the board of a court martial be composed of “all ranks”. Presumably, if the amended is accepted, court martial boards would provide that members must be at least one rank superior to the accused. Interestingly, I do not have a problem with his proposal, provided that the noble Lord recognises that he is moving away from a very select panel who have already been chosen as officers and warrant officers on the basis of a whole range of qualities that other ranks do not necessarily possess. If he wants to do that, I think we will need a military jury of 12. They will still understand the military context, which is surely the reason we have a military court martial, and the increased number I am suggesting would make up for any reduction in intellectual horsepower. I would suggest that on average a military jury could be of better quality and more suited to these cases than a civilian one, and therefore an all-ranks military jury could be just as reliable as a civil jury.

However, there are some snags. I suspect that the noble Lord feels that an all-ranks board would be more forgiving and understanding. I am not convinced. For instance, I fear that an all-ranks board could be swayed by the accused appearing to be a rotten soldier when military jury members are sure that they are not. The officers on the board of a court martial would put that to one side and study it with much more intellectual rigour. I suspect that the noble Lord would still have some officers on the board or the jury, but I cannot really envisage a junior NCO asking searching questions to test an officer’s position on a case, even though a large proportion would undoubtedly be able to do so. A warrant officer certainly would, which is why we already have them on the board.

Finally I turn to the noble Lord’s amendment concerning who determines the sentence. If we went for a military jury of 12, this would be merely a consequential change. Again, I suspect that the noble Lord, Lord Thomas, believes that the judge advocate would be more lenient. I have to tell the Committee that I have heard, although I should not have, that on one occasion the board of a court martial in Germany dealing with an assault case regretted not being able to consider a not-guilty verdict because the accused pleaded guilty. Nevertheless, the judge advocate was recommending quite severe penalties which the board had to resist strongly. In any case, complex though the matters are, the judge advocate tells the members of the board of the court martial what their options are. The sentence is internally reviewed and the case can then be taken to the court martial appeals court, so it is not clear to me what can go wrong.

Lastly, I do not have a view on the noble Lord’s suggestions about which offences should be triable only in a civilian court.

[Lord Tunnicliffe (Lab)]

My Lords, the first two groups for debate today discuss the generality of military law. The first group relates to how an individual is found guilty and sentenced, while the second group deals with the extent and scope of the body of military law. I make the point because I take a very different view about the extent to which we should consider changing the two groups, and hence these groups of amendments. We will come on to debate the second group, but I approach the first group from the point of view of the rights of the citizen who, as a member of the Armed Forces, has become the accused. I find the arguments put forward by the noble Lord, Lord Thomas of Gresford, persuasive. With that individual having committed an offence and gone into a process which is now so analogous to that of a civil court, I find quite strong the idea that the individual should have the right to a trial that is analogous to that in a civil court.

The amendments before us would, first, create more of a jury of the individual’s peers and, secondly, produce a voting system that is much closer to that of a Crown Court, which seeks unanimity. The proposals put by the noble Lord, Lord Thomas, are close to unanimity in their form. The reforms the noble Lord is suggesting would mean that the rights of the individual who has been accused would become increasingly similar to those of a normal civilian in a criminal case. Since 2006 we have developed the three bodies of law, brought them together and introduced civilian best practice—there is probably a better way of putting that, but it is essentially what we have done—so I find this next step very attractive.

As an alternative or as a supplement, the noble Earl, Lord Attlee, has suggested a minimum number of 12 on the board. That is an interesting suggestion which again is in step towards achieving similarity, and I would guess that he has suggested the figure on the basis that while such a revolutionary change might not appeal to the Government, there is also the idea of an inquiry to see how courts martial work to see if that could be a step towards reform.

Clearly, and I have sat on that side, these amendments will not work and there will be something wrong with them. However, that is irrelevant. What matters is: should we make steps in this direction using this quinquennial Act? We do it only every five years and I would find unconvincing the argument that it is not appropriate. I am putting a burden on the Government, today and perhaps in subsequent meetings and in writing, to argue the case for why we should not move in the general direction of these amendments and make the whole process for the defendant more analogous to that of a civil court.

[The Minister of State, Ministry of Defence (Earl Howe) (Con)]

My Lords, I am very conscious of the close interest taken by the noble Lord, Lord Thomas of Gresford, and my noble friend Lord Attlee, as well as by the noble Lord, Lord Tunnicliffe, in the operation of the court martial and I welcome the opportunity to discuss these matters today. The first amendment of the noble Lord, Lord Thomas, would amend Section 155 of the Armed Forces Act 2006, which makes provision with respect to the constitution of the court martial. It provides that only officers or warrant officers may be lay members of the court martial. As the noble Lord explained, Amendment 1 would change this; it would also provide that court martial rules may provide that lay members must,

“be drawn from each and every branch of the armed services”.

The noble Lord’s next amendment, Amendment 2, would insert a new Section 155A into the 2006 Act. The effect of proposed new Section 155A would be to allow serving personnel of any rank to be lay members.

The court martial consists of a judge advocate and between three and seven lay members. Lay members of a court martial, who are also referred to as the panel or the board, have a role in relation to findings on a charge and sentencing. The lay members for any proceedings are specified by or on behalf of the court administration officer. Only commissioned officers and warrant officers may be lay members. Amendments 1 and 2 would change this, as I have said, by allowing members of the Armed Forces of any rank to be lay members.

It will not surprise the Committee to hear that I am resistant to the proposals that the noble Lord, Lord Thomas, has put forward. The first point I wish to make in response is that the existing rules governing lay membership of the court martial result from the fact that the court martial is part of an overall system of justice and discipline. Those rules recognise the importance of experience of command and the exercise of service discipline at a sufficiently high level to enable lay members to assess the actions of those who appear before them in the court martial in the appropriate command and disciplinary context. The role of a lay member in the court martial differs from that of a juror in a Crown Court trial. In the Crown Court, the jury’s role is limited to findings of fact: sentencing is a matter solely for the judge. In the court martial, the lay members and the judge advocate vote on the sentence. In considering sentencing, they must have regard to the maintenance of discipline, so must have a strong understanding of what things affect discipline and what things do not.

All service courts have to apply the statutory principles set out in the Armed Forces Act 2006 as to the purpose of sentencing. These are closely based on the civilian sentencing principles but include, in addition, “the maintenance of discipline” and the reduction of “service offences”—that is, both service discipline offences, such as looting or absence without leave, and criminal offences.

These principles reflect four special aspects related to the service justice system. The first is the existence of disciplinary offences unknown to the general criminal law, such as absence without leave. The second is the fact that the military context of an offence may be relevant to sentencing—for example, an assault against a superior or an inferior may make an offence more serious, and then there is the well-known naval concern about the effect on morale and discipline of mess-deck theft.

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[Lord West of Spithead]

My Lords, I have considerable sympathy for Amendment 4, which stems from my view that I see the composition of the board of courts martial as much more to do with discipline and military things. Clearly with some of these very serious crimes, jurisdiction is very important. I am not clear how that could be clarified to make sure that things do not slip through the net because of it. However, the other aspect is perception. The noble Lord, Lord Thomas of Gresford, talked about public perceptions of courts martial. I think that there is also the perception of the military about the way in which they are put on trial. If we went down this route mitigation would have to be very clearly put, particularly when in what one might loosely call a war zone where there has been fighting and nation building, because the circumstances in which something like the Baha Mousa case happens are different from the normal civilian understanding. We would have to be absolutely certain that we were able to get that sort of proper mitigation into the civil court. However, I have great sympathy with Amendment 4, because some of these things should not generally be tried by court martial nowadays.

[Lord Tunnicliffe]

My Lords, as I said earlier, I see this debate as being in two parts, of which this is the second part. The development of service law in this country has been going on for several hundred years and we have seen important movements in the past 10 years with the 2006 Act and now with these proposals. I am unsympathetic to what the noble Lord, Lord Thomas of Gresford, proposes in this area, because it goes too deep into the body of military law. There is presumably an argument that you do not need military law on any offence that is covered by an equivalent piece of civil law, but we are not there yet in the minds of either the public or the military. We are on a journey and I think that we are at the right place in that journey, so to carve these offences out of the scope of military law at this point would be wrong. I shall read with great care the speeches that have been made and listen with great care to the Minister’s response. We will ponder on those views but, as a generality, the scope of military law is probably right at this time. I repeat that we should address the courts martial system to make the judgment process analogous but leave the scope substantially as it is.

[Earl Howe]

My Lords, these further amendments address other aspects of the service justice system about which the noble Lord, Lord Thomas, is exercised. I agree that it is right that this Committee should engage in close and careful scrutiny and assure ourselves of the rationale that underpins the system.

Amendment 4 would limit the jurisdiction of the court martial. It would prevent the court martial from trying certain offences: murder; manslaughter; the wide range of sexual offences under the Sexual Offences Act 2003; and any offence committed overseas that a civilian criminal court in the United Kingdom has jurisdiction to try.

The noble Lord, Lord Thomas, explained that his intention with Amendment 15 is to extend the jurisdiction of civilian criminal courts in England and Wales by giving them jurisdiction to try members of the Armed Forces and civilians subject to service discipline for acts overseas that, had they been committed here, would have constituted sexual offences under the Sexual Offences Act 2003. The Committee may be aware that service courts are able to exercise jurisdiction in respect of acts overseas. Section 42 of the Armed Forces Act 2006 provides that a member of the Armed Forces is guilty of an offence under service law if they do an act outside the United Kingdom that would constitute an offence under the law of England and Wales were it done here.

Amendment 16 would give members of the Armed Forces accused of committing certain crimes overseas a right to elect whether to be tried by the court martial or by a civilian criminal court. The crimes in question are those that the civilian criminal courts may try even if the events in question took place overseas. Those offences include murder and, although the noble Lord explained that this was an alternative to his previous proposal, would also include sexual offences if Amendment 15 were accepted as well.

I note one point in passing. Amendment 16 does not appear to propose that members of the Armed Forces should have a right to elect civilian criminal trial in respect of conduct in the United Kingdom or in respect of conduct overseas other than on active service in operational circumstances, yet it is not immediately apparent why such cases should be treated differently.

The noble Lord, Lord Thomas, may not be too surprised to hear that the Government do not support these amendments, which imply that there are problems with the court martial system. Yet the service justice system has been scrutinised by the UK courts and by Strasbourg, and has been held to be compliant with the European Convention on Human Rights for both investigations and prosecutions within the UK and abroad, where the civilian police do not have jurisdiction.

As regards the implication about the competence of the service police and prosecutors, the service police are trained and able to carry out investigations into the most serious offences, with members of the Special Investigations Branch having to pass the serious crime investigation course before being selected for that unit. In addition, selected members of the service police attend a range of specialist and advanced detective training at either the Defence College of Policing and Guarding or externally, with the College of Policing or training providers accredited by the college.

At the Service Prosecuting Authority, prosecutors are trained to effectively prosecute serious cases. For example, prosecution of serious sexual offences requires attendance on the CPS rape and serious sexual offences specialist training course, and the SPA ensures that decisions on charging in such cases are taken only by prosecutors who have completed that training. The Government believe that the service justice system is capable of dealing with the most serious of offences and should be able to continue to do so. In the case of offences which both the civilian criminal courts and service courts have jurisdiction to try, it is recognised that it is necessary for prosecutors to consider in each case whether the offence is more appropriately tried in the civilian criminal courts or in a service court. This applies not only to offences committed overseas in respect of which the civilian criminal courts have jurisdiction but to offences committed in the United Kingdom.

The existing protocol between service and civilian prosecutors recognises that some cases are more appropriately dealt with in the service system and some more appropriately in the civilian system, particularly those with civilian victims. The principles of the protocol were approved by the Attorney-General for England and Wales, and by the Ministry of Justice. The protocol recognises that any offence can be dealt with by the service authorities. The main principle in deciding who acts is whether the offence has any civilian context, especially a civilian victim. The protocol therefore provides that cases with a civilian context are dealt with by the civilian criminal justice system. However, where a case has a service context, it is important that the service justice system—which is specifically constructed to deal with that unique service dimension—is able to manage the case in question. But were we to create a right to elect of the kind contained in Amendment 16, I submit that it could undermine the service justice system, as an accused could make an election which would see the types of cases which civilian and service prosecutors currently consider should be dealt with in the service system—because of their service context—instead having to be dealt with by the civilian criminal courts.

The noble Lord, Lord West, referred to the importance of mitigation in certain cases. Partly for that reason but also for others, many cases which concern conduct outside the UK will have a service context such that both service and civilian prosecutors would consider that they would be more appropriately tried in the service system. That is significant because of the key point that I made on the previous group of amendments: court martial is part of an overall system of justice and discipline, and the existing provisions governing sentencing in the court martial reflect this.

As I mentioned earlier, all service courts have to apply statutory principles set out in the Armed Forces Act 2006 as to the purpose of sentencing. These are closely based on the civilian sentencing principles but include, in addition, “the maintenance of discipline” and the reduction of “service offences”. These principles reflect special aspects related to the service justice system, including those factors that I touched on earlier and shall repeat: first, in service courts the military context of an offence may be relevant to sentencing, and I mentioned an assault against a superior or an inferior; secondly, in service courts a heavier sentence may be justified by reference to the fact that the offender is in the Armed Forces, and I mentioned a drugs offence in that context; and, thirdly, certain penalties are available only to service courts, requiring an assessment of whether they are appropriate from a broadly disciplinary point of view—for example, service detention or dismissal. Allowing a case with a purely service context to be dealt with in the civilian system on the election of an accused therefore risks undermining the system of justice and discipline in the Armed Forces.

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[Lord Hope of Craighead]

My Lords—

[Lord Tunnicliffe]

I wonder if the noble and learned Lord, Lord Hope, would let me speak before him because I intend to quote him at some length and he can correct any mistakes I make. I make it clear that the Opposition would not support this amendment as set out. I am not talking about little technicalities about wording; I am talking about an erosion of the Human Rights Act. We believe that that is a proper and admirable piece of legislation and that its retention is important. No doubt this will be the basis of a major battle between the parties in the weeks to come when the legislation is published.

I turn to the specific area of the judgment. Before Second Reading, I had not heard of Smith and others v Ministry of Defence. I googled it, thinking, “This will give me the information”, only to discover that the judgment was 72 pages and 188 paragraphs long. At the very moment when I had a sense of doom, I noticed that it had been given by the noble and learned Lord, Lord Hope, whose office is some 50 metres from mine, so I tried to save myself some effort by going to see him, and I thank him for the briefing he gave me.

I looked through the 72 pages to get a wider flavour of the judgment. I will concentrate solely on the Challenger 2 event. The Snatch Land Rover issue is complicated by the fact that it was not formally a combat situation but a peacekeeping one, so while it is important to the debate, it is capable of being part a much wider debate. In my view, however, the tone of the judgment on the Challenger 2 event is straightforward. The noble and learned Lord, Lord Mackay, has already quoted paragraph 76 of the judgment, but if the Committee will forgive me I shall quote a few more paragraphs. Paragraph 82 states:

“The Challenger claims proceed on the basis that there is no common law liability for negligence in respect of acts or omissions on the part of those who are actually engaged in armed combat”.

That is a pretty flat statement. It continues:

“So it has not been suggested that Lt Pinkstone or anyone else in the Black Watch battle group was negligent. Nor, as his decision to fire was taken during combat, would it have been appropriate to do so. The Challenger claimants concentrate instead on an alleged failure to ensure that the claimants’ tank and the tanks of the battle group that fired on it were properly equipped with technology and equipment that would have prevented the incident, and an alleged failure to ensure that soldiers were provided with adequate recognition training before they were deployed and also in theatre. Their case is founded entirely on failings in training and procurement”.

Its final sentence says that:

“The Ellis claim at common law also raises issues about procurement”.

If we delve further into the document, we get what is in a sense the substance of the ruling. Paragraph 95 says that:

“The same point can be made about the time when the failures are alleged to have taken place in the Challenger claimants’ case. At the stage when men are being trained, whether pre-deployment or in theatre, or decisions are being made about the fitting of equipment to tanks or other fighting vehicles, there is time to think things through, to plan and to exercise judgment. These activities are sufficiently far removed from the pressures and risks of active operations against the enemy for it to not to be unreasonable to expect a duty of care to be exercised, so long as the standard of care that is imposed has regard to the nature of these activities and to their circumstances. For this reason I would hold that the Challenger claims are not within the scope of the doctrine”—

that is, combat immunity—

“that they should not be struck out on this ground and that the MOD should not be permitted, in the case of these claims, to maintain this argument”.

Its argument was to rule that it should be struck out through the doctrine of combat immunity.

The tone of the whole judgment is summed up in paragraph 100 where the noble and learned Lord, Lord Hope, says:

“The sad fact is that, while members of the armed forces on active service can be given some measure of protection against death and injury, the nature of the job they do means that this can never be complete. They deserve our respect because they are willing to face these risks in the national interest, and the law will always attach importance to the protection of life and physical safety. But it is of paramount importance that the work that the armed services do in the national interest should not be impeded by having to prepare for or conduct active operations against the enemy under the threat of litigation if things … go wrong. The court must be especially careful, in their case, to have regard to the public interest, to the unpredictable nature of armed conflict and to the inevitable risks that it gives rise to when it is striking the balance as to what is fair, just and reasonable”.

In other words, over and over again in the findings as I read them—as an amateur and not as a general, although I was made acting pilot officer, and having never been a lawyer, although I was a great employer of lawyers—the noble and learned Lord seems to go out of his way to express that this is not about combat. It is about when it is reasonable and practical to do so that the MoD has a duty of care.

I come back to my question. Where is the harm in sustaining the Human Rights Act as it has been used in this case, and what are the implications? The implications are that it says that simply because the process eventually leads to combat, the Ministry of Defence cannot use the doctrine of combat immunity to avoid its duty of care. Where it is reasonable to exercise its duty of care, it has a duty to do that.

Also in my career, I worked for the Ministry of Defence as a non-executive director of defence and equipment support. As such, I was asked to look into the safety of equipment in the MoD, and I have to say that it was variable. In some areas it did not meet the highest civil standard. I do not mean silly standards; I mean the general duty that you have in civil law to reduce risk to as low as is reasonably practicable. Civil law does not say that you cannot do dangerous things and no one is suggesting that the military should not, but where you have an opportunity to reduce risk, you have a duty to take it. That cannot be an unreasonable duty. My reading of the judgment is that that is where the duty remains: where it is practicable it should be exercised, but where it is impractical, specifically in combat, then a court should not regard it.

The area of harm that does exist is what in other circumstances people would call the chill factor. The Health and Safety at Work Act has been around for so long now that most industries that are subject to it, whatever you read in the press, are mature enough to live with it. However, there are still things like the presumption of guilt—the chill factor that will stop executives from doing their job. In fact people get over it and get used to it, but if it is influencing in combat the decisions that soldiers, sailors and airmen are making, then that is wrong. That is a challenge for the MoD, not a challenge to change the law but in its training, in its teaching of the doctrine and in ensuring that the people who are making decisions fully understand that this ruling does not relate to combat and that they should continue to make their combat decisions as they have been taught to, within the rules of what I loosely call the Geneva convention, and get on with the job.

We will not support this amendment. If it comes up on Report we will oppose it, or in trying to dilute the Human Rights Act, we will oppose it.

[Lord West of Spithead]

Just before my noble friend sits down, I would like to get clarification. Is he saying that combat immunity trumps the Human Rights Act? In a European Court judgment on human rights, combat immunity will trump it—is that what is being said? That does not appear to be the case, which is one of the worries that I have with what is going on. The French and another nation, for example, have both taken their military out of that and said that they are not liable to the Human Rights Act in action. However, my noble friend seems to be saying that combat immunity trumps the Act, so this is not a problem that we should be discussing. Is that correct?

[Lord Tunnicliffe]

One of the reasons why I spoke when I did was so that there could be a summing-up of the law by the noble and learned Lord, Lord Hope. My understanding of the judgment is that there is no question that the Human Rights Act applies to military personnel when they are serving overseas. It was a unanimous decision of the court and all seven judges agreed that it was true. What they then asked was, “What does the Human Rights Act require?”. People really should read the Human Rights Act. It is about three or four pages long and is a brilliant document. It refers to the European Convention on Human Rights, which is also well worth every person in our legislature having a read of. The Act is an extremely balanced document, virtually every provision of which expects you to behave reasonably.

What the court said, and I précis, is that the duty in the Human Rights Act to have care for those you are responsible for—the right to life—has to be interpreted reasonably, and the doctrine of the common law right of combat immunity holds good in a combat situation. Where there is proper opportunity to consider actions that may reduce risk then you have a duty of care to consider those actions, but not in combat and in the heat of battle.

[Lord West of Spithead]

My noble friend’s exposition explains exactly my concerns about what is going on because it is not at all clear. That is why we need this in order to have the issue clarified. What my noble friend has said has actually left me totally confused as a military commander, so we need to have this clarified. That is why I believe that this is important.

[Lord Tunnicliffe]

I can see why my noble friend was made an admiral and I only an acting pilot officer.

[Lord Hope of Craighead]

My Lords, I wonder whether I could say a word. First, I apologise for the fact that due to other business I was not able to hear the speech and analysis of the noble and learned Lord, Lord Mackay of Clashfern, although he did show me in advance the paper from which much of his speech was drawn. I also expressed my regret to the Minister, the noble Earl, Lord Howe, that I have other business to attend to and might not be able to be here all the time.

I should like to say a few words because I feel a heavy weight of responsibility on my shoulders; I had the responsibility of writing the judgment. It covered an enormous amount of ground. I was not responsible for all the paragraphs because other people wrote as well. The starting point of the analysis was what to make of developments in the European court in Strasbourg, which has been expanding the jurisdiction in a way that I do not think judges in this country entirely welcome. It has always been understood that the European convention applies to our embassies abroad; that is accepted and has never been in doubt.

Gradually the thinking has developed so that, for example, when in Iraq the military set up a detention centre, bringing local people in to be detained and examined there, they had the protection of the human rights convention—the right not to be tortured, the right to life and so on—because we had control over what happens within the detention centres that we set up. What is different about the law which we were trying to analyse and explain is the extension of that jurisdiction, as I think the noble and learned Lord, Lord Mackay, explained, to members of the Armed Forces serving outside the territory—not just outside the territory of the signatories to the European convention itself but outside the territory over which they have control. We are now contemplating Article 2 applying to areas where the Army are not in control of events but nevertheless have some duty, apparently, or have the protection under Article 2. That applies both ways. The amendment by the noble and learned Lord, Lord Mackay, could in fact be read as applying to the need to be protected under Article 2 as well as the right to immunity from challenge under it for things done to other people.

What I was attempting to do, having secured the agreement of all my colleagues on my analysis, was that we had to recognise that Article 2 applied outside the territory, so we had to explain what that meant. It was not an easy task. One of the problems in trying to get across to people like the noble Lord, Lord West, and others was that we were not dealing with a case that put in front of us the kind of situation that he was faced with. They did not bring a case against the commander in the tank or anyone who was actually on the ground that they were in some way subject to criticism under Article 2 or subject to a claim for negligence at common law. I rather wish they had, because we would certainly have struck it out. We would have made it absolutely plain that people in that position, the heat of battle, are not to be exposed to criticism or to litigation because of things done in those circumstances. Decisions have to be taken for all sorts of reasons and it is quite impossible for a court to analyse them as to whether they were properly taken.

All I could do in my judgment—the noble Lord, Lord Tunnicliffe, has been very generous to me by setting out the various paragraphs in which I tried to do it—was to make it as plain as I could that there is an area that the courts will not go into. I did not secure the agreement of my colleagues on what to do about the cases in front of us. There was a four to three majority in favour of allowing the Challenger cases to go to trial to find out more about the facts before a decision was taken, and there was a five to two majority about the Snatch Land Rover cases that they should go to trial as well. There can be different views about this. The advantage of more facts was in fairness to the families that what was actually going on was absolutely clear before a final decision was taken. However, I made it as clear as I could that those who were taking the cases to trial should not think they were going to succeed. They had to get over the hurdles, which I explained in the various parts of my judgments. What the result of these cases will be, I simply do not know.

I cannot add to my judgment; that is not a position that a judge can ever enjoy. My judgment has to speak for itself. All I can say is that I would not change any of the words that I see when I read it over and over again. It is a difficult problem because one has to balance the need for the military to conduct operations without impediment, whether in wartime or peacetime, with, at the same time, the interests of the servicemen and their families. The noble Lords, Lord Thomas of Gresford and Lord Tunnicliffe, both illustrated the other side of the balance. I am not suggesting that legislation should not be resorted to, if the Government think that they can improve on what I attempted to say in Smith. Lord Bingham of Cornhill, one of the greatest judges that we have had in recent times, used to say that the law is made not by scoring boundaries by sixes but that you develop the law in singles. In a way, Smith was an attempt to face up to a problem and explain under modern circumstances what could be made of it. I do not claim that we achieved perfection by any means. I am deeply sorry that it has caused such alarm among senior members of the military for reasons that I certainly did not intend. I cannot do anything about that, except to apologise to them and hope they understand what I was trying to say.

The task that the Minister faces is the very difficult one of trying to analyse exactly how to express in legislation the need for protection of the individuals serving in our interest and, at the same time, giving freedom to those who have to take the decisions not to be impeded in a way that would defeat our national interest.

There is only one other point I wish to make, which I think the noble and learned Lord, Lord Mackay, hinted at in his speech. Any legislation will have to stand up to scrutiny under the European convention itself. It has to be compatible with the convention rights. However, I think that the noble and learned Lord was pointing out the direction in which the Government could go by saying that there is a margin of appreciation, which gives quite a latitude to the Government in deciding how to frame legislation. In a way, I was trying to explain in paragraph 76 that and how the margin of appreciation might lie. Not everyone agreed with me, and perhaps the Minister can improve on what I was trying to say.

Before I sit down, I repeat my apology to the senior officers in the military who think that that are being in some way targeted by what I said. That was certainly not my intention and I did the very best I could to make it clear that they were not to be open to that kind of criticism.

--- Later in debate ---

[Lord Mackay of Clashfern]

That is the question.

[Lord Tunnicliffe]

Surely the judgment given by the noble and learned Lord, Lord Hope, makes that absolutely clear. The issue of the operational decisions in combat could not, in the view of the Supreme Court, be prayed in aid of negligence. The issue is those decisions not taken in a combat environment.

[Lord Mackay of Clashfern]

I entirely agree. The noble and learned Lord, Lord Hope, made that as clear as he could. However, as Lord Mance pointed out, the problem is that, while that is the principle, it is quite difficult to apply in practice. If you are trying to sue the ministry, the question may be whether what happened on the ground followed what from the ministry had done. The Snatch case is the easiest one, in a way. I used the case of the noble Lord, Lord West, only because he mentioned it himself, but the Snatch case is perhaps the best example of where it is possible to say that the ministry provided the right equipment but the right vehicle was not picked. There are three vehicles waiting and you pick one. It is not the right one; the other two are somewhat different. I am not suggesting for a minute that the people who made the choice could be sued for negligence, but the question of whether or not the claim against the higher authority is made out may depend on the investigation of these things. That is what the noble and learned Lord, Lord Mance, was talking about.

As I said, I never intended to press this amendment at a later stage; I simply tabled it to raise the issues and to see what can be done. My approach would be that we should see what we want the final situation to be. We should forget what the human rights convention has to say. We should look at what we want and consider legislation. We should believe that if it is suitable legislation it will be covered by the margin of appreciation and that the human rights convention, which of course we cannot alter ourselves, will not be affected in any way. With great respect, as a result of all this debate, that is the approach that I would commend.

I am sorry that we have gone beyond the time when we were supposed to finish, but I regard myself as not completely responsible for that because things depend on what went before. I beg leave to withdraw my amendment and I do not propose to raise it on Report.

Armed Forces (Service Complaints Miscellaneous Provisions) Regulations 2015

Lord Tunnicliffe Excerpts

Monday 7th December 2015 Grand Committee

[The Minister of State, Ministry of Defence (Earl Howe) (Con)]

My Lords, my department has laid a single instrument for the Committee’s consideration today. These regulations are required as part of a package of measures to implement a new service complaints process and a Service Complaints Ombudsman for the Armed Forces.

The new legislation is designed to provide a streamlined and more effective internal redress system for our Armed Forces, and new, strengthened external oversight through an ombudsman. It will come into being on 1 January 2016. The new system is provided for in new Section 365B and Part 14A of the Armed Forces Act 2006, as inserted by Sections 1 to 3 of, and the schedule to, the Armed Forces (Service Complaints and Financial Assistance) Act 2015.

This instrument is intended to promote fairness in the new system by preventing conflicts of interest and ensuring that complaints are dealt with by those who have the right experience and knowledge to properly assist the complainant. It also covers procedural matters that provide essential safeguards and aspects of independence for our Armed Forces personnel.

The regulations include four important things, which I shall deal with in turn. First, as for the existing system, we have made rules on who cannot be appointed to deal with a service complaint; for example, because they are implicated in the matters complained about. The second important aspect of the regulations is that we have set out those matters that cannot be raised as a service complaint. This is not a new aspect to the complaints process. These are provided for in the regulations that cover the current system, and have been updated in this instrument to take account of the new process and of experience.

We are excluding for the first time challenges to decisions made in the internal redress system because under the new legislation the ombudsman will be able to review or investigate them. Similarly, the regulations exclude complaints about decisions made by the ombudsman. It is the ombudsman who provides external oversight of the complaints system so it would be contradictory for the complaints system to be able to overturn decisions of the ombudsman. Challenges to the decisions of an external ombudsman are best made in the courts.

A newly excluded matter, which I should mention in particular, is that we have decided to exclude complaints alleging clinical negligence or personal injury against the Ministry of Defence, so these have been added to the list of excluded matters. The redress system is not appropriate for deciding the complex, specialised medical and legal issues that can arise in clinical negligence and personal injury cases. It will remain possible, however, to make a service complaint if a person believes that we have not provided medical care when it was our responsibility to do so. As under the existing system, the regulations also exclude matters for which there are more appropriate alternative remedies. For example, challenges to decisions made at court martial are best decided through the appeals system.

The third important effect of these regulations is to set out when at least one independent person must be appointed for deciding a service complaint. The main circumstance is where a complainant alleges bullying or similar misconduct. This is the same as under the current system and it is there to provide an extra safeguard for fairness in such sensitive cases, and to give a measure of external oversight as part of the internal system.

The fourth main effect of the regulations is the setting out of the matters that must be reported to the Service Complaints Ombudsman when an allegation of a wrong suffered by a service person has been referred by the ombudsman to the chain of command. As with the Service Complaints Commissioner now, the ombudsman will be able to receive allegations of wrongs done to service personnel. For example, a family member of a service person will be able to approach the ombudsman with their concerns. The ombudsman will be able to refer those cases to the chain of command and to track what happens. The regulations will ensure that the ombudsman is kept updated on progress and is able to respond to queries, if raised, without compromising her investigative role.

The Joint Committee on Statutory Instruments has scrutinised this draft instrument and, in doing so, has brought to our attention three drafting points, which we will seek to correct at the earliest available opportunity. However, we do not expect that these points will affect the practical working of the regulations.

On the first point that has been raised with us, we accept that the definition of the expression “in writing” has been included unnecessarily in Regulation 2(1).

On the second point that the committee has brought to our attention, we will seek to provide further clarity at Regulation 6. This regulation provides for the start of the three-week period within which the ombudsman is to be notified of certain events in connection with the progress of a matter that has been referred by the ombudsman as a potential service complaint. It also provides that the ombudsman is to be notified of each event that is listed in the regulation. We will seek to clarify the exact moment of the day from which the three-week period applies and to clarify that the period applies separately to each event that appears in the list.

The third of the JCSI’s points relates to a provision in the schedule to these regulations that excludes a right to make a complaint where there is a right of review as to certain service police or prosecution matters. The committee has said that the regulations refer incorrectly to those rights of review being “under” the code in which they appear, rather than being mentioned “in” that code. Again, we will look to make the correction at the earliest available opportunity.

I hope noble Lords will support these regulations. I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, I thank the Minister for introducing this instrument, which effectively—with, I believe, four other negative instruments—gives effect to the Service Complaints Ombudsman, established by the 2015 Act, which some of us were privileged to flog through a few months ago.

The concern goes back to the tragic deaths at Deepcut between 1995 and 2002 and the subsequent inquiry. The outcome of that inquiry was the creation of the Service Complaints Commissioner. That role was taken up by a splendid lady, Dr Susan Atkins, who, having taken up the role, declared it not effective, efficient or fair. I commend the Government for reacting to her criticism. My party has long been calling for the introduction of an Armed Forces ombudsman, so we welcome the Act and the instruments designed to put it into effect. Labour is determined that all members of the Armed Forces who serve this country with such professionalism and distinction should be saved from bullying, harassment and other inappropriate or illegal behaviour. Ensuring that this is achieved forms a core component of the Armed Forces covenant. Hence, we support not only this affirmative SI but the negative SIs that go with it.

Armed Forces: Aircraft Carrier

Lord Tunnicliffe Excerpts

Thursday 29th January 2015 Lords Chamber

[Lord Astor of Hever]

My Lords, I assure my noble friend that it is our intention to dredge Portsmouth harbour. As we are in the process of selecting the preferred bidder, it would be inappropriate to give a cost. We will also be carrying out some other infrastructure upgrades to support the carriers coming into Portsmouth.

[Lord Tunnicliffe (Lab)]

I thank the Minister for his comprehensive Answer on the dates for the aircraft and the carrier. However, if you google the aircraft, looking particularly at the US media, you see that the project is full of delays, with tranches of software not available and guns that will not work for more than four years, while the Department of Defense says that the programme is unaffordable. How confident is the Minister that the dates he has given will actually happen? How many aircraft do the Government envisage buying, and will there be enough aircraft to operate on both carriers?

[Lord Astor of Hever]

My Lords, I am told that there are always technical issues during the test phase of an aircraft programme, so what is happening is not uncommon. With regard to the numbers, the UK has received three of 35 to date. Another is being built, and the MoD recently approved the purchase of 14 additional aircraft, the first four of which were ordered at the end of last year. Total F35 aircraft numbers will be examined within SDSR 15.

Asylum: Afghanistan Interpreters

Lord Tunnicliffe Excerpts

Thursday 24th July 2014 Lords Chamber

[Lord Astor of Hever]

I did not quite understand my noble friend’s question, but I shall read it and write to him.

[Lord Tunnicliffe (Lab)]

My Lords, I have every sympathy for the noble Lord, who is essentially answering for the Home Office, but his answers seem rather woolly. Clearly, it is the mood of this House that these brave people stood by our troops, had their lives at risk and will probably have their lives at risk after the end of this year. On our side, we are quite clear that these people should be allowed into the UK. I understand that the Government announced their policy in June 2013 and expected 600 people to qualify. I am told that two people have so far got a visa. Is this Home Office incompetence? Is it a covert policy of exclusion by delay? If it is neither of those, can the Minister seek an assurance and deliver it to the House that anybody who qualifies will be safely in this country by the end of the year?

[Lord Astor of Hever]

My Lords, more than 270 former UK LECs who have been made redundant have been offered and accepted relocation under the scheme. Thus far, two visas are in passports, flights are booked and reception arrangements are being made. We expect a steady stream of visas to come through until all those who are eligible are in the UK. To assure the noble Lord, I stress my personal commitment to this ex gratia scheme and the intimidation policy. I shall do all that I can to keep on top of it.

Armed Forces (Service Complaints and Financial Assistance) Bill [HL]

Lord Tunnicliffe Excerpts

Wednesday 9th July 2014 Lords Chamber

[Lord Thomas of Gresford]

My Lords, this amendment was drafted before I had the chance of seeing the draft regulations. It was, in any event, a statement of the bleeding obvious, as one might say, that the officer to whom the complaint was made could not make up his own mind as to whether it was factually correct, well founded or anything of that sort. I would have hoped for a favourable response from the Minister in any event. However, I now see that the draft regulations flesh out the grounds given in proposed new Section 340B(5)(c). Why that is done in regulations and not in the Bill I do not know but those three grounds are well confined and I am quite satisfied that the fear that I had was ill founded. Nevertheless, I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, for the avoidance of doubt, we degrouped Amendment 20 and will move it in its place.

[Lord Astor of Hever]

My Lords, Amendment 7 would make it clear that a service complaint could not be rendered inadmissible by the officer receiving it simply because he believed it was without merit. It may be helpful if I explain the role of the specified officer on receipt of a service complaint. His or her role will be to decide whether the complaint is admissible in accordance with new Section 340B. The officer will not consider the merits of the complaint at all at this stage. That is not possible under the Bill as the appointment of a person or panel of persons to decide whether the complaint is well founded can take place only after the admissibility decision under new Section 340C. The officer’s function at the admissibility stage is to see whether, first, the complaint is about a matter excluded from the service complaints system in regulations made by the Secretary of State, secondly, whether the complaint is out of time and, thirdly, whether the complaint is inadmissible on other grounds specified by the Defence Council in regulations.

Noble Lords will have seen the initial draft regulations prepared by the department which cover, among other things, the other grounds of inadmissibility. It is proposed that those grounds are that the complainant does not allege any wrong, or that the complaint is a repeat of one already brought by the complainant and being considered in the service complaints process, or one that has already been determined.

The Delegated Powers and Regulatory Reform Committee helpfully reported on the Bill in advance of Committee, for which we are grateful. It drew attention to the powers conferred by new Section 340B(5)(c) on the Defence Council to specify additional grounds of inadmissibility and concluded that those powers were too widely drawn. My department responded to the committee, explaining what these regulations are intended to cover and made reference to the initial draft regulations that are now available to Members of the House.

Now that noble Lords have seen what is intended here, I hope that some of their concerns about the scope of this provision will have been allayed. There is no intention to use this power to rule out broad categories of complaint. That would run counter to the clear policy behind the Bill to consider all wrongs in relation to a person’s service, subject to very limited exceptions. In any event, I have asked officials to explore whether anything further might be done in relation to the scope of this power. That will be done before Report stage.

The role of the receiving officer at the admissibility stage is quite limited and is strictly focused on the matters set out in the Bill, as will be amplified in the regulations in due course. There is no power for a complaint to be declared inadmissible on its merits at this stage. If a receiving officer declared a complaint inadmissible on merit grounds, the complainant would be able to apply for a review of that decision by the ombudsman. In the circumstances, we would expect the ombudsman to overturn the inadmissibility decision and the complaint would proceed. The ombudsman’s decision on any such review will be binding on both the parties. That is provided for in Regulation 7 of the initial draft service complaints regulations. In the circumstances, I must resist Amendment 7 and ask my noble friend to withdraw his amendment.

Defence Reform Bill

Lord Tunnicliffe Excerpts

Monday 24th March 2014 Lords Chamber

Moved by

[Lord Tunnicliffe]

2: Clause 14, page 9, line 30, after “state” insert “for Business, Innovation and Skills”

[Lord Tunnicliffe (Lab)]

My Lords, we now come on to Part 2 of the Bill. I would like to acquaint the House with my interests in this from my history. In 2008, I was working for Defence Equipment and Support, and I therefore tend to come at the problems being tackled in Part 2 from perhaps a wider direction than is typical.

At this point, I also thank the Government, particularly the Parliamentary Under-Secretary of State, Philip Dunne MP, the noble Baroness, Lady Jolly, and their civil servants and advisers, for the enormous amount of time that they have given to Peers in general and ourselves in particular in scrutinising Part 2. We therefore have only three groups and five amendments, because we have done all the probing—“What do these little clauses mean?”, et cetera—in those detailed meetings. The way that the Government handled that is highly commendable.

Before we move on to the amendments, it would be useful to pause and look at the problem that we are trying to fix. The Ministry of Defence procures between £6 billion and £8 billion-worth of equipment each year through contracts which are sourced by a single-source supplier. Why does it do this? It does it for the harsh practical reason that, in order to secure sovereignty, it has to cede monopoly. Why does it have to do this? It has to do this because defence technology cannot be this much-dreamed-about, off-the-shelf idea; you need your technology to be at the leading edge, and frequently the only people you can buy leading-edge technology from are your own suppliers. You use your own suppliers to assure security of supply.

The problem with these large contracts is that any vestige of competition recedes as the contract proceeds. The world changes and the Ministry of Defence is left with the harsh choice either to cancel or to pay more. These contracts are also very big. Taxpayers, not unreasonably, often feel that they have got a bad deal. This is compounded by the fact that contracts are frequently obscure and opaque—they are certainly not transparent. I would, en passant, like to commend the Government for the provisions in Part 2 that relate to the reporting regime, which we completely support and believe is an important step forward.

As I say, the people who tend to get blamed for this are the Ministry of Defence, civil servants and serving personnel who work in DE&S. We have to see the size of the problem of managing contracts of enormous size, difficulty and complexity over many years. The Government’s reaction to this was to ask the noble Lord, Lord Currie of Marylebone, to produce a report—which I have read and commend—and to invite a team of civil servants and at least one adviser to produce legislation to address the issue. That legislation is Part 2 of the Bill.

What Part 2 is trying to do is neatly summed up in the provisions referring to the Single Source Regulations Office: the aim is to ensure,

“that good value for money is obtained in government expenditure”,

and,

“that persons … who are parties to qualifying defence contracts are paid a fair and reasonable price”.

That is the objective, and the Opposition commend the Government’s efforts in this area. We support the generality. Part 2 is a good attempt but not good enough. That is why we have three groups of amendments on Part 2, which will focus on: the independence of the Single Source Regulations Office; the misuse of target cost incentive fees; and the focus on allowable costs.

Amendment 2 relates to the independence of the Single Source Regulations Office, or at least our solution to what we think is not its independence but its apparent independence. It is important to understand how Part 2 works. My interpretation of the way Part 2 works—probably the Government will put me right in a minute or two—is that it puts a straitjacket or constraint or series of rules on how government can behave in these contracts and hence prevent itself by law from being bullied by big suppliers. It is quite a complicated thing to do. You would think, “Well, why don’t you just tell them not to be bullied?”. Of course, in the heat of the moment, when an urgent requirement is coming through, when you have got to do the deal, when it is a matter of national security, it is very difficult to resist the bullying of a big and powerful supplier. The essence of Part 2, as I read it, is to create this framework or the straitjacket that officials will have to work within when they complete these qualifying contracts.

Right at the centre of Part 2 is the Single Source Regulations Office, the SSRO, which has an immensely important role. The two aspects that I would pick out are its responsibility for analysing the data—overlooking the contracts and creating some of the parameters within which they are created—and making rulings. This analysis and these rulings are very significant for the financial impact on the contractor and, conversely, the other side of the coin, on the taxpayer. The SSRO stands between the MoD and the contractor, and its very essence is that not only is it independent but it must be seen to be independent. It is the Opposition’s contention that it is not independent enough and certainly not seen to be independent enough.

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[Baroness Jolly (LD)]

My Lords, as the noble Lord, Lord Tunnicliffe, explained, the intent behind the proposed amendment is to increase the independence of the SSRO by giving BIS responsibility for the regulations relating to qualifying defence contracts. As we have made clear on countless occasions during the progress of the Bill, and indeed in positive meetings with noble Lords—we have met quite frequently to discuss this, so I am glad the noble Lord found that helpful—the Government are fully committed to the independence of the SSRO in order to achieve value for money for the taxpayer. The SSRO will succeed only if it is, and is seen to be, fair to both parties. If it is too biased towards the MoD we risk driving the best suppliers out of the market. It is precisely the need for an independent moderating authority that led the MoD to propose the creation of the SSRO in the first place.

In Committee the noble Lord, Lord Tunnicliffe, pointed out that the SSRO chair and other non-executive directors are appointed and potentially reappointed by the Secretary of State. The Secretary of State sets the budget for the SSRO and can abolish it if he, or she in the future, so wishes. The noble Lord considers that that gives the Secretary of State considerable leverage. It would perhaps help if I were to explain in detail the context of our approach to the SSRO. In framing the legislation, we wanted to give the SSRO as much freedom as possible, including the ability to recruit its own staff. We did not want the SSRO to be a servant or agent of the Crown. These requirements have led to it being designated a non-departmental public body—NDPB.

Considerable public attention has been paid to NDPBs over the past few years, and substantial guidance has been developed. This includes the requirement that they must be allocated to a department, and the Secretary of State of that department must appoint the chair and the non-executives of that body. This department must also pay for the NDPB, which is why the MoD must set the budget for the SSRO. As to the ability to abolish the SSRO, this has been included in Clause 40 which relates to the termination of the whole of Part 2. This power will be used only if there is a desire to repeal the entire framework and revert to a non-statutory approach. In either case, the SSRO will no longer have a role, so the power will exert no leverage over the SSRO.

I turn now to what we have done to ensure the independence of the SSRO. The independence of the chair and other board members is essential, so I hope that noble Lords will forgive me if I describe the recruitment process in detail. To ensure that this appointment will result in a suitably independent and unbiased person, we are running the process in full accordance with the guidelines of the Office of the Commissioner of Public Appointments—OCPA. The recruitment panel for the chair is headed by a public appointments assessor, who has been chosen for us by OCPA. Also on the recruitment panel is an independent person suggested by OCPA and approved by the public appointments assessor. There are two others on the panel—one MoD official, and a representative from industry, Mr Paul Everitt, the CEO of ADS, one of the industry trade bodies for the defence sector—so only one of the four members of the interview panel will be from the Government.

A similar recruitment panel, with the addition of the chair, will be used to select the other non-executive directors. There are additional requirements for suitable candidates. They must not have come recently from the MoD or a defence supplier. Together they must represent a balance of private and public sector experience. They must have between them a variety of relevant experience: for example, legal or regulatory expertise, and experience of acquisition within the price sector. This is a rigorous appointment process, and I am confident that the result will be an independent SSRO board.

Having a suitably independent and strong chair will safeguard the independence of the framework, and we have tried our best to achieve this. This is further backed up by guaranteed freedoms. The SSRO is largely free to determine its own procedures, including making committees. The exceptions to this are where procedures are laid out in the Bill, and the requirement to run a full public consultation in support of the quinquennial review, which will be included in the framework document between the MoD and the SSRO.

In addition, the SSRO, like all public bodies, will be subject to external scrutiny by organisations such as the Competition and Markets Authority and the National Audit Office. Moreover, the SSRO chair can be brought before a parliamentary committee at any time. All these points highlight the considerable efforts we have made to ensure that the SSRO will be independent and subject to appropriate public and parliamentary scrutiny. The fact that the Secretary of State appoints the chair and that he can dissolve it are not what will determine the independence and impartiality of the SSRO. While we fully share with the noble Lord his aspiration of protecting the independence of the SSRO and the framework, we do not believe that this amendment is a necessary or effective means of achieving it.

In terms of practicalities, the Ministry of Defence will be the sole government user of the single-source procurement framework. It already has the technical expertise, the understanding and the necessary contacts with the defence industry to understand how the framework will operate in the real world. While the Department for Business, Innovation and Skills would undoubtedly be able to develop the required level of knowledge and expertise, it would take considerable time, effort and cost to create and would, in effect, duplicate the existing capability of the Ministry of Defence.

Moreover, it is normally the case that a single government department acts as the sponsor for a regulatory authority. This amendment would have the effect of splitting this between BIS, which would be responsible for the regulations relating to qualifying defence contracts, and the Ministry of Defence, which would be responsible for all other aspects, including the application of civil penalties. This would create an unhelpful degree of confusion and inconsistency, especially with regard to relations between the Government and the SSRO.

By creating the SSRO, we will increase the number of parties involved in single-source procurement from two—the MoD and the supplier—to three. Adding BIS as a fourth party would add confusion. For example, a supplier might lobby BIS for a change rather than the SSRO, and BIS might seek the MoD’s opinion on a matter rather than trust the SSRO’s recommendations. It is true that BIS has a similar role with regard to other regulators, such as Ofcom, but in such cases BIS is acting as a moderating body between the privatised suppliers and the public. In the case of the SSRO, however, the proposed amendment would place BIS in the position of setting statutory pricing and procurement rules of which the MoD is the sole user. BIS would thereby become the moderating body between private industry and another government department. This would create a potentially unhelpful relationship.

I will make a final point on premises and the issue of independence. I reaffirm what I said in Committee, which was that the SSRO, although it will be on government estate, will not be co-located within the Ministry of Defence. In developing this piece of legislation, the MoD has consulted extensively with industry over a prolonged period. There has been no suggestion from industry that it would see any advantage in having BIS own these regulations. Indeed, the Minister for Defence Equipment, Support and Technology, Mr Philip Dunne, recently met with Mr Paul Everitt of ADS, who said that industry no longer had any concerns over the independence of the SSRO.

The noble Lord, Lord Tunnicliffe, asked about a couple of points, including performance targets. Targets are there to ensure the efficient operation of the framework and the organisation. They are likely to relate to how quickly the SSRO responds to opinions or determinations made by the MoD or the supplier. He requested clarification on communications between the Secretary of State and the SSRO. If they are not on ruling, what sort of communications will they be? The SSRO will be responsible for keeping the framework under review and this will require communication with the Secretary of State or his officials to discuss any matters relating to the performance of the framework of the SSRO. The SSRO will have similar communications with industry.

On Amendment 3, as I stated, the purpose behind Part 2 is to ensure that in exchange for providing suppliers with a fair and reasonable price, the MoD will receive value for money for the goods and services it obtains through single-source procurement. Here we are in complete agreement. This works in two ways. First, it does this by establishing pricing rules that must be followed by the MoD and suppliers and by giving the SSRO the power to adjust the contract price if these rules are not complied with. This places a direct obligation on suppliers to use only appropriate and reasonable pricing assumptions.

Secondly, the Bill imposes transparency requirements which will allow the MoD to monitor suppliers’ costs: for example, ensuring that cost increases are highlighted in good time. These transparency provisions will allow the department, over time, to generate pricing benchmarks for goods and services. In turn, this will help the MoD to negotiate with industry over prices and to press for tough but reasonable efficiency targets. As it is in the interests of the MoD that these two features are applied as widely as possible, we fully expect that the Secretary of State for Defence will use the powers of exemption set out in Clause 14(7) only on an infrequent basis.

In Committee, I provided examples of where we envisage that the use of exemptions might be justified. However, I will summarise them again for the benefit of the House. The first circumstance is where there is no market failure. The framework addresses the situation where a contract price is not subject to the competitive pressures of the market. If those pressures are evident in the contract price, the framework is not required. An example is the purchase of additional items that are already available in the civil market, such as computers.

The second circumstance is one of national security. The Bill provides for some categories of contracts to be automatically excluded from the framework. One of the categories identified in the draft regulations is when the contract is for the purpose of intelligence activities. These exclusions apply only if the whole contract is covered by one or other of the excluded categories. So in the case where a significant part, but not all, of the contract is for intelligence activities, the contract would not be automatically excluded from the framework. As transparency is a significant part of the framework this is unlikely to be appropriate, so the whole contract may require exemption by the Secretary of State.

The third circumstance concerns our relations with other nations. Some of the standard reports would give us sight of a supplier’s plans for the key industrial sites sustained by MoD’s single-source procurement, which could result in a supplier having to reveal the forecast throughput assumptions of facilities that are used predominantly by a foreign Government, thereby exposing that country’s defence planning assumptions. This is likely to be treated with considerable reluctance by the foreign Government and therefore may require use of the exemption.

These are strong, valid reasons for the Secretary of State requiring this exemption power. However, not all the potential cases might be classed as being exceptional, as set out in the proposed amendment. Let us take, for example, the case where the market failures addressed by the framework are not present. It might be useful if I quoted the hypothetical but plausible example of where the department wishes to buy additional desktop computers. In the interests of operating only a single type, an open competition might be undesirable. However, in this example we do not need the full protections Part 2 offers to confirm that the price being offered to the department is fair and reasonable; we can simply compare it with the market price. This may be an unusual case as it requires a contract to be single-sourced yet fully priced using market prices. There would be a valid case for using the exemption powers, but it would be hard to argue that this constitutes exceptional circumstances.

We do not wish the Secretary of State to be constrained by how the new regime is applied in this way, but given that it is in the department’s interests that as much single-source procurement activity as possible is covered by the framework, the fewer exemptions there are, the greater the benefits there will be to the MoD.

I hope that this explains our position and therefore I urge the noble Lord to withdraw his amendment.

[Lord Tunnicliffe]

My Lords, I thank all Peers who took part in this debate, and in particular the Minister for her various assurances. I have faith that the people currently in the Ministry of Defence will undoubtedly use the right mechanisms to select the chairman of the SSRO and the individuals who are its non-executive directors. The pressure, which I am sure the present Administration would not bring to bear on the SSRO, will nevertheless come from all the subtleties. I speak as somebody who has chaired a nationalised industry, and who has been the chief executive of one and therefore on its board. The most subtle pressure comes from something that is entirely within the discretion of the appropriate Secretary of State. The Commissioner for Public Appointments, whom the Minister quoted, stated in a recent press release:

“The Public Appointments Commissioner plays no part in a decision not to re-appoint someone at the end of their term of office. That is a matter for Government”.

As we have seen recently in the case of Ofsted, the Government exercised that privilege without recourse to any mechanisms or checks. Everybody will try to do the right thing in these circumstances, but at the end of the day “not being reappointed” is a code for being fired, and being fired can engage the mind rather firmly. I believe that we should do more to distance the SSRO from the Ministry of Defence; the solution that we have chosen is the best one, and because it is important that the Government understand the wisdom of our words, I beg leave to test the opinion of the House.

Defence Reform Bill

Lord Tunnicliffe Excerpts

Tuesday 25th February 2014 Grand Committee

Debate on whether Clause 13 should stand part of the Bill.

[Lord Tunnicliffe (Lab)]

I hope noble Lords will forgive me if I give a Second Reading introduction to this part of the Bill to make clear the Opposition’s general position. First, I declare an interest, although not a pecuniary one or any interest that I would be required to declare, to show the position I am coming from in terms of experience. I was a non-executive director of the Defence Logistics Organisation, the Defence Procurement Executive and a founder director of DE&S, so I tend to see these matters from the rather more sympathetic viewpoint of those poor professionals who are caught in the middle of the many debates about the efficiency of this process.

I shall speak briefly on Part 2 in general. The view of the Opposition is that this is an admirable attempt at an intractable problem. I commend the creation of Part 2 and congratulate the noble Lord, Lord Currie of Marylebone, on his excellent report and the MoD staff who have turned that report into legislation and regulations. I particularly thank the noble Baroness, Lady Jolly, Philip Dunne, the Permanent Under-Secretary of State for Defence, and their adviser, Jason Petch, for their time in taking me through the Bill line by line. The Opposition’s duty in this sort of legislation, which is largely apolitical—quite honestly, I am scratching around for any political points this afternoon—is to scrutinise the legislation line by line. I assure the Committee that we have done this but mostly off the Floor of the House. Therefore, we have before us a relatively modest number of groups and we hope to finish the Committee stage this afternoon.

My general thrust this afternoon will be to look at the independence and quality of the SSRO, the whole issue of transparency in its operation and its accountability to Parliament. I will also pick up on one or two concerns that have been put to us by industry. Where industry wants assurances, we should like to be able to read them into the record to meet its concerns. It is important to note that, although this debate takes place in the Moses Room with a modest number of us present, words spoken by the Minister will be extremely important to industry.

I should also make a point about procedure. Rather lazily, we have not crafted wickedly clever amendments with which to do our probing but are using the device of a clause stand part debate. I hope to brief the Minister in more detail than I have been able to about the questions that will arise from that. I have given her some briefing but I entirely understand that on some of the questions, which came up just as I made the final run-through, line by line, she may have to write to me. In this important area, it really is better to have accurate and considered responses, rather than hastily cobbled together ones, not that I suggest that the Ministry of Defence would have hastily cobbled together answers anyway. That is quite a useful procedure but if we are not satisfied with the responses and feel that they need to be read into the record, we will use Report to achieve that objective.

I turn now to the Clause 13 stand part debate and Amendments 18G and 18H. I wish to probe the key concept of the SSRO: its independence—not in its role, with which I am comfortable, but in its working. I start with the appointment of the chairman, the rules about which are in paragraph 1(1)(a) of Schedule 4, which states simply that the chair of the SSRO shall be,

“appointed by the Secretary of State”,

and gives no further guidance as to how that chair may be appointed. I first ask the Minister to expand on how the chair will be appointed. I caution her about too much reliance on reference to the Commissioner for Public Appointments, because the commissioner very recently put out a useful press release about appointments in which he clearly stated:

“Ministerial appointments to public bodies regulated by the commissioner must be made in line with the commissioners code of practice which sets out that appointments must follow an open, fair and merit-based process, overseen by a panel. In the case of chair appointments, the panel must be chaired by an independent public appointments assessor appointed by the commissioner”.

That is so far, so good. It goes on:

“The panel’s job is to judge the suitability of candidates and to provide a list of candidates who are ‘above the line’ i.e. they have the ability to do the job. It is then for the relevant Minister to choose which of these candidates to appoint”.

I read that to stress the point that the appointment of the chair is in the discretion of the Secretary of State. It is, in that sense, a political appointment. It is entirely within his discretion.

The complementary area that I shall now explore is the relationship that the chair and the board have with the Secretary of State. I go back to paragraph 2(2) of Schedule 4, which states:

“A person may not be appointed as an executive member without the consent of the Secretary of State”.

The first point is that the executive members will need the consent of the Secretary of State. It is clear from paragraph 1 of Schedule 4 that the Secretary of State appoints not only the chair but the non-executive chair of the SSRO. Moving on, paragraph 3(2) states:

“Appointment as a member of the SSRO is for a term of … not less than three years, and … not more than six”.

Sub-paragraph (6) of the same paragraph states:

“A person who ceases to be a non-executive member is eligible for reappointment”.

Returning to the commissioner’s press release, it states clearly:

“The Public Appointments Commissioner plays no part in a decision not to re-appoint someone at the end of their term of office. That is a matter for Government”.

That makes it very clear that reappointment is a matter for the Government. Looking further at the schedule, paragraph 6 sets out:

“The SSRO may, with the approval of the Secretary of State … pay remuneration and allowances to the non-executive members, and … pay or provide for the payment of pensions, allowances and gratuities to or in respect of a person who is or has been a non-executive member of the SSRO”.

Finally, in pursuance of that point, I move to paragraph 16, on “Finance”, which says:

“The Secretary of State may make to the SSRO such payments out of money provided by Parliament as the Secretary of State considers appropriate”.

Taking all these together, let us suppose, to make it simple, that I was to be appointed—it does not pay enough but we can put that to one side. Let us look at this relationship. The Secretary of State appoints me, reappoints me, determines my remuneration, controls my budget, appoints my non-executives and then approves the appointment of my executives. It is for the Minister to convince me that this is an independent organisation. I have been there; I have been the chairman of a nationalised industry and the chief executive. I have lived under these rules and I have to tell noble Lords that independence was not one of the things I felt. I felt from time to time that I had conversations with the Secretary of State where there was a degree of influence.

I repeat my request to the noble Baroness and invite her to convince the Committee that the SSRO is truly independent. What mechanisms will be put in place to assure us, the world, industry and so on that this independence is real? Can she give us some practical indication: for instance, will the Secretary of State or MoD staff be allowed to communicate with the chairman or SSRO staff?

SSRO staff are covered in paragraph 7 of the same schedule, which says, quite bluntly:

“The SSRO may appoint employees”,

and,

“may pay its employees remuneration and allowances. Employees of the SSRO are to be appointed on such other terms and conditions as the SSRO may determine … The SSRO may pay or provide for the payment of pensions, allowances and gratuities to or in respect of any person who is or has been an employee of the SSRO”.

Finally, paragraph 17(3) says, very clearly:

“Service as a member or employee of the SSRO is not service in the civil service of the State”.

I ask the noble Baroness whether, as it appears from the schedule, the appointment is at the sole discretion of the SSRO. Will there be no interference from the state in any way, from the MoD or the Cabinet Office? Will pay be unfettered and will the SSRO be able to pay what is necessary to achieve the quality of employee necessary? In other words, will it have the sort of freedom—as far as one can see from simply reading this, the complete freedom—to appoint people on terms and conditions that are competitive with industry and, indeed, as good as, if not better than, those that will be allowed to DE&S-plus?

I move on to a straightforward question about procedure. Paragraph 10 of Schedule 4 states:

“The SSRO may determine its own procedure”.

I do not know why draftsmen do that, because it then goes on to say,

“but this is subject to sub-paragraphs (2) to (6)”,

which pretty well say that everything of importance has to be done by a committee. That is what I think it says. Can the Minister confirm that those provisions in sub-paragraph (3) cannot in fact be made by the board of the SSRO itself but will be made through a procedure of the committee as defined in, I think, sub-paragraph (2) and with the particular caveats that are in the subsequent sub-paragraphs?

Finally, I wish to raise an issue that I know we all worry about in public office: revolving door syndrome. I invite the noble Baroness to comment on the extent to which there will be limitations on where the members of the board, the executives of the SSRO, come from or go to. In particular, I am concerned about the extent to which they may be leading lights in the industry and carry their industry heart with them into the SSRO or, conversely, come out of the SSRO into plum jobs in industry. Will there be some limitations?

We have a couple of amendments in this group, which are just to enliven the debate. In the first, I wish to bring some independence to these appointments and suggest that they should be ratified by the House of Commons Defence Select Committee. In the second amendment, I suggest that the committee to which I referred earlier should have a majority of members who are not employees of the SSRO. I beg to move.

--- Later in debate ---

[Lord Tunnicliffe]

While I commend the noble Baroness on her anticipation of my speech, I wonder whether, where she has not answered my direct questions, she will write to me.

--- Later in debate ---

Moved by

[Lord Tunnicliffe]

18J: Clause 14, page 10, line 22, at end insert “provided the stipulation in subsection (7A) below is satisfied”

[Lord Tunnicliffe]

My Lords, I am sorry that I did not make a closing speech because the idea of HMT having performance targets and a bonus culture does not fill me with enthusiasm. I may write to the Minister on that.

In moving Amendment 18J I shall speak also to Amendment 18K and to oppose that Clause 25 should stand part of the Bill. The issue here is essentially one of transparency. The offending subsection in Clause 14 is subsection (7), which states:

“The Secretary of State may direct that a particular contract to which subsection (3) applies is not a qualifying defence contract even though the contract otherwise meets the requirements of subsection (2)”.

One loves legislation that contains such clauses because they mean something like, “Never mind the whole of this document because the Secretary of State can decide it does not apply”, which roughly speaking is what this says. Amendments 18J and 18K recognise that there will be circumstances in which, frankly, this whole part of the Bill is excluded by the Secretary of State. It invites the Secretary of State to bring full details to Parliament and explain why the decision has been made. I should like the Minister to set out the circumstances in which subsection (7) would be used. I have asked the question privately and was given a general answer saying, “It is about the peculiarities of government-to-government contracts”. It seems to me that my amendments are entirely reasonable in those circumstances. It is entirely reasonable where there is some other assurance process, such as, “The Americans are going to do it for us” or that there is a treaty with the French which lays out the provisions to do this. That would be when this clause is used.

The Grand Committee is a small group today and we are discussing a very dry subject, but it is one that concerns the moving about of hundreds of millions and, indeed, billions of pounds. If a chunk of money of that order is moving about, Parliament should know under what circumstances it is being moved about, why the SSRO is not involved, and what assurances the public purse can be given by the Government as to what is being done. I expect that in her response the noble Baroness will talk about government-to-government contracts and I look forward to her touching on the detail of that.

The other area that came to light only when I delved into this with more care is the fascinating area of critical industrial capability. I am not sure whether that is the favourite way of referring to the concept these days, but I am sure that my meaning will emerge. Critical industrial capability is a concept whereby the taxpayer shovels out an awful lot of money to various contractors, a substantial part of which goes to BAE Systems, in order to keep workers on the books who are not doing work so that they are available to do work later. I am not even saying that that is wrong. I can see precisely why it makes sense. A more holistic view of the problem might be to schedule one’s procurement in a smoother way so that they are working continuously, but, conceptually, I can see why the former concept is necessary. However, it is important to realise just how substantial this is. We had a recent Statement on aircraft carriers. I read what the Minister said but the BAE Systems press release is in some ways even more interesting in that it is quite revealing. It states:

“BAE Systems has reached agreement in principle with HM Government on measures to enable the implementation of a restructuring of its UK naval ships business”.

The perception of BAE Systems is that this is about the naval ships business. The press release goes on to say:

“In 2009, BAE Systems entered into a Terms of Business Agreement (ToBA) with the Ministry of Defence that provided an overarching framework for significant naval shipbuilding efficiency improvements in exchange for commitments to fund rationalisation and sustainment of capability in the sector. The agreements announced today, together with an anticipated contract for the design and manufacture of the Type 26 Global Combat Ships programme, will progressively replace that ToBA”.

This is about maintaining capability. A couple of paragraphs later, it states:

“Under the new Target Cost contract the industrial participants’ fee will move to a 50:50 risk share arrangement”—

it is talking about carriers—

“providing greater cost performance incentives. The maximum risk to the industrial participants will continue to be limited to the loss of their profit opportunity”.

This clearly—at least in my view—is not compatible with Part 2 of the Bill. Apparently, Part 2 allows risk-sharing only under Clause 16, as far as I can see, and that in no part talks about limiting the loss to the profit component. It implies that the loss would go down the middle and deeper into it.

The press release refers also to the three offshore patrol vessels. Noble Lords may recall that the Secretary of State’s speech made it clear that these were pretty cheap because, frankly, they were being paid for by the industrial capability budget. The press release goes on:

“Following detailed discussions about how best to sustain the long-term capability to deliver complex warships, BAE Systems has agreed with the UK Ministry of Defence that Glasgow would be the most effective location for the manufacture of the future Type 26 ships”.

We should remember that the press release is written for shareholders, not the public, so it re-emphasises:

“The cost of the restructuring will be borne by the Ministry of Defence”.

It seems to me that these sorts of contracts do not come within the proposed framework that Part 2 talks about. In order for such a contract to be completed or negotiated in the future, Clause 14(7) would have to be invoked. Essentially, I am asking whether I am right in those presumptions. I am very happy to be written to because I accept that I have raised rather a new point. If that subsection is to be invoked, and if this capability and that sort of contract is to be involved, costing hundreds of millions of pounds, and probably the odd billion, it seems to me that the public and government should know about it in a rather more open way. Our amendments would require this to happen: the public should know and Parliament should know.

On Clause 25, essentially I am asking the Minister whether I am right that this is the only reference in the Bill to the issue that I have been talking about. Clause 25 seems to stand out as not being cross-referenced anywhere else in the Bill. It suddenly pops up on the subject of overheads and forward planning. I assume that this relates to the reporting structures. I should have said at the beginning that the reporting structures in the Bill are in many ways the essence of it, and the fact that I have no amendments on them is an acknowledgement that I commend the reporting structures and what they do. However, regarding Clause 25, I ask whether this relates to this concept of critical industrial capability and, if it does, in what circumstances Clause 25(8) would apply. Those of us who are required to study legislation always look for this paragraph:

“The Secretary of State may direct that a particular contract is not to be taken into account in determining whether the ongoing contract condition is met in relation to a financial year”.

In other words, if it gets very difficult, the Secretary of State can determine that it shall not be taken account of.

I hope that the Minister will be able to help with these questions and I am content that she may need to write to me. I beg to move.

[Baroness Jolly]

My Lords, I will consider Amendments 18J and 18K together and then move to the clause stand part debate.

These amendments relate to the Secretary of State’s power to exempt contracts from the new framework, provided for by Clause 14(7). Amendment 18J has no impact in its own right other than to add scope for a limitation to the Secretary of State’s exemption power. That limitation is provided by Amendment 18K. Subsection (7) gives the Secretary of State the power to exempt individual contracts that would otherwise be subject to the new regime. While it is not possible to foresee all future circumstances, this power is considered necessary for a number of reasons.

Before considering the limitation introduced by Amendment 18K, it might be helpful to noble Lords if I outline and give examples of the key circumstances in which we expect this power to be used. The first circumstance is where there is no market failure. The framework addresses the situation where a contract price is not subject to the competitive pressures of the market. If those pressures are evident in the contract price, the framework is not required. An example is the purchase of additional items that are readily available in the civil market, such as computers. To ensure compatibility with our existing infrastructure, we might want to use a particular manufacturer, so the procurement would be a single-source procurement. However, the item might have a price that has been established in a competitive market. In such cases, there would be no requirement for standardised reporting and open book rights to ensure value for money, because it would be self-evident from the marketplace. Applying the framework in such a case would not represent value for money, as the additional costs of making the contract a regulated contract would not be outweighed by the benefits of transparency.

--- Later in debate ---

To address some of the noble Lord’s points on the exclusion of government-to-government contracts, these contracts are already excluded by the single-source contract regulations under Clause 14(2)(c). The exemption power of the Secretary of State will not be used for these contracts. I have a lengthy response on transparency over strategic capability, and it is probably better if I set it down in a letter to the noble Lord; it runs to one and a bit pages. If the noble Lord is happy with that, I would be grateful if he would withdraw his amendment.

[Lord Tunnicliffe]

I take it that that was an offer to write to me with the one-and-a-half-page response.

[Baroness Jolly]

I am more than happy to read it to the noble Lord. Would that help?

[Lord Tunnicliffe]

It might help, because the noble Baroness will probably have to put it into the record anyway, on Report.

[Baroness Jolly]

The framework provides for a range of reports to be specified in the single-source contract regulations upon both specific contract costs and upon supplier costs that relate to wider capabilities and capacity. It is estimated that around a third of the costs of single-source contracts relates to so-called overheads. These account for some £2 billion a year of expenditure under single-source contracts. These costs do not relate to any one individual contract but, it is said, represent the costs of providing particular industrial capabilities and capacity. Not all of the costs of this capacity will be reflected in the costs recovered through single-source contracts. Some may be recovered through MoD contracts won competitively, or through non-MoD customers. However, in some sectors where single-source activity is particularly concentrated, these costs may represent the majority, if not all, of the costs of capacity.

The new framework has six reports relating specifically to these costs. These include reports on the estimated costs that are used to price contracts, the assumptions that underpin those estimates and the actual costs that are subsequently incurred. The requirement for suppliers to keep relevant records in relation to costs and the MoD right to examine those records also apply equally to these overhead costs, as they do to any other allowable costs. In addition to these transparency rights, the pricing principles set out in relation to allowable costs also apply to these overhead costs. Such costs must be appropriate in nature and reasonable in value.

The transparency provided by these reports, the access to records supporting them and the requirement to follow the pricing principles will further enhance the ability of the MoD to act as an intelligent customer when considering the cost of the capacity it requires. The single-source contract regulations will also provide for a further report that specifically considers the industrial capacity provided by our key suppliers. This report will supply senior individuals in the department with consistent information across suppliers when considering capacity requirements, contributing to the alignment between requirement and the industrial capacity we have to pay for. I hope that the noble Lord will now consider withdrawing his amendment.

[Lord Tunnicliffe]

My Lords, I thank the noble Baroness for that response. We have used different terms but I think she has gone half way to meeting my concerns over what I have called the critical industrial capability. I did not of course put down a clause stand part debate in order to not have a clause, but to understand it better.

However, one area still concerns me. The sort of deals that I described from the BAE Systems press release are very large, and I have great difficulty in seeing how you would fit them, in future, into Part 2, which is full of pricing mechanisms, profit share and so on. It is quite detailed and there is a framework. I am happy for the Minister to write to me rather than give me an answer now, but one of the questions is whether she envisages that such deals will be fitted into Part 2 or whether it will be necessary to use Clause 14(7) or some other exception—as the Minister has pointed out, there are other exceptions in that clause. Does the Minister envisage there needing to be an exception for those sort of deals or is it envisaged that future deals of this nature will be somehow compatible with Part 2 in ways that, at the moment, I am incapable of understanding? I would be very grateful for a response to that detailed question, although I would not encourage her to give me one now. With that, I am content to withdraw Amendment 18J.

Amendment 18J withdrawn.

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Moved by

[Lord Tunnicliffe]

18L: Clause 18, page 13, leave out line 19 and insert—
“(3) Single source contract regulations may provide that, if the achievement of a fair and reasonable contract profit rate for a qualifying defence contract at the time of pricing was frustrated because the information supplied or made accessible by one party to the other at the time of pricing, and on which that contract profit rate was based in whole or in part, was materially inaccurate or incomplete, the SSRO—”

[Lord Tunnicliffe]

My Lords, in moving Amendment 18L, I will also speak to Amendments 18M and 18N. I find myself in the unusual position of a public sector socialist politician putting forward some amendments nakedly proposed by industry. However, it seemed that the questions being posed deserved a response and a discussion. I hope the Committee will forgive me proposing these amendments as a bunch of probing amendments for the Minister to respond to.

The industry argues that Clause 18(3) creates uncertainty as to the contract price. It enables the contract price to be challenged at any time after it has been agreed if the party considers that adjustments under steps 2, 3 or 6 of Clause 17(2) were not appropriate. When approving or signing a contract, a board of directors will require certainty of income against which it can assess its cost estimates and associated risks. It contends that the sense of uncertainty over price may have unintended consequences for shareholder value, group decisions on where to invest, and the perception in the wider marketplace that the UK remains a good place to invest in and do business. It believes that the parties should have a limited time period in which to challenge the adjustments made in steps 2, 3 or 6 to reduce uncertainty, and that a period of six months from the date of price agreement is more reasonable.

The industry also argues that the grounds for a challenge need to be included in the Bill. There needs to be a material basis for the challenge such as that the adjustment has caused harm or disadvantage to one party. An error or an omission that has caused harm or disadvantage, and if corrected would give rise to a material adjustment, would be a more reasonable basis. Without materiality or a de minimis threshold, challenges could be made for trivial amounts. I beg to move.

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To limit this determination to material price adjustments would limit the power of the SSRO to make determinations based upon principle, irrespective of value, and in doing so to award appropriate costs. The determination may deal with important matters of principle but, based upon the balance of circumstances, the SSRO may consider that a nominal adjustment is appropriate, setting out its reasons for doing so. To prevent the SSRO from making such determinations would be an unfortunate restriction upon its freedom to make determinations in such cases. I therefore urge the noble Lord to withdraw Amendment 18L, and not to move Amendments 18M and 18N.

[Lord Tunnicliffe]

My Lords, I thank the Minister for her response, which I will study with great care. I am sure that those outside the House will study it with even greater care. In the mean time, I beg leave to withdraw the amendment.

Amendment 18L withdrawn.

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Moved by

[Lord Tunnicliffe]

18P: Clause 19, page 13, leave out line 32 and insert—
“(1) The Secretary of State shall by regulations, for each financial year, provide a determination of—”

[Lord Tunnicliffe]

My Lords, in moving Amendment 18P I will speak to the rest of the amendments in this group. The points I want to make are simple, but I look forward to the reply I shall receive to these simple ideas.

The group essentially refers to Clauses 19 and 20. Clause 19 addresses the issue of the contract profit rate and, essentially, the amendments would require that the rates must be set by regulation each year. Amendments 23A and 23E turn this into an affirmative-procedure process.

More interesting is Clause 20, “Allowable costs”. As the report of the noble Lord, Lord Currie, points out, we have over the years had a lot of debate, effort and negotiation into the contract profit rate which, typically, is 10%—pedantically, it is 9%—of the total price; and too little, one might argue with the benefit of hindsight, into the issue of allowable costs, which represent 90% to 91% of the total price. Therefore, Clause 20 properly addresses this issue.

Subsection (1) states:

“The SSRO must issue guidance about determining whether costs are allowable costs under qualifying defence contracts”.

Subsection (2) attempts to define allowable costs. It is important to emphasise that these are the big bucks. This is where the big money is in the contract. This is 90% or more of the total price. The guidance we get from the primary legislation is that they must be appropriate, attributable to the contract and reasonable in the circumstances. Much as I praise this part of the Bill—and I do as it is a really good attempt to address this extremely difficult issue—I cannot but be amused by these three descriptors of one of the most important elements. I remember that when I was privileged to be in the noble Baroness’s position, whenever an official used the word “appropriate” in my response, it meant we did not have an argument, so I dismiss subsection (2)(a) as pretty well irrelevant. I do not have a lot of time for paragraph (b) either, because if it is not “attributable to the contract”, who would in all conscience try to argue that it should be there? We are left with “reasonable”. Much as I applaud the concept of being reasonable, it is not a very full description. Therefore, inevitably, and quite properly—I am not unhappy about this—it will have to be left to the SSRO to develop guidance about it. However, surely this is so important that it should not be merely guidance but should be in regulations. Regulations of this importance should be exposed to public gaze and debate and should be accountable to Parliament through the affirmative procedure. I beg to move.

[Lord Palmer of Childs Hill]

My Lords, I, too, am worried about these words. I shall not repeat what the noble Lord, Lord Tunnicliffe, has said. It is really a question about what are allowable costs. As anybody in business knows, allowable costs can be described in so many ways. For instance, Starbucks does not pay any tax in this country because it charges its royalties from overseas against its costs in this country. Would that on a contract for a submarine be allowable costs? If the contractor is producing, let us say, one submarine, can it therefore charge all of its chairman’s, managing director’s and executive board’s salaries against the cost of that one submarine? If it is also producing a group of battleships or carriers, those executive costs, for example, would be spread over all the costs of all those items of equipment.

In her previous reply, the Minister spoke about an audit trail. The noble Lord, Lord Tunnicliffe, used the word “reasonable” and all the other adjectives. A contractor who wished to drive a coach and horses through this could do so by manipulating what could be administrative costs. It is very easy to say that if the mythical submarine requires a widget, that widget is applicable to that submarine. You can see that, but when you are dealing with, let us say, the premises for the submarine, if it is one submarine, is the contractor allowed to charge the whole of the premises costs against the cost of that submarine? If it was also building an aircraft carrier, it could charge some of that premises costs against it. I invite the Minister to come back, perhaps on Report, with some better reassurance about how allowable costs will be allocated and particularly about how to spread large costs if only one item of equipment is produced by that contractor.

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[Lord Tunnicliffe]

My Lords, I thank all noble Lords who have taken part in this debate. I congratulate the Minister on her spirited defence. Unfortunately, it failed. Our concern about the processes is real, and our overwhelming concern is the billions of pounds that are tied up in allowable costs. As we will go on to discuss, the various forms of contract are an important chunk of the real profits of the company. At the end of the day, this is a negotiating game. It is a matter of how much you can legitimately build into your allowable costs, with a profit rate on top of that. Allowable costs are at the centre of what defence contracts cost and what the taxpayer must pay. I do not feel that the Minister, despite her spirited defence, has addressed our concerns—not only my concerns, but those of other Members of the Committee—on allowable costs. I fear that we will be tempted to return to this on Report. As I believe this to be an apolitical issue, I encourage the Minister to ponder today’s debate and to see what she can add to it. We would all enjoy receiving a letter from her that would provide nuance to the Government’s position and I encourage her to do that. It is a matter of real concern to the Committee. In the mean time, I beg leave to withdraw the amendment.

Amendment 18P withdrawn.

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Debate on whether Clause 21 should stand part of the Bill.

[Lord Tunnicliffe]

My Lords, I will speak to Clause 21 and to Amendment 23C. I must emphasise that our opposition to Clause 21 standing part of the Bill is not directed at the essence of the clause; it is to explore the clause. However, I fear that we must explore it fairly widely.

The concept in this clause, of a final price adjustment, comes out of the report by the noble Lord, Lord Currie. It addresses the key issue of profit that arises from the outturn. In my view, it is conceptually very sound. It is utterly meaningless without the regulations so I thank the officials and the Minister for sharing the regulations with me. After considerable effort, I think that I understood the early part of the regulations, particularly in relation to Clause 21(2), and they seem very sensible. They have a clawback of excessive profit of up to 75% and they support the supplier in a position of excessive loss at 50%, on the simplistic assumption that the profit rate is 10% of the allowable costs. There is quite a broad band, between 96% and 110%, where all variation falls to the supplier’s bottom line, which is a very strong incentive for the supplier to become more efficient and make more profit. I am not against suppliers increasing profit if that is achieved through efficiency. I am entirely in favour of it in this new open book, multi-reporting regime whereby the MoD can share in that experience through the reporting regime, understand it and help future suppliers understand how they can deliver at lower costs and more efficiently. It is a good regime.

Essentially, Amendment 23C simply argues that the regulations referred to in Clause 21(2) should be approved by Parliament using the affirmative procedure. Having recovered from the effort of understanding subsection (2), I gave up the ghost intellectually at that point and stopped reading the Bill. However, since then, I have started to read it again and I find Clause 21 a little difficult to understand, so I have a series of genuine questions for the Minister.

Clause 21(3) states:

“Provision made under subsection (2) must include provision for the amount of any adjustment to be determined … by agreement between the Secretary of State, or an authorised person, and the primary contractor”.

Does that mean that the regulations set out in subsection (2) may or may not be obeyed? In other words, can the Secretary of State agree to disregard the regulations under subsection (2), in which case it seems that the process of developing and publishing the regulations was valueless; or does it simply mean that the parties agree that the figures are right and so on? Is it a clause which simply invites the parties to agree, and if they do not agree the matter can be referred to the SSRO?

Given the precision of the regulations as I read them—I recognise that many thousands of man hours have gone into crafting them—I had some difficulty in understanding Clause 21(4), which states:

“Provision under this section may be expressed so as to apply … to particular kinds of qualifying defence contracts”.

What would be the differences and how would they apply? I genuinely have trouble envisaging what the different sorts of contracts may be like.

I assume that Clause 21(4)(b) is a simple de minimis provision—namely, that there should be a value below which you do not quibble because it is simply not worth doing so. I was fairly comfortable that it was a de minimis provision until I read Clause 21(5)(a) and (b), at which point I gave up the ghost because I could not understand what subsections (5)(a) and (5)(b) meant if subsection (4)(b) is a simple de minimis provision because subsections (5)(a) and (5)(b) seem to be super de minimis provisions. My general view of Clause 21 is that it is great in so far as I understand it, but I have to confess that I do not fully understand it and I seek enlightenment.

[Baroness Jolly]

My Lords, this is a crucial element of the Bill because it protects the taxpayer against contractors earning excessive profits while also protecting industry from excessive losses.

The basis of the Bill is that contractors should get a fair return on single-source work, and even better returns if they can drive cost efficiencies which deliver long-term benefits to the MoD. However, they should not be entitled to super-profits just because, despite best intentions and efforts, both parties happened to get the pricing wrong. Likewise, in the same circumstances, suppliers should not be expected to suffer losses. This clause offers protection to both parties. The clause enables a final price adjustment on completion of a contract if the actual costs of the contract turn out to be markedly different from those agreed at the time of pricing. The mechanism will be applied to all qualifying defence contracts priced at the outset on the basis of a firm or fixed price.

At Second Reading in the House of Commons, statements were made to the effect that provisions such as this are undesirable because an agreed contract price should be an agreed contract price and that clauses like this remove pricing certainty and dampen supplier incentivisation. There is some truth in the observation, but I believe the clause strikes a good and proper balance between incentivising suppliers and protecting the public purse in the way that the noble Lord, Lord Currie, recommended it should. It should also be noted that on a number of occasions in the past when suppliers incurred very substantial losses, such as on the Nimrod programme, they have come back to us for more money. Since we need the capability they provide, it is not in our interest to let a supplier go bankrupt by holding it rigidly to its contract price.

I must also tell the Committee that this clause does not introduce a new idea into single-source contracting. Provisions for a final price adjustment have been in place since 1968 under the existing Yellow Book arrangements, and a mechanism very like Clause 21 has been in place since 2004. It is in many of our single-source contracts and has already been successfully used to recover excess profits from our suppliers on some contracts. However, because the existing mechanism is contractual and needs to be negotiated, sometimes suppliers refuse to agree to its terms. This happened on a recent large maritime maintenance contract where commercial officers had to give it up in exchange for another provision we desired. That is why we want to legislate to provide this protection. If Clause 21 falls, a significant protection for both parties falls with it.

Clause 21 also states that any adjustments to the final price will be determined by the Secretary of State and the contractor. However, if an agreement cannot be reached on whether an adjustment is required or on the amount of that adjustment, the clause enables either of the parties to refer the matter to the SSRO for a binding determination. The clause will be used for particular types of contracts—firm and fixed-price contracts, which account for 60% of our single-source contracts—and the SSCRs will set out the minimum value for applying these provisions.

Finally, the clause gives the Secretary of State a power, on a case-by-case basis, to exempt a QDC from any final price adjustment as long as the value of that QDC is within the range to be specified in the SSCRs, which is expected to be between £5 million and £50 million. When deciding whether to make such an exemption, the Secretary of State must have regard to any matters which will be specified in the regulations. The clause is an important element in protecting both parties in defence contracts: the Government against suppliers’ excessive profits and industry from substantial losses, which ultimately would not be in the MoD’s interest. It is therefore crucial that it remains in the Bill.

Amendment 23C is part of a group of amendments which relate to the regulations that are to be made by statutory instrument under Part 2 and the parliamentary procedure by which those regulations will be made. We have previously discussed this in relation to Clauses 19 and 20 and Amendments 23A, 23C and 23D. Amendment 23C would provide for regulations under Clause 21 to be subject to the affirmative procedure. These regulations are for the final price adjustment and are currently subject to the negative procedure. The final price adjustment is expected to apply to around half of qualifying defence contracts—those which are firm or fixed price—and will have effect only when the costs incurred under these contracts are significantly different from those estimated at the time of pricing. The mechanism provided for by the draft regulations under Clause 21 is a relaxation of an existing mechanism that has been in place since 2004 and follows one of the recommendations by the noble Lord, Lord Currie. The Delegated Powers and Regulatory Reform Committee did not recommend that regulations under Clause 21 need be subject to the affirmative procedure and we, too, do not consider that these regulations warrant it. I urge the noble Lord not to move Amendment 23C.

Clause 21(4)(a) applies only to a particular kind of contract. The final price adjustment applies to all firm and fixed-price contracts, but with “pain and gain share” contracts, where the MoD and industry agree sharing provisions such as 50:50, it would not be appropriate to have two sharing mechanisms running simultaneously. Clause 21(4)(a) allows us to exclude “pain and gain share” contracts from the final price adjustment. The noble Lord queried the effect of Clause 21(4)(b). It is only to provide for a de minimis level. I am advised that the effect of Clause 21(5)(a) and 21(5)(b) is complex, and I will write on that.

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Moved by

[Lord Tunnicliffe]

18R: Clause 26, page 18, line 40, leave out from beginning to “on” and insert “A primary contractor and the Secretary of State must notify the other”

[Lord Tunnicliffe]

My Lords, Amendments 18R, 18S and 18T are prompted by industry, which seeks to argue that there should be a mutuality in obligation and a test of materiality. The industry argues that there should be a mutual obligation on the primary contractor and the Secretary of State to notify the other of events, circumstances and information that are likely to have an effect on, or relevance to, a contract. The MoD will have information that is likely to have an effect in relation to a qualifying defence contract, whether that affects its price or performance. The MoD should have a duty to disclose relevant information to the contractor, which must be reflected in the Bill. I understand that this duty was confirmed by the Government in Committee in the House of Commons but I would value further affirmation.

As a result of the broad scope of events and circumstances that are likely to have an effect on, or relevance to, a contract covered by Clause 26(1), it is realistic that the contractor or the Secretary of State should be required to notify only when they believe there is a likely effect or relevance. Without this restriction, the obligation to notify is extremely broad. Further, it is argued that it is not necessary to refer to the effect on costs per se; the important aspect is whether there is an effect on price, such that Clause 26(3)(a) is unnecessary. I beg to move.

[Baroness Jolly]

My Lords, one of the flaws in the current Yellow Book framework is that it provides little transparency once on contract. A key objective of the new framework is that the MoD should be able to monitor the health of single-source contracts on an ongoing basis, receiving timely information so that it can take fast and effective action. This is very important. There have been too many examples in the past when the MoD has discovered cost or time overruns on single-source contracts far too late for remedial action to be taken. Receiving information throughout the course of a contract will give the MoD the opportunity to work with contractors to take early action to avoid or minimise the impact of issues as they arise. This clause is one of several that provide this transparency.

A supplier will always know more than the MoD about the issues affecting its their delivery of a particular contract. Some of our suppliers share information on an open basis, alerting us as issues arise so that decisions can be taken on a joint understanding of the best information available at the time, but not all of our suppliers do this.

The standardised reports that will be required under Clause 24 will provide periodic snapshots of contract performance. However, for contracts below £50 million in value, a report may be received annually or still less frequently, and even for our largest contracts a standardised report is only required quarterly. These periods are appropriate for standardised reporting, but three months can be a long time in managing a contract, especially complex contracts worth many millions, or billions, of pounds.

Clause 26 therefore supplements the regular contract reporting, placing a duty on contractors to let the MoD know, in a timely fashion, of matters material to the contract. Putting the onus on the contractor in this way means that the new framework can be “lighter touch” than it would otherwise be if the only means by which alarm bells could be sounded on a project was through periodic reporting and the MoD’s monitoring powers.

Amendment 18R would make the Secretary of State subject to the same duty, providing notifications to the contractor. Clause 26 will place a duty upon a contractor to notify the Secretary of State when the contractor becomes aware of the occurrence, or likely occurrence, of “events”, “circumstances”, or “information” that are likely to have a material effect on a qualifying defence contract. Applying this same duty would require the Secretary of State to notify the contractor of events, circumstances or information that are likely to have a material effect on the contractor’s costs—the subject of Amendment 18T—the contract price, or the contractor’s performance.

Let me first be clear that this does not concern changes to our contractual requirements. If the requirements of the MoD change, and this affects an existing contract, then we require a contract amendment to reflect those new requirements. This should be quite separate to the delivery of requirements already contracted for; if we wish to amend the contracted requirement, we will tell the contractor and begin the commercial process of amending the contract, and this is not a matter that requires legislation. The contractor is not forced to make the amendment, and they will charge us for any additional costs that might arise, or amend performance requirements if this is relevant. Until we seek a contract amendment, a contractor should be concerned with managing the existing contract.

For contracts which we are not in the process of amending, this duty would require the Secretary of State to assess the impact of events, circumstances and information across the department upon each contractor’s contracts. This is quite different from the duty placed upon a contractor when they are managing a contract in the normal course of business. It would require the Secretary of State to assess what might, or might not, affect a contractor’s cost or performance, to look beyond the contract and assess whether a contractor’s activities are likely to be affected. This duty would be impossible for any Government to discharge.

We agree that when a contract is being priced, the duty to share information should be reciprocal. Both parties should share their assumptions to ensure that the price agreed for the contract is both fair and reasonable and value for money. However, once a contract has been entered into, it is the contractor who must manage the delivery of the contract, and who is responsible for the performance of its business and costs. It is not the responsibility of the Government to second guess what is likely to have an impact upon how a contractor achieves their contracted requirements. We do not accept that Clause 26 represents an equal duty when placed upon the Secretary of State compared to a contractor. It would be inappropriate to place this duty on the Government and impossible for a Government to fulfil.

Amendment 18S is the second in this group, and it seeks to qualify the duty to notify by adding the requirement that, for each of the three elements under subsection (1), the contractor believes in the existence of the effect or relevance. Each element requiring notification under subsection (1) is expressed as,

“likely to have a material effect”,

or,

“likely to be materially relevant”.

This means that a contractor need only notify the Secretary of State if two tests are met: first, that an effect or relevance is likely; and, secondly, that an effect or relevance is material. If a contractor considers that an effect or relevance is not likely or not material, then no notification is required.

The effect of this amendment would be to add a third test: that an effect must be likely, material, and believed to exist. We do not think that an effect could be considered both likely and material and yet at the same time not be believed to exist. To put it another way, if it were not believed to exist, how could it also be considered likely to have a material effect? Without embarking on a debate on the nature of belief, it is not clear what this third test adds.

Where there is a disagreement between a contractor and the Secretary of State over whether a contractor should have provided a notification under this duty, the Secretary of State may issue a compliance or penalty notice. Ultimately, it will be for the SSRO to determine whether a notification should have been provided and, in doing so, it will consider the two conditions of “likely” and “material”. We consider that the two conditions already required for there to be a duty to notify are sufficient and that the third test of belief proposed by this amendment is unnecessary.

Moving on to Amendment 18T, Clause 26 provides for three matters that are the subject of the duty to notify; these are listed in subsection (3). They are the costs under the contract, the total price payable under the contract, and the contractor’s performance of material obligations under the contract. This amendment seeks to remove the first of these matters—the costs of the contractor under the contract. The effect of this amendment requires some explanation as there is some overlap between the first two matters—the cost and the price payable under the contract. For cost-plus and target-cost contracts, the costs incurred under the contract will directly affect the price payable under the contract, so there is a limited difference between the two matters for these contracts, which represent just under half of the single-source landscape. The rest are firm or fixed-price contracts under which the contractor’s costs may vary while the price payable may not. So it is firm and fixed-price contracts that would primarily be affected by this amendment.

The reason that we wish to be notified in relation to both costs and price under the contract is the same as the overall requirement for Clause 26—to ensure that the MoD receives timely warning of matters affecting contracts. If the costs of a firm or fixed-price contract are likely to materially change, this is still important management information for the MoD. It may indicate a significant risk to the project or signal future performance issues. Just because it may not affect the price payable does not mean that this is not important information. For example, a contractor could manage a contract for a year in between standardised reports being provided to the MoD. In that year, a significant risk could be recognised and material costs could be incurred in trying to manage the risk in the expectation that performance under the contract will not be affected. However, despite the additional costs incurred, it finally becomes apparent that performance is likely to be affected after all, at which point a notification would be required.

It is a characteristic of single-source procurement that there is only one supplier that can provide the capability we require. If the contract fails we lose the capability we need. This has led suppliers in the past to seek price increases even though we have agreed a fixed price. Where the cost increases are very large, this puts the MoD in a difficult position. Seeking to keep to the fixed price can lead a supplier into great financial difficulty, putting not only that contract but others with that supplier at risk. If the supplier fails, then we lose the capability we need. This is a real risk that has arisen in the past, and thus we need the same transparency over the costs of fixed-price contracts as we do for other contract types. We do not see a benefit to applying a different notification requirement to firm and fixed-price contracts, so that for these contracts notification is only required once performance is likely to be affected, while for other contracts notification would be required at the point that costs, and therefore price, are likely to be affected. This is not the early warning that this provision is intended to provide.

For all these reasons, I urge the noble Lord to withdraw the amendment.

[Lord Tunnicliffe]

My Lords, I thank the Minister for her response, which I will read with great care in Hansard. Others outside the House will read it with even more care. In the mean time, I beg leave to withdraw the amendment.

Amendment 18R withdrawn.

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[Lord Roper]

My Lords, I welcome the Government’s amendments to these various clauses. They are a very full response to the report of our Delegated Powers and Regulatory Reform Committee of last December, which was responded to by the noble Lord, Lord Astor, in his letter to the committee published earlier this year. It seems that in these amendments the Government have taken fully the points that were made by the report. We are very well served by that committee, which ensures that there is the technical scrutiny to ensure that parliamentary control is maintained when there are questions of delegated powers. I feel that the Government have responded fully to the proposals of the committee. I am not sure whether it has yet had a chance to respond to the letter of the noble Lord, Lord Astor, or if there are any further points that we may need to come back to on Report, but I understand that it is generally satisfied with these amendments.

[Lord Tunnicliffe]

My Lords, at this point I have no objection to the government amendments, but that may be partly because I do not understand them. I shall find them easier to read when the Bill is reprinted for the Report stage but, as I say, I have no comment or objection at the moment.

I may be about to contradict myself when speaking to Amendments 22A and 23B. Amendment 22A is prompted by the industry, which has argued that the regulations arising as a result of the review should be made and updated in an open and transparent manner. It argues that an industry-wide consultation should be undertaken, the Secretary of State should have regard to that consultation and the regulations should be laid before Parliament. Amendment 23B argues essentially that the penalties regulations should be passed by the affirmative procedure on every occasion. These are penalties which could have dramatic effects.

I think that this is the last time I will speak, so I should like to congratulate the Minister on her marathon performance. I recall from when I occupied her place that it can seem a bit futile, but I know that what she has read into the record will be held to be of great value by both parliamentarians and those outside. I thank her and her officials for their efforts, and I look forward to reading with great care the products of our discussions. I also look forward to her letters.

[Baroness Jolly]

I thank the noble Lord for his comments and I am sure that I will get my pen out and start writing as soon as I have consulted with the gentlemen sitting behind me. On a slightly more serious note, I am sure that we will have meetings with the Bill team and people from the MoD.

I turn now to the amendments. Amendment 22A would place a statutory duty on the SSRO when performing its review of the single-source framework to consult with industry and to publish the results of the consultation exercise. As noble Lords will be aware, many aspects of the single-source framework under Part 2 will lie in regulations rather than in primary legislation, and many of the clauses in this part give the Secretary of State the power to make those regulations. This is to allow the regulations to be periodically updated to take into account changes in procurement approaches, the defence sector and what is being procured, without the need for primary legislation. I reassure noble Lords that we are aware that the new single-source framework represents an important change to single-source procurement. We have been consulting closely with the industry throughout the development of Part 2, including the Bill and the detail of the regulations.

In October 2011, the noble Lord, Lord Currie, published his report and we subsequently ran a full public consultation which completed in January 2012. In April of that year we started a defence suppliers’ forum subgroup with our top 10 single-source suppliers. These included BAE Systems, Finmeccanica, Rolls-Royce, Babcock, Thales, MBDA, QinetiQ and others. Over the past two years we have met with them more than a dozen times to share our proposed approach and understand their concerns. Beneath this forum we also established a number of technical working groups on specific matters such as confidentiality, the SSRO and risk, and most recently on the regulations themselves. In January alone this year we spent four full days discussing the draft regulations line by line with industry, and we expect further such discussions before the summer. This is a substantial level of consultation, more than is typical for new government policy, and it has resulted in our making some important changes to our framework, such as introducing the new criminal offence to protect industry information.

It is certainly not in our interests to create an unworkable framework. For one thing, we pay for any additional overheads our suppliers will incur, which will be incorporated into their single-source prices, provided that they are reasonable. We also need the capability they provide and have no desire to make it hard to do business with the MoD. Indeed, it is out of a desire to ensure that the framework is as practical as possible that we have consulted with industry to the extent that we have. Industry cannot claim that it has not been consulted prior to the first regulations being made.

Defence Reform Bill

Lord Tunnicliffe Excerpts

Tuesday 10th December 2013 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, this has been a very interesting debate. One realised as one listened the extent of the knowledge of, and involvement in, defence over many years represented in the Chamber today. My credentials are somewhat modest. My noble friend Lady Cohen set out hers, but did not mention the role she handed on to me. I spent two very interesting years as a non-executive director of DLO, the defence procurement agency, and was involved in the merger that created DE&S.

I expected to be in the somewhat minority view, arguing for some respect and admiration for the quality of the people in DE&S, but I find that I follow the noble Lords, Lord Levene, Lord King and Lord Lee, the noble and gallant Lord, Lord Stirrup, and my noble friend Lord Davies in saying that these are good people doing a good job. As the noble Baroness, Lady Garden, pointed out, it is tremendously complex—a very big procurement job and one, as my noble friend Lord Davies said, in a constantly changing field. They are much underrated and I would certainly like to set down my name as one who admires them, as I admire the Armed Forces in general.

There has obviously been an ongoing challenge in defence procurement. We on this side accepted that general challenge and much of the direction the Government were going in. We were willing to see a GOCO option if, through a process of competition, it could be refined into something credible that would do substantially more than DE&S being developed in a favourable environment. However, that competition went away. Only one bidder was left. Reluctantly, I welcome the decision—someone has to welcome the Government at some point—to abandon the competition and concentrate on DE&S. DE&S has the fundamental talent, provided it is supplemented. The noble Lord, Lord Levene, made the point that it would take a relatively modest number of additional people in focused roles to rise to the DE&S-plus challenge and meet the objectives that we all have in mind, and the needs of the taxpayer and front-line people.

We have a little bit of a mix-up today, with a debate on a Statement and a debate on a Bill. I have a few questions about the Statement. I will repeat some of the questions put by my noble friend Lord Davies because I informed the Minister about mine and expect him to answer them today. First, does the new entity require any legislation? As far as I can see, it does not. This can be done administratively within the present law. There is mention in the Statement about the accounting officer’s budget. Will that budget be merely for the operation of DE&S, or is this the procurement budget of £8 billion or £10 billion, depending on how you look at it? That is very important because if the accounting officer holds the budget he can, in a sense, insist on that firmer line between the front-line commands and the DE&S providers. Could the Minister also set out in more detail the new freedoms when it comes to pay? In other appointments over the past months, there has been talk that no appointment should be made at a rate that exceeds the Prime Minister’s salary. That will clearly be too limiting in this case. Are the freedoms such that that sort of arbitrary limit is not there?

We also have the very important issue of how appointments to these roles will be made. I think that the Secretary of State referred in the Commons to something like an accelerated system. We have spent a lot of time in this country worrying about public appointments. We have a Commissioner for Public Appointments, so at least some regard has to be taken for the work of that commission and how the new appointment process may give us better, faster results yet still meet the tests of fairness and opportunity that the public appointments commission represents.

To be very specific: how was Bernard Gray appointed? The Government have to be responsible for that appointment, but can we at least know how the decision was made and what public appointments criteria were checked off before it was made? We should know what Bernard Gray is to be paid because that will illustrate whether the Government are serious about breaking free from constraints in payments. It was perfectly reasonable at the time of the appointment of the Governor of the Bank of England that his salary and conditions were openly presented, and it should happen now.

Finally, in the Statement, which I will come back to, there is the concept that we might go for a GOCO at some time. Can the Minister offer some clarity on that? Are we talking about it being before the next election, immediately after it or further in the future?

Turning to the Bill, first, I join with other noble Lords in asking the Government most sincerely to withdraw Part 1. The intention of legislation must be to deliver a tangible outcome. You have to have a concept when you are working on creating it: what is it going to deliver? The legislation to create the GOCO is quite complicated—I will come to that—but at least there was something there. We had a White Paper about it and there had been some description and discussion of it. There was some background about the tangible thing that we were debating. We will not now be debating something that is going to happen in a near timescale. It will be a debate in a vacuum. It will almost be a philosophy seminar, as we will have to carry notions of “What if this?” and “What if that?”, and of how it fits together.

Finally, it will have the most undesirable effects on DE&S because it will be like a sword of Damocles. At the whim of a Minister, with no scrutiny from this House or the House of Commons, the whole issue relating to defence procurement can be transferred to a GOCO if we pass Part 1 of the Bill. I implore the Government to withdraw Part 1 and to let us spend our time concentrating on Parts 2 and 3. In the mean time, let us encourage DE&S to continue with its improvement programme, using its new freedoms. If the new freedoms need any legislation, of course that can be wound into it, but we should not have to contemplate or discuss a theoretical concept of such magnitude that it will have no impact within a near timescale.

Sadly, the Government will perhaps not listen to me and we will have to discuss the GOCO. As the noble and gallant Lord, Lord Stirrup, said, superficially it is not a magic bullet. We will have to work through a lot of questions. There are issues of conflicts of interest, the retention of sovereignty and the protection and supply of intellectual property. How will Chinese walls work within the various parts of the consortium that are also parts of larger firms? How will the civil and criminal penalties work in order to make these protections credible to the outside world? The concept was that it might go for nine years and then end. What will be done to require the GOCO company to protect skills, so that if those things are taken back into the public sector, the skills base will be retained?

We will need to look at the essence of why a GOCO is a good idea. When talking about GOCOs, the Government are tangentially talking about risk transfer; I believe that the Minister actually referred to it in the remarks that he made in opening the debate. Among my credentials is that I have been a client of Bechtel. I have to tell noble Lords that Riley Bechtel has never transferred one iota of risk. He is brilliant at running a firm that adds value—let us not get too upset about that—but the only thing that Riley Bechtel puts at risk is the size of his profit. He does not put Bechtel’s basic assets at risk. There will be no risk transfer if the Government’s target is someone like Bechtel. I am willing to be proved wrong on that, but if we must discuss Part 1 then we will be testing the Government on risk transfer.

We now come back to the question of added value. Sometimes when the Government talk about this, the added value seems to be solely about the ability to employ people. Suddenly, at a stroke, the Government seem to have solved the problem of employing people by getting new freedoms. But discussing the issue is very complicated without a tangible action in front of us.

I turn to Part 2 of the Bill. Superficially, single-source contracting is going to be pretty boring. However, anyone who has been involved in this area—not just the military but any area where de facto single-sourcing comes about—will know the value of getting this right. I will be interested in probing this and perhaps trying to get the Government to go somewhat further. At the moment the Bill seems to be written around a price mechanism, which will be a cost, an overhead and a profit. The mechanisms that are being brought forward to improve this are, principally—I think that this was in the Minister’s speech—transparency. The objective is to improve the balance between value for money for the taxpayer and reasonable profits for the supplier. We entirely accept that; we are not against suppliers making profits, as suppliers that do not do so do not continue to exist. There has to be that balance.

The process is to have the force of law in many areas. This is good. Indeed, the gains claimed for it are modest; they could be significantly higher. However, there will be questions about what transparency means and how confidentiality and IP are going to be protected. There is a real issue about information that flows about between groups, where one group is deemed to be a single-source supplier while another is perhaps trading in the international civil world.

We need to look carefully at the SSRO, and particularly at its independence. Creating independent bodies is a very difficult thing to do, as is actually creating some way of being sure that government influence is not there all the time. We will have to look at its independence, its balance and the reward structure for its directors—and, more importantly, at how we bring in the right talent. What is the appointment process going to be? What will be the quality of the people? What will its powers boil down to? I know that they are in the Bill, but they need to be picked over. Is it effectively an available arbitrator?

Should we go further? In my experience, people who have not been involved have a very silly idea about competition: they think that if you have real competition leading to a contract award, somehow you have solved the problem. Usually, 80% of the problem comes after the contract award. Things go wrong. Circumstances happen and change things. I have dealt with contracts for multiple hundreds of millions, and we have had so-called competition at the beginning; sometimes you are pushed to get two suppliers that are vaguely compliant in your bidding process, but you have your competition. However, you are then locked into a single-supplier situation. Can we think about how defence contracts that run on with a single-supplier situation can be brought into this area? What we need in this difficult area is more innovation so that we can go for more cost savings and can incentivise suppliers to improve—and they will feel that they are getting a fair deal and being properly rewarded.

Finally, on the reserves, we, of course, support a greater and more integrated role for the reserves, and the change of name. We note the logic that my noble friend touched on earlier: there will be a 20,000 reduction in full-time Army personnel. We hear that this is now planned and cannot be changed. We accept it, but bringing up the total number of Reserve Forces to 30,000 does not appear, initially at least, to be going well. We need regular reports. We look forward to the amendment that the Minister will be bringing forward in this area, but these reports have to go quite a long way further. We need to know not just about gross numbers but about where the skills are, how the training is going and what reduction in planning assumptions will result if we fail to recruit. What is the realistic capability of the Army if this recruitment does not take place, or if some of the problems, referred to by noble Lords, that reservists have when faced with the onerous burden of being in the reserve come to pass and we have difficulties?

Parts 2 and 3 are sensible pieces of legislation. We will have to pick them over, but they have lots of potential. The Government have wisely stepped back from the GOCO competition. They should now step back from trying to prosecute Part 1.

Defence: Procurement

Lord Tunnicliffe Excerpts

Thursday 21st November 2013 Lords Chamber

[Lord Astor of Hever]

My Lords, I can give my noble friend that assurance. Two processes are happening—one as a result of the single GOCO bidder and, as yesterday’s Written Ministerial Statement made clear, that requires a further review across government of the validity of the competition. Secondly, the MoD will be assessing the bid that we have on the table for a GOCO, along with a DE&S-plus proposal, when we have it, to see which will provide the best solution.

[Lord Tunnicliffe (Lab)]

My Lords, on 19 November, a Written Ministerial Statement on the GOCO competition included a vague reference to a review by the Cabinet Office and the Ministry of Defence. This review, which I could not find on the MoD website, expressed grave reservations about a competition with two private sector bidders. A copy of the review is available only from the Library. Given the importance of this issue, and the Prime Minister’s commitment to have the most open and transparent Government ever, will the Minister commit to publishing the review in full on the MoD website? Further, if the Government are minded—it seems that the Minister is implying this—to continue the GOCO competition with only one private sector bidder, will he commit to a further joint review by the MoD and Cabinet Office on how such a competition is viable, and publish that review on the MoD website?

[Lord Astor of Hever]

My Lords, as a Government we want to be open. I am sure that the review will be put on the website. Clearly, the contract is commercially confidential, so we would not put that on the website—certainly until the position is very much clearer. As far as a further review is concerned, we hope to make a decision on the validity of the competition very soon, and a final decision on the whole process by the Summer Recess. I am sure that the whole House will agree that it is important that we take a considered view before making any decision.