§ The Secretary of State for Defence (Mr. George Younger)
With permission, Mr. Speaker, I should like to make a statement.
The Ministry of Defence has now reached conclusions on the competition for the first two Auxiliary Oiler Replenishment vessels of the Fort class.
This is a new concept for a "one-stop" replenishment vessel capable of supporting front-line warships and defending itself. Under its policy of transferring more responsibility to industry the MOD invited firms to put in their own designs to meet the Navy's requirement and to procure the whole ship, including self-defence weapons and associated electronics.
Although a wide range of shipbuilders and other defence firms were invited to tender, designs were submitted by only two consortia, Harland and Wolff (in association with Yarrow shipbuilders and yard) and Swan Hunter (in association with British Aerospace-Marconi).
The tender submitted by Harland and Wolff was technically preferred by both the Ministry of Defence and external consultants, as well as offering earlier delivery and a keener price.
The Government have accordingly decided to award the contract for the design and build of the first ship of the class to Harland and Wolff.
The ship will be named the Royal Fleet Auxiliary Fort Victoria. Once the detailed design has been completed next year construction will begin at Belfast and the ship will enter service at about the end of the decade.
Throughout the tendering process the Government have insisted that the competition should be scrupulously fair, particularly as it involved a private sector and a public sector company. The Government appointed independent consultants, who have examined the Harland and Wolff consortium's bid and have advised that it is unsubsidised and comprehensively costed. The Secretary of State for Northern Ireland has today announced an additional financial discipline on Harland and Wolff plc in respect of AOR aimed at ensuring that any cost overrun will have a similar effect on Harland and Wolff as it would have on a private sector company.
To ensure commonality in naval service, future ships of the class will be built to the Harland and Wolff design, but the Ministry of Defence will allow other shipyards to compete to build follow-on ships.
The Government have decided that Swan Hunter should be given a preferential opportunity to bid for the second ship of the class. Later in the summer, the MOD will be offering Swan Hunter Shipbuilders the opportunity to confirm that it is ready to accept a contract for the second AOR, with construction to begin as soon as possible after negotiations are completed, probably in 1988. This will be on the basis that it will be to the same design as the first, and that the terms and conditions, cost and programme will be no less favourable to the MOD than those already available from the lead shipyard for a follow-on ship.
§ Mr. Denzil Davies (Llanelli)
The right hon. Gentleman's statement will have extremely damaging consequences for Swan Hunter and for Tyneside. I am sure that he is aware of that. The decision will almost certainly cause the loss of 2,000 jobs, including the whole of the 435 design team of the Swan Hunter company. Some people might say that this decision will put the company's future in jeopardy. Others might say that the decision is a breach, certainly of the understanding, if not the undertaking, that was given at the time when the Government privatised Swan Hunter. Frankly, the possibility of building the second vessel to the design of Harland and Wolff is no solution to the problem.
Is the Secretary of State satisfied that Harland and Wolff will be able to meet its full contractual obligations, especially on cost and delivery? What on earth is meant by the statement that there will bean additional financial discipline on Harland and Wolffto ensure that any cost overrunwill have a similar effect on Harland and Wolff"—a company owned by the Government—as it would have on a private sector company."?What on earth does that mean? At the end of the day, are the Government prepared to allow Harland and Wolff to go into liquidation?
The second vessel is no solution. What is meant by the statement:Swan Hunter should be given a preferential opportunity to bid for the second ship"?Is that a preference over other bidders? Is it a preference over Harland and Wolff? How on earth can Swan Hunter build a ship to the design of Harland and Wolff, with all the repercussions and practical problems, and yet be given a preferential opportunity in that situation?
Can the Secretary of State at least guarantee—the statement is ominously silent on this—that Swan Hunter will get the order for the second type 23 frigate? That is the least that the Government can do after the shabby way in which they have treated the company which they privatised.
§ Mr. Younger
That is a most surprising response, and certainly not one that I expected. I wonder whether the right hon. Gentleman heard the statement that I made a moment ago.
I made it clear that the contract was won on price, delivery and the quality of the product offered by Harland and Wolff. Nevertheless, I have intervened to state that preference will be given to Swan Hunter shipbuilders for the building of the second of these ships provided that it can meet the price. The right hon. Gentleman asked what this preference means. It means just that. The second ship will be offered to Swan Hunter provided that it can build it at the price. It is unbelievable that the right hon. Gentleman should consider that that is bad news for Tyneside. It is extremely good news for the area. This is not a breach of any understanding. It is a positive step to help Swan Hunter at the same time as helping the defence budget.
The right hon. Gentleman asked whether Harland and Wolff would meet the conditions. We expect it to do precisely that, and the contract will make it clear it must do so. My right hon. Friend the Secretary of State for Northern Ireland is today publishing the arrangements that he is making for the close monitoring of production at Harland and Wolff to ensure that that is so.
It is well known that the type 23 frigate, 02, is being evaluated by the Ministry of Defence. A bid has been put 436 in by Swan Hunter, and although the final decision has not been taken, it is clear that Swan Hunter is in the running for it.
§ Sir Antony Buck (Colchester, North)
Is my right hon. Friend aware that many of us on the Conservative Benches and, I suspect, many Opposition Members, admire the decision that he has made? It is a bold and difficult decision, made in a "cannot win" situation. Will my right hon. Friend tell the House that because of his decision the armed forces will be equipped with the best ships for the job, and that, hopefully, they will be delivered on time and relatively within cost?
§ Mr. Younger
I am grateful to my hon. and learned Friend. He is right in saying that any firm which was given the opportunity to build a large new vessel like this would find that its work force was extremely pleased. We will get two AORs of a very high standard and at a slightly earlier date than was originally hoped and that must be good news for the defence budget.
§ Mr. J. Enoch Powell (South Down)
Will the right hon. Gentleman accept that the decision which he has just announced is a recognition of the competitive efficiency of the Belfast firm and the value of the firm's work force? Will he emphasise the fact that employment in many other parts of the United Kingdom will flow from placing this contract with Harland and Wolff?
§ Mr. Younger
I agree with the right hon. Gentleman on all the points that he has made. It was clear that in competition for the design of this vessel Harland and Wolff put in a very satisfactory design, and that is why it won the competition.
There is nothing unusual for one firm to be the lead yard for a particular type of vessel and for other firms to make the follow-on ships. In this case Harland and Wolff is the lead firm, and Swan Hunter, if it is successful in getting the second vessel—as we naturally hope it will be—will build the follow-on ship. There is nothing new about that, and I am surprised that the right hon. Member for Llanelli (Mr. Davies) did not know that.
§ Mr. Neville Trotter (Tynemouth)
Does my right hon. Friend understand that there will continue to be concern on Tyneside until Swan Hunter is awarded the second contract?
Will my right hon. Friend confirm that the competition was between two exceedingly good designs, and the fact that on this occasion the Navy has preferred the Harland and Wolff design is no reflection on the design capabilities and skill of the team of the privatised Swan Hunter yard?
§ Mr. Younger
Yes, I entirely accept what my right hon. Friend says. I also accept that there will be concern on Tyneside until Swan Hunter has assured for itself the order for the second AOR. Negotiations for the second AOR will be put in train very quickly so that a conclusion can be reached. Both the designs were good, but, as the customer, I must make it clear that the Harland and Wolff design was, for various reasons, undoubtedly better. It certainly provided an earlier delivery date and a keener price.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
The decision is a catastrophe for Tyneside, where unemployment is higher than in Northern Ireland. Is the Secretary of State aware that it is difficult to see how the position of a nationalised yard can be compared with that of a private 437 yard when, in the case of a private yard, the shareholders, including the executives of the yard, stand to lose everything and to pay the costs if they overrun? Its position is no way comparable to that of a nationalised yard.
§ Mr. Younger
I am surprised to find such a reasonable person as the hon. Gentleman using inappropriate language. If every shipyard that is given an order for £100 million worth of shipbuilding regards it as a catastrophe, there are plenty of other people who are looking for a catastrophe.
§ Mr. Piers Merchant (Newcastle upon Tyne, Central)
I thank my right hon. Friend for his guarantees over future preferences, but is he aware of exactly how disappointing his decision will be to those of us on Tyneside who supported the Swan Hunter bid? Is he also aware that one cannot count among that number those militant shop stewards who, during the last three weeks, irresponsibly led industrial action during the campaign to attract this order, and who have been responsible for leading a series of industrial disputes during the last few years, which has hardly helped Swan Hunter's reputation?
§ Mr. Younger
I very much appreciate my hon. Friend's question. I understand how disappointing it must be for everyone in Swan Hunter that the yard did not get the first of these two ships. However, I have explained, in what I hope is a reasonable way, why this was so. My hon. Friend made a telling point about the activities of some people who caused disruption at the yard. I hope the House will give the Government and my Department credit for the fact that we have bent over backwards to pay no attention to that by making it clear that we are prepared to give Swan Hunter the chance to build the second AOR.
§ Mr. Don Dixon (Jarrow)
The right hon. Gentleman's statement means that this is a black day for the shipbuilding communities in the Tyne area. If he wanted to be fair, why did he not award one contract to Harland and Wolff and one to Swan Hunter? In the short term it means many redundancies in the Tyne area. In the long term it will put in jeopardy shipbuilding in the Tyne area because of the impact that this decision will have on the design team at Swan Hunter. Even at this late stage will the right hon. Gentleman agree to place one contract with Harland and Wolff and the other with Swan Hunter? Will he also agree to hurry up the type 23 order, negotiations for which have been continuing for many months? If an order is not received in the very near future, hundreds, if not thousands, of additional unemployed men will be walking the streets in the Tyne area.
§ Mr. Younger
I am not sure whether the hon. Gentleman was in the Chamber when I made my statement. He asked whether it would have been better to award the first contract to Harland and Wolff and the second to Swan Hunter. Subject to Swan Hunter being able to meet the conditions that I have outlined, that is precisely what I have done, and I am wondering why the hon. Gentleman is not pleased about it.
§ Mr. Ian Gow (Eastbourne)
Is it not clear from the questions of the right hon. Member for Llanelli (Mr. Davies) and the hon. Member for Berwick-upon-Tweed (Mr. Beith) that neither of the two Opposition parties believes in fair competition? Is it not also clear from my right hon. Friend's statement that, quite properly, the 438 Government have taken the greatest possible care in awarding this contract on the basis of design, price and delivery date?
§ Mr. Younger
I am grateful to my hon. Friend. It leads me to put what I said the other way round. If I had chosen to deny this contract to Harland and Wolff, with its better design and delivery date, and with every bit as good a price, I cannot imagine what the Opposition would have said about the competition principle.
§ Mr. Nicholas Brown (Newcastle upon Tyne, East)
I listened carefully to the Secretary of State's statement. It defies reason. Is he aware that he has almost certainly announced the closure of Swan Hunter and that his statement about the second AOR order will be seen to be as cynical as the promise that was made two years ago about the type 23 frigate, which has still not turned up? Swan Hunter must have fabrication work now. The Secretary of State has made no announcement about fabrication work for the yard. His statement will be seen as a betrayal of privatisation on Tyneside and as appeasement of terrorism in Ulster.
§ Mr. Younger
Again I am extremely surprised by the hon. Gentleman's question. I know that he is concerned about the future of the Swan Hunter shipyard. As this is an offer to the yard to submit a detailed consideration for a further vessel involving many man hours of work, I am surprised that the hon. Gentleman does not welcome it. I hope that his constituents will manage to persuade him that he is not acting in their interests.
§ Mr. Michael Fallon (Darlington)
Does my right hon. Friend agree that the lesson for industry in the north-east is that work for which it tenders must be competitively priced? If Harland and Wolff's bid is as genuinely competitive as my right hon. Friend's advisers think it is, why are there no plans to privatise the yard?
§ Mr. Younger
I am grateful to my hon. Friend. The privatisation of Harland and Wolff is a matter for my right hon. Friend the Secretary of State for Northern Ireland. No doubt my hon. Friend will take the matter up with my right hon. Friend. I agree about the necessity for competitive pricing. In this case, the company which submitted the most competitive bid in all the circumstances won the competition. I should have thought that any other conclusion would not be acceptable to the House.
§ Mr. Dick Douglas (Dunfermline, West)
Does the Secretary of State accept that his statement shows how parlous is the state of the shipbuilding industry as a whole? That is why hon. Members are concerned about employment, and why they are competing across the Floor of the House for the available orders. I, as a Scottish Member of Parliament, do not exclude myself from that concern. The design order for the Yarrow yard is welcome to the Clyde, but will the Secretary of State say a little about the 03 and 04 of the type 23 frigate that have been promised? I understand that completion of tendering may be in June 1986. Is the Secretary of State able to give us an assurance about this, because it is important to the yards on the Clyde?
§ Mr. Younger
I appreciate the hon. Gentleman's question. He is right when he says that the state of shipbuilding is very difficult because of the very few orders that are available. However, it surprises me that, if its representatives are anything to go by, a yard that has 439 been offered the chance of a major order does not think that that is good news. Many people in Scotland will find that very hard to understand. No decision has yet been taken about a further order for frigates, but I am well aware of the importance of that order.
§ Mr. Barry Henderson (Fife, North-East)
Is my right hon. Friend aware that many people will want to congratulate him on a well-judged statement? Is he able to state the significance in scope and value to the Clyde of the Harland and Wolff order?
§ Mr. Younger
I am grateful to my hon. Friend. There will be a considerable amount of work for the Clyde. My hon. Friend will have to ask Harland and Wolff for the breakdown of the work on the first of these two ships between other parts of the United Kingdom and Northern Ireland.
§ Dr. Norman A. Godman (Greenock and Port Glasgow)
The right hon. Gentleman emphasised the upper Clyde in his last answer. Is he able to say anything about the lower Clyde vis-á-vis Ministry of Defence orders? May I remind him that Scott Lithgow, Kincaids and Ferguson-Ailsa are in a parlous condition over orders? Does he have any vestige of hope to offer to shipyard workers in my constituency?
§ Mr. Younger
The hon. Gentleman knows that I am very well aware of the difficulties in his constituency and of his very great concern about those yards. My right hon. Friend the Secretary of State for Trade and Industry, who has the main responsibility for the shipbuilding industry, is actively studying that problem. The hon. Gentleman will appreciate that, no doubt for good reasons, Scott Lithgow was invited to tender for this order but decided not to do so. Therefore, I cannot be of help on this occasion.
§ Mr. Richard Page (Hertfordshire, South-West)
Leaving on one side the question of the hon. Member for Newcastle upon Tyne, East (Mr. Brown) about whether Northern Ireland and Harland and Wolff deserve this order in view of the Loyalist activities in the last few weeks, will my right hon. Friend please publish the consultants' report, so that justice and fair play can be seen to have been done?
§ Mr. Younger
I appreciate my hon. Friend's concern that justice should be seen to have been done. As I said in my statement, my right hon. Friend the Secretary of State for Northern Ireland is today publishing his plans for a close monitoring of this contract. My hon. Friend's request that the report should be published will have to be addressed to my right hon. Friend the Secretary of State for Northern Ireland.
§ Mr. Stephen Ross (Isle of Wight)
There was bitter disappointment when Vosper Thornycroft did not get any orders on the previous occasion. Nevertheless, I congratulate John Parker and Harland and Wolff on winning this contract. Obviously it has been won on merit. This is in contradistinction to the decision of the Secretary of State's predecessor, who awarded the Tucano to Short Brothers, and not the PC9. May we be assured that the work force will support the Government's confidence in it. We look to that to happen. Nevertheless, I hope that Swan Hunter will accept the terms laid down by the 440 Secretary of State today, which seem, on the evidence of previous contracts, to be in accord with recent Ministry of Defence practice.
§ Mr. Younger
I am grateful to the hon. Gentleman for his welcome for this decision, although I appreciate his disappointment about Vosper Thornycroft. However, as he will know, that firm did not tender for this order. The hon. Gentleman should speak to his hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith), because the Liberal party seems to have two totally different views on this contract.
§ Sir John Biggs-Davison (Epping Forest)
In welcoming the fullest information that has now been promised, may I ask whether it is not clear that this decision has been based on price and design and the needs of the Royal Navy? Has the attitude of the Labour party not revealed a bigoted hostility to Northern Ireland, which will be noted by the workers of Belfast?
§ Mr. Younger
I am grateful to my hon. Friend for what he has said, and I realise that hon. Members will have many other factors in mind in considering the statement. He is right in pointing out that unless those who win a competition in a perfectly fair and normal way are given the contract, the whole policy of competition will fall down. In this case there was a clear winner, but, from the point of view of the needs of the Royal Navy, we have thought it best to put the second vessel to the other yard so that the best results can be obtained for the Royal Navy from these contracts.
§ Mr. Frank Field (Birkenhead)
Does the Secretary of State accept that if one yard with a back-up subsidy of £37 million competes with other yards with no such back-up subsidy, that is not only unfair, but, if continued, will result in the closure of English and Scottish yards? If that happens, will that not defeat the whole of the Government's thrust for greater competition and their procurement policy? In addition, before the end of the day, will the Minister ask a favour from the Irish? As many companies in Great Britain have to watch foreign companies grow fat on hidden subsidies, will he ask Harland and Wolff how it has managed to hoodwink his officials, because surely the lesson could be more widely spread?
§ Mr. Younger
I appreciate the hon. Gentleman's concern, but I should make it clear that my right hon. Friend the Secretary of State for Northern Ireland has taken the greatest care about this matter. He will not merely watch progress. He is today publishing the ways in which he will ensure that the progress of this contract with Harland and Wolff is absolutely as per the contract. When it comes to the difficulties of comparing nationalised industries with others, the hon. Gentleman will appreciate that that is one of the consequences of having nationalised industries, which cause great difficulty in many ways which we would be better to avoid.
§ Mr. Jonathan Sayeed (Bristol, East)
My right hon. Friend would rightly have been properly condemned had he not chosen the design that is technically better and the bid that promised earlier delivery at a lower price. Will he ensure that if Harland and Wolff goes over budget, it will mean that the income of the management of Harland and Wolff is commensurately reduced, as it would be if the Swan Hunter bid went over?
§ Mr. Younger
My hon. Friend is right about that. This is a matter that the House and the Government will want to watch carefully. If Harland and Wolff were to overrun in the cost, that would reduce its ability to compete for further orders elsewhere. That fact will be a powerful incentive to the company, in addition to the measures that my right hon. Friend the Secretary of State for Northern Ireland will be announcing today. My hon. Friend is perfectly correct in saying that to have given the contract to a company which did not win the competition would have been grossly unfair on all those who took part in the competition.
§ Mr. Stuart Randall (Kingston upon Hull, West)
While welcoming any contract announcement of this kind, may I ask the Secretary of State whether he is aware of the hundreds of subcontractors involved in these contracts who will be very disappointed that Swan Hunter did not get the design part for the second vessel? In my own constituency of Hull, one of the subcontractors is Humber Electrical Ltd., which makes marine switch gear and which will be particularly disappointed to learn that it is unlikely to get work on the first ship. This is particularly disappointing in Hull, where there is an enormous increase in unemployment and a lot of deprivation. When it comes to the allocation of further subcontracts by Harland and Wolff, will the Secretary of State consider Humber Electrical Ltd.?
§ Mr. Younger
I appreciate the hon. Gentleman's point, but a lot of work is coming outwith Northern Ireland, even with the first of these ships, because subcontractors has taken place already. I understand that about a third of the work is sub-contracted elsewhere in Britain. I am sure that the hon. Gentleman's constituents will be able to take part in the second AOR. If they want to put in bids now to the main contractor for the first AOR, they will be considered, if there is still space. However, 442 the point is that if subcontractors and contractors enter a competition, they must expect those who win the competition to get the work.
§ Mr. James Couchman (Gillingham)
Is my right hon. Friend aware that those of us who had applauded the management buy-out of Swan Hunter had very much hoped that it would be able, in fair competition to win the order for the first AOR, which carries the design facility with it? Can he be more specific about how soon Swan Hunter can expect the decision on the second AOR and, also on 02, 03 and 04 of the type 23 frigate?
§ Mr. Younger
It was disappointing that Swan Hunter did not win the competition. The second of these ships was one of two for which both competitors tendered. Provided that Swan Hunter can satisfy the Ministry of Defence that it will be able to produce the second ship at the price offered by the winner of the competition, it will be given the preferential chance of getting the second order. I hope that this will be seen to be fair to Swan Hunter, but it will require it to take some hard decisions in order to get its bid down to the right price.
§ Sir Kenneth Lewis (Stamford and Spalding)
Is my right hon. Friend aware that many people will say that if this Government and the Ministry of Defence had been as unco-operative as some of the leaders in Northern Ireland, Harland and Wolff would not have got the order? I am glad that it did get the order, and I hope that the leaders in Northern Ireland appreciate that fact.
§ Mr. Younger
My hon. Friend makes an extremely good point. Perhaps I can assure him, and everyone in Northern Ireland, that in considering the bid I had in mind only the excellence of the design and the proposed workmanship, price and delivery offered by Harland and Wolff. No political consideration of the Northern Ireland situation came into the matter.