The truth on the Navy carrier debacle? Industry got away with murder

How is it 'adaptable' if adapting it costs as much as buying a new one?

This astonishing cost jump is what the MPs of the Defence Committee have been looking into. There was some foolish talk in the appendices to their report of "price-gouging by General Atomics", the makers of the EMALS. Mr Bernard Gray, mandarin in charge of defence kit, was happy to let the MPs get the impression that General Atomics had done something bad and this had caused most or all of the price increase. He told them:

On the component parts that build up the change, the cost — in particular of the catapult system — proved, on further dialogue with the US, to be significantly higher. I cannot remember the exact figure for that component, but it was of the order of 50% higher than the original estimate for that piece of equipment.

The cost of adapting the other one into this? Same as just throwing it away and buying this outright

The original estimate was US$200m (pdf here), so that would be an extra £130m-odd. Mr Gray went on:

There was also a significant component of additional technical advice, which the contractors in the US were recommending was required. That was of the order of over £150 million.

So now the cost is up by £280m - just another £3,800m or so of cost increase to account for. General Atomics tacked on still more, Mr Gray tells us:

Additional aircraft launch and recovery equipment was required, on top of the cats and traps, which had not been included in the original estimate. The cost of going through the FMS [Foreign Military Sales] purchasing route and some inflation adjustments were further components.

This last simply can't have been a big deal, as the original US$200m was to include all this:

Electromagnetic Aircraft Launch System/Advanced Arresting Gear (EMALS/AAG). The EMALS long lead sub-assemblies include: Energy Storage System, Power Conditioning System, and Launch Control System. The AAG includes: Power Conditioning, Energy Absorption Subsystems, Shock Absorbers, and Drive Fairleads. Also proposed are other items for Aircraft Launch and Recovery Equipment, spare and repair parts, support equipment, personnel training and training equipment, publications and technical documentation, software support, U.S. Government and contractor engineering, technical, and logistics support services, and all other related elements of program support. The estimated cost is $200 million.

But Mr Gray sought very hard to suggest nonetheless that the four billion pounds plus in cost increases were down to General Atomics in some way. He went on, explaining why nobody in the MoD knew the price of the carriers had almost doubled until last year:

We did not get updated prices from General Atomics until February 2012 to start to plug into the total map ... there was a long debate going on through the back end of last year about what the appropriate price should be. It was not until we got numbers from General Atomics in February that we were in any kind of position to be clear about that.

Minister Peter Luff was a bit more honest. He said:

I want to make it quite clear ... there was some increase in the cost of the equipment, but that is not actually the total picture of the cost. The cost is also a reflection of various other issues ... the cost of the conversion itself was the real issue ...

In other words the huge bulk of the cost increase didn't come from General Atomics and EMALS. Instead it came from the British shipyards who would have to put the US equipment into the ships. Luff went on to explain that in fact the carriers had not been designed to accept catapults and arrester gear at all.

The fundamental misunderstanding that many of us had was that these carriers would be relatively easy to convert and had been designed for conversion and for adaptability. That is what we were told. It was not true. They were not.

Mr Arbuthnot, reasonably enough, asked:

Having been “designed for conversion”, and conversion having proved far more expensive than we expected, do we have any comeback against those companies that did the design?

Mr Gray answered:

Because the decision to go STOVL [that is the initial decision for jumpjets] was taken in, from memory, 2002, no serious work had been done. It had been noodled in 2005, but no serious work had been done on it. It was not a contract-quality offer; it was a simple assertion that that could be done, but nobody said, “It can be done at this price”, and certainly nobody put that in a contract.

This is a very strange position to take. The decision that was taken in 2002 was not to "go STOVL". It was to choose the design option then referred to by the government as the "adaptable CVF Delta design", with "adaptable" specifically to mean that catapults and arrester gear could be added to the ships - not just during construction, but afterwards. A STOVL [jumpjet] only, non-adaptable design was also considered, and the "adaptable" design cost a hell of a lot more. In 2002, Parliament was told:

The estimated cost based on a STOVL [only] design was around £2 billion ... The estimated procurement cost of the future aircraft carriers using the innovative, adaptable design is around £3 billion.

The "innovative, adaptable" ships are now projected by the National Audit Office to cost £5.35 billion, so it's plain that around a third of that, some £1.8bn, comes from them being "adaptable" rather than STOVL-only. Except that it turns out they aren't adaptable at all - fitting them with catapults and arrester gear would, apparently, cost as much as buying two entire new ships.

That has to be a colossal contract violation by the builders: there's no way it can't be, provided the word "adaptable" is actually on the contract somewhere (this is a secret of course, like all MoD contracts). No matter what, the shipbuilders cannot realistically claim that the MoD didn't specify that it should be easy to put in catapults and arrester gear, and they cannot realistically claim that there is any adaptability at all in a ship which costs as much to adapt as it would to just buy a new ship. But the MoD just bends over and bites the pillow held out for it.

This is not even to mention that the builders have a serious conflict of interest here, in that they stand to lose a lot of money if the Royal Navy gets catapult ships and Britain gets some F-18s or Rafales - as it more or less certainly would in the end, once we had mostly empty catapult ships sailing around (the Royal Navy even had pilots flying F-18s with the US Navy in preparation). But the carrier shipyards are mainly owned by BAE Systems plc, the US-centred but UK-headquartered multinational which also made and lucratively maintains the Eurofighter and the Tornado - the jets we would seldom bother using and in many cases might not bother even having, if we had some F-18s.

This is all especially distressing, as Mr Bernard Gray is widely believed along Whitehall to be a defence procurement genius. A former Financial Times journalist and later a Labour defence "spad" - special adviser - he has now been brought in to the civil service proper and put in charge of defence kit specially to sort out the horrific mess of the MoD's equipment programme and get some value for money for Britain's cash-strapped forces.

But it turns out he's just as supine toward BAE, and just as keen to obscure that reality by slippery testimony, as all his predecessors. ®