Defence Reform Bill

Lord Astor of Hever Excerpts

Monday 3rd February 2014 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, the noble Lord raises some interesting points, which the Government should take cognisance of. However, I ask those who tabled the amendment and the Minister whether these issues should be included in primary legislation. I jotted down the noble Lord’s points as he spoke. He spoke about the premises, and he raises important points, but those are points you deal with in contracts, when you have a lease—whether it is a repairing lease or not. It is not something one would expect to see in primary legislation.

The noble Lord talks about export strategy and the importance of defence exports. I could take this even further: the Ministry of Defence, which is very much involved in defence exports, should also be working closely with the Business Secretary to promote exports. Very often they operate in their own silos rather than together. However, that is not something which would appear in primary legislation.

The noble Lord also talks about foreign influence over defence interests, and I hope the Minister will respond to that point; however, again, it is not a matter which needs to be addressed in primary legislation. I await my noble friend’s answers to these questions but I think they are matters for regulation and secondary legislation rather than being in the Bill.

[The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever) (Con)]

My Lords, these amendments have enabled the Committee to have a debate on Clause 1. As has been identified, Clause 1 is the key clause in Part 1 of the Bill, and it is important that we consider it in detail, because it will enable the Secretary of State to contract with the company for the provision of defence procurement services, should that be the way forward that is eventually agreed. It is also the clause on which most of the rest of Part 1 hangs. The amendments we will be discussing today have highlighted some very important issues and the reasons behind them have been clearly and comprehensively covered by the noble Lord, Lord Rosser, and my noble friend Lord Palmer of Childs Hill.

Amendment 1 relates to the GOCO acquiring rights over the premises and property used by today’s Defence Equipment and Support organisation and ensuring that assets are properly maintained and managed. I agree with the intent behind this latter point as it recognises the importance of ensuring that effective arrangements are in place to ensure that any such assets continue to be properly managed. Clause 1(1) specifically makes it clear that the provisions within Part 1 of the Bill will apply only when three clear conditions have been met. The first condition is that the Secretary of State makes arrangements with a company—in other words, the GOCO—for the delivery of the defence procurement services currently undertaken by DE&S within the Ministry of Defence. The second condition is that the GOCO acquires from the Secretary of State rights in or over premises and property used by DE&S. The third condition is that the GOCO becomes the employer of some or all of the civil servants employed by DE&S immediately before the company becomes their employer.

It is our intention that, although the GOCO will be given the right to use existing DE&S property, the ownership of the assets themselves will not change. In the vast majority of cases this means that ownership will continue to lie with the Ministry of Defence and the management of the assets will be the responsibility of the Defence Infrastructure Organisation. Amendment 1 seeks to make the acquisition of rights over existing DE&S premises and property by the GOCO,

“subject to conditions on maintenance and upkeep set by the Secretary of State”.

However, although I fully support the intent behind the amendment it is simply not required as the issue will be more effectively and better addressed in the contract between the GOCO and the MoD and on a case-by-case basis in the individual leases or agreements.

The premises and property occupied by the GOCO will remain the property of their existing owners, which in the majority of cases will be the Ministry of Defence. The GOCO’s rights and obligations in respect to using these assets will be agreed with the MoD and set out in the GOCO contract and the relevant lease or agreement. This will include conditions on maintenance and upkeep, as normal in a commercial contract or lease. The Defence Infrastructure Organisation within the Ministry of Defence will continue to be accountable for the delivery of infrastructure services, maintenance and upkeep. However, in some cases it is possible that responsibility may be contracted to the GOCO in due course. In conclusion, although the amendment raises some excellent issues, I must resist it for the reasons I have just set out.

I turn now to Amendment 2. Its purpose is to prevent the Secretary of State commencing the establishment and operation of a GOCO under Part 1 of the Bill until he has published guidance on the operation of the contract. In particular, the amendment proposes that this guidance should include the system by which available defence contracts will be advertised to potential bidders and how any follow-on GOCO shall produce and report annually against progress on an export strategy. The amendment seeks to address concerns raised during the oral evidence sessions in the other place about a possible lack of visibility on how the contract will work, particularly in relation to how defence contracts will be placed, and about ensuring that the new GOCO pays sufficient regard to wider defence industrial policy issues, such as the exportability of equipment. The concern was that the GOCO would be focused solely on delivering equipment more cheaply and would not have to take into account other aspects of our industrial policy.

It is our intention that the GOCO will act as the Secretary of State’s agent when contracting for defence equipment and support. This means that the Treaty on the Functioning of the European Union, the Public Contracts Regulations 2006 and the Defence and Security Public Contracts Regulations 2011 will apply in the same manner as they do today. This includes advertising in the Official Journal of the European Union where required. MoD commercial policy on advertising defence contracts will also continue to apply. In addition, it is to be remembered that any contract entered into by the GOCO to deliver defence equipment, support, logistics and services will be entered into by the GOCO as agent on behalf of the MoD, which will remain a counterparty to defence contracts.

It is also our intention that the strategy for wider defence industrial policy and exports remains with government, but supported by the GOCO providing defence procurement services under contract, including providing support to government marketing of defence materiel at defence exhibitions and shows; managing the provision of defence assets and resources to support defence export opportunities, including assistance with export licence applications; and providing recommendations to government on export strategy and policy, a point that the noble Lord raised. The GOCO will therefore not be required to have its own exports strategy and the amendment is therefore not required.

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[Lord Astor of Hever]

The answer to the noble Lord’s first question is no, it would not be. I will write to the noble Lord about the second question on contracts.

[Lord Rosser]

I beg leave to withdraw the amendment.

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[Lord Astor of Hever]

My Lords, I start by thanking my noble friends Lord Roper and Lord Palmer for their support and I will look very closely at their suggestions. I always listen very carefully to the noble Lord, Lord Levene. He mentioned the importance of defence exports, and I agree with him entirely on that. He mentioned that he was brought in to bring more commercialisation to the operation, and everyone tells me that he was very successful at that. That is exactly what we are trying to do, and I agree that civil servants are not the best people to be commercially aware. We may end up sticking with DE&S+ but we want the flexibility with which the Treasury and the MoD are negotiating at the moment.

The noble Lord mentioned freedoms and controls. As I said, officials are in discussion with the Treasury regarding the nature of the delegations required within the DE&S budget, which revolves around how DE&S recruits, rewards, retains and manages staff. The detailed application of those freedoms will be worked on through the first year of operations, and DE&S staff will remain core to organisational delivery. We want to enhance our skills in bringing in private sector expertise. Further to the work done by Booz & Co on the functional make-up of DE&S, we are conducting a zero-based review to look at the organisation on a post-by-post basis.

I can tell the noble Lord that the Treasury has already agreed—this is not part of the GOCO bespoke trading organisation debate—to limited freedom for the MoD to recruit commercial officers from industry at market rates in recognition of their niche skills. This concession will remain in place as we move to the new organisation on 1 April this year. I will answer the other questions I was asked when I finish the first bit of my speech.

Part 1 sets out the provisions and safeguards necessary to transform the Defence Equipment and Support organisation into a government-owned, contractor-operated organisation—a GOCO. On 10 December last year, the Secretary of State announced a halt to the competition to select a consortium to deliver the GOCO. Although the bidder, known as Materiel Acquisition Partners, engaged effectively with the very challenging brief set out and presented a credible and detailed bid, the Secretary of State concluded that we did not have a competitive process once the other remaining consortium chose not to submit a bid, and that the risks of proceeding with a single bidder were too great to be acceptable.

Further work is necessary to develop DE&S financial control and management information systems to provide a more robust baseline from which to contract with a risk-taking GOCO partner. We remain clear that the only realistic prospect of resolving the delivery challenges facing DE&S in an acceptable timescale is with the injection of a significant element of private sector support. Noble Lords will also recall from the Secretary of State’s announcement in December that we decided to transform the DE&S further within the public sector, bringing in that private sector support and ensuring that it becomes match-fit as the public sector comparator for any future market-testing of the GOCO proposition.

To address the concerns expressed by a number of noble Lords about the continuing need for Part 1 in the light of the Secretary of State’s announcement, I tabled a government amendment that would make the commencement of Part 1 subject to an affirmative resolution by both Houses of Parliament. We have done this in recognition of the likely timescale for any future consideration of a GOCO option as the way forward for DE&S. To do this, we intend to set the DE&S up as a bespoke central government trading entity from April 2014. The new entity will be at arm’s length from the rest of the MoD, with a separate governance and oversight structure consisting of a strong board under an independent chairman, and a chief executive who will be an accounting officer, accountable to Parliament for the performance of the organisation. Importantly, we will permit the new organisation significant freedoms and flexibilities, agreed with the Treasury and Cabinet Office.

Although I understand concerns that have been raised, I reassure noble Lords that we would not seek to retain legislation without good cause. The changes we are now making to DE&S are important, but we cannot guarantee that this approach will prove to be efficient. We need to ensure that we can move quickly to run a future GOCO competition if the new DE&S freedoms prove insufficient to transform the organisation. The Government are convinced that Part 1 remains necessary to deliver an effective GOCO if—I repeat, if—that is the option selected by a future Government. It should therefore remain part of the Bill, to ensure that any Government can move quickly to a GOCO if that is so desired.

Clause 1 is the key clause in Part 1, as I have already described. Although the Secretary of State could enter into a contract with the GOCO using common law powers, the scale of what is contemplated, in terms of both money and people and the important nature of the work that DE&S undertakes, is such that Parliament should have the opportunity to scrutinise and agree the proposals through specific legislation. An important potential change such as this should be made with the consensus of all parties and with the express approval of Parliament. It is right that we have chosen this approach. Clause 1 is the main provision for that debate, and there has already been an insightful and important discussion on it through the amendments tabled by the Opposition in the other place.

Clause 1 also covers the arrangements for the transfer of procurement services once the initial and any subsequent contract comes to an end. It also allows for the transfer of DE&S services to the GOCO in a phased way. Clause 1 provides the basis on which the other provisions in Part 1 work. For example, the exemptions at Schedule 1 apply to premises which are used by a contractor under the arrangements at Clause 1. Clause 1 also includes many of the definitions used in Part 1. If Clause 1 is removed, the other clauses in Part 1 will need to be substantially redrafted to make them work.

If Clause 1 is removed, the Secretary of State could still contract out defence procurement services to a GOCO using his common law powers, but there would be no clause on the general issue of contracting out defence procurement services. This would deprive Parliament of the opportunity to approve this significant change in the way in which the Ministry of Defence does its business through its express agreement to the clause. It would also require a significant rewriting of the rest of Part 1. For those reasons, Clause 1 should stand part of the Bill.

On government Amendment 24, which I have already described, it is appropriate that Parliament has an opportunity further to debate the provisions in Part 1 at a point before they are commenced. I have tabled the amendment to allow this. It requires that both Houses approve by affirmative resolution a statutory instrument to commence the provisions in Part 1.

We have listened carefully to the views expressed by noble Lords from all sides during Second Reading about the need for Parliament to have a further opportunity to consider any proposal for a GOCO, should one be brought forward by a future Government. The government amendment removes the requirement for Amendments 17 and 25, tabled by the noble Lords, Lord Rosser and Lord Tunnicliffe. Their amendments have enabled our informed debate about a number of important issues.

Amendment 17 goes much further: it seeks to place a lengthy consultation requirement on the Secretary of State before any draft commencement order can be laid before Parliament. It requires the Secretary of State to comply with any recommendation by the Select Committee on Defence as to persons and bodies to be consulted. It extends the period in which Parliament has to consider and debate the draft commencement order. These additional requirements are far too prescriptive and would place an onerous and unreasonable bureaucratic burden on the Secretary of State.

Amendment 25 would add yet more prerequisite requirements on the Secretary of State before he may place a draft order before the Houses of Parliament seeking to commence Part 1. The amendment seeks to make the Secretary of State’s power conditional on satisfying the powers set out in proposed new subsection (2B), which would require the Secretary of State to, first, lay before Parliament an evidence-based impact assessment, which must cover the risks and merits of available options, including the GOCO and the “do nothing” option of retaining the existing DE&S; secondly, lay before Parliament an independent report setting out the comparative advantages of the options set out above; thirdly, require the Defence Select Committee to review and scrutinise the independent report and report its findings to Parliament; and, finally, to lay before Parliament any other documents or information that it needs to inform its decision.

Amendment 25 is not required, as the activities proposed will either have been undertaken by the Ministry of Defence as part of its normal approvals process or are not appropriate for legislation as they could be considered to be normal business. Any future proposal to proceed with the GOCO option will be subject to a full, evidence-based business case and investment appraisal, which will set out the relative risks and merits of all credible options, including those cited as required in the amendment. The business case will undergo extensive cross-government scrutiny and assurance and will require ministerial approval before any option can be taken forward. Business cases are approved by the MoD Investment Approvals Committee and by both Ministry of Defence and Treasury Ministers. However, wider government approval is sometimes required—for example, in the most contentious cases.

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[Lord Bach]

My point is that an affirmative resolution does not really provide any effective stop for Parliament, not that it does so. Given my experience of affirmative orders that have been fatally objected against, I wonder how the noble Lord can say that an affirmative order that is defeated really changes things. What happens is that the Government of the day—this is not a reflection on the Minister’s Government—say that the legislation has been passed and the affirmative order must therefore also be passed. In reality, fighting affirmative orders is not an effective way of allowing Parliament to give its view. For something as vital and important as this, having merely the protection of an affirmative order somewhere down the line is not nearly enough. I should be interested to know why the Minister thinks differently.

[Lord Astor of Hever]

I tabled our amendment after approaches from a number of noble Lords from different parts of the House who wanted to allow any future Government flexibility with which to introduce a GOCO, if that was thought to be the best thing at the time. In reply to the noble Lord’s question, one simply would not have the legislation without the commencement.

[Lord Robertson of Port Ellen (Lab)]

Can the noble Lord reflect after this debate on the fact that in the House of Commons, as the Commons Library statement says:

“Several amendments relating to the GOCO (Part 1 of the Bill) were tabled for Report Stage but were subsequently not called. Instead the main focus of the Report Stage was on the Government’s plans for the Reserves”?

So there was limited scrutiny in the House of Commons of this part of the Bill. Now the Government are proposing to promote the idea that a GOCO will be a matter for secondary legislation and affirmative resolution. Can the Minister take away the fact that in this sitting, we have had a former Chief of Defence Procurement, a former Chief of the Defence Staff, a former Minister for Defence Procurement and a former Secretary of State saying that, on balance, although they are in favour of radical reform, they all think that Amendment 25 is actually the best way of proceeding? Would it not look rather odd after that if the Government were to say, “We will ignore the advice that we have been given at that level, and arrogantly go ahead with a procedure that is perhaps inadequate”?

[Lord Astor of Hever]

My Lords, I will certainly reflect on that. We never ignore advice given by the people that the noble Lord mentioned. I am very happy to organise a meeting to discuss the issue, if he feels that that would be a way forward, before Report. I will certainly take it away to reflect on it. I have just been told there were eight sittings on this issue in the House of Commons.

The noble Lord, Lord Davies, said that cost-plus is the most appropriate type of contract for this class. The GOCO will have the commercial expertise that the MoD does not possess to identify the most appropriate contracting arrangements. In future, budgets will lie with the commands, ensuring that we can more quickly respond to changes in equipment requirements. The noble Lord asked about contracting arrangements for first-class major equipment. The target cost incentive fee contracting arrangements are one of the options available to the MoD for the reasons that he described and will continue to be utilised where they are the best option to deliver and support equipment procurement.

In the light of the government amendment and the points that I have just set out, I commend Amendment 24 to your Lordships; I will take away the point that the noble Lord, Lord Robertson, mentioned; and I urge noble Lords not to press Amendments 17 and 25.

[Lord Rosser]

First, once again, I thank the Minister for the consideration he has given to the amendments and for the detail with which responded to the points that have been made. I also thank all noble Lords who have contributed to this debate with varying degrees of support for the super-affirmative procedure and for the deletion of Part 1. I think it is fair to say that the noble Lord, Lord Palmer of Childs Hill, very much left his options open and was waiting to hear what the Minister said on the question of the super-affirmative procedure.

My argument for removing Part 1 is that this Government no longer intend to go down the GOCO road. It will be for the next or a subsequent Government to make such a decision one way or the other, and it is that Government who should have to justify their decision in detail to Parliament in the light of what improvements have or have not been achieved through the DE&S++ organisation after the changes being introduced after April this year.

The Minister referred to the freedoms and flexibilities that have been agreed with the Treasury in relation to the DE&S organisation from April of this year but, personally, I would find it helpful if he could put in writing what has and what has not yet been agreed with the Treasury and whether there is also agreement by the Cabinet Office; we understand that those freedoms and flexibilities have to be agreed with both, and I do not think that the Minister referred to the Cabinet Office.

One justification that the Minister gave for keeping Part 1 was that it would speed up the process of moving to a GOCO if the decision was made to go down the GOCO road. I do not think that speed is the most important thing. After all, it has already just been delayed for at least three years, so how can an argument be put forward that we need this legislation in place on grounds of speed? The Minister also referred to my amendment and the proposals within it as an unreasonable burden on the Secretary of State. The convenience of the Secretary of State of the day is not the matter we should be worried about. What matters is proper scrutiny of the proposals and getting them right through parliamentary scrutiny, not speed or the convenience of the Secretary of State of the day.

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[Lord Rosser]

Amendment 6 seeks to insert the code of conduct outlined in the proposed new clause. It seeks to address what is sometimes called the “revolving door” issue among Ministry of Defence personnel which can potentially lead to undue influence or access when bidding for MoD contracts.

The matter is relevant to the Bill as many Ministry of Defence staff could have cross-over work with, and come into contact with, the GOCO. There is also the question of whether the revolving door will become a bigger issue than now with the new DE&S+ organisation from April this year which will have greater private sector involvement, greater freedom and flexibilities and be a separate government trading entity.

We would like to see a code of conduct which precludes Ministry of Defence or military personnel of certain rank and above from working for defence contractors, say, for at least two years from the termination of their contract, requires contractors to publish annually a list of employees who have worked for the Ministry of Defence at the specified rank or above, and requires the creation of a register of gifts and hospitality over a certain value. Such a code of conduct would go some way towards slowing down the revolving door between the Ministry of Defence and defence contractors, and also reduce the brain drain or loss of skills in the Ministry of Defence.

Published information, compiled apparently from freedom of information requests, suggests that senior military personnel and former officials from the Ministry of Defence have taken up 3,500 positions with defence contractors since 1996. This trend continues today and clearly is not an issue that relates to a particular Government.

The Advisory Committee on Business Appointments appears to have insufficient influence or power. As rules can effectively be broken, or so it would appear, without sanction, there is surely a case for legislation which will bring greater accountability and transparency to this area. We suggest, as set out in the amendment, a code of conduct with tighter guidelines. I beg to move.

[Lord Astor of Hever]

My Lords, before I address this amendment, perhaps I may reassure the noble Lord that I will write to him, answering as best I can the points he raised. I mentioned the Cabinet Office in my earlier answer.

[Lord Rosser]

Perhaps I may express my regrets. I did not hear it. I accept fully what the noble Lord has said.

[Lord Astor of Hever]

I shall certainly write. I said that officials were in discussions with Her Majesty’s Treasury and the Cabinet Office regarding the nature of the delegations required within the DE&S budget. As far as I am able, I will write as detailed a letter as possible to the noble Lord and make sure that copies are sent to all other noble Lords who have taken part in this Committee. I can reassure the noble Lord, Lord Robertson, that I will organise a meeting to see whether we can come to some meeting of minds. We all want to do what is best for the Armed Forces and for procurement. I shall organise that meeting as quickly as I can.

On Amendment 6, I am grateful for the points raised by the noble Lord. I fully accept the critical importance of protecting the interests and integrity of decision-making within the Ministry of Defence and wider government by maintaining the highest standards of propriety of those Crown servants within the Ministry of Defence, which includes civilian staff as well as members of the Armed Forces, who interact with defence contractors. I believe strongly that the integrity and propriety of those Crown servants who may be in a position to influence decision-making should be seen to be beyond reproach.

However, I must resist the inclusion of the amendment as the issue is already effectively addressed. The code of conduct that the noble Lords wish to include seeks to address general concerns that senior government officials could be perceived to be in conflict or have vested interests when dealing with defence contractors in their day-to-day work. Further, the noble Lord, Lord West of Spithead, in his evidence session of 3 September to the House of Commons, also made mention of Title 10 of the US code, the section of the code relating to the Armed Forces of the United States.

The code of conduct that the noble Lords seek already exists within the Ministry of Defence in two forms. The first is in the form of the business appointment rules, which govern situations in which Crown servants wish to take up a relevant offer of employment within two years of leaving the Ministry of Defence. The second is the gifts, reward and hospitality rules, which govern situations in which Crown servants are offered a gift or hospitality. Together, these two important sets of rules set out the standards of conduct expected of Crown servants within the Ministry of Defence. For civilian officials within the Ministry of Defence, both the business appointment rules and the gifts, reward and hospitality rules are contained within the Civil Service Management Code, which was issued under Part 1 of the Constitutional Reform and Governance Act 2010. For military officials, the rules are contained within the Queen’s Regulations for each of the services, and the provisions of the business appointment rules have been in effect since July 1937.

The Civil Service Code states that civil servants must not accept gifts, hospitality or benefits of any kind from a third party that might be seen to compromise their personal judgment or integrity. The Queen’s Regulations lay down the conduct and procedure to be observed by service personnel on the acceptance of gifts, rewards and hospitality. In all cases, any offers of gifts or hospitality must be registered by the individual in receipt of the offer. The provisions of the business appointment rules for both military and civilian officials differ depending on the seniority of the individual, with the most senior officials requiring permission from the Prime Minister to take up an appointment following the end of their service within the Ministry of Defence.

The specific provisions of the business appointment rules are as follows. For the most senior officials in the Civil Service—at three-star level or their military equivalents—the rules require that they submit an application, which must be referred by the department to the Advisory Committee on Business Appointments, which will provide advice to the Prime Minister to enable a decision to be taken. Due to their role at the highest level of Government and their access to a wide range of sensitive information, all Permanent Secretaries will be subject to a minimum waiting period of three months between leaving paid Civil Service employment and taking up an outside appointment or employment. As a general principle, there will be a two-year ban on civil servants at three-star level and above lobbying the Government—communicating with a view to influencing a government decision or policy in relation to their own interests. For civil servants at two-star level and their military equivalents, the rules require that an application be made to the Permanent Secretary, who is responsible for making a decision and providing a written recommendation to ACOBA—the Advisory Committee on Business Appointments.

[Lord Robertson of Port Ellen]

The Minister was reading rather quickly. Did he say that the quarantine period was to be three months only?

[Lord Astor of Hever]

Yes, I did. I shall be able to answer the noble Lord’s question at the end.

Applications from one-star level and below and their military equivalents are considered internally within the MoD. An application at these levels is required only if the individual’s circumstances mean that, in their last two years of service, they have been subject to one or more of the following: first, they have been involved in developing policy affecting their prospective employer, or have had access to unannounced Government policy or other privileged information affecting their prospective employer; secondly, they have been responsible for regulatory or any other decisions affecting their prospective employer; thirdly, they have had any official dealings with their prospective employer; fourthly, they have had official dealings of a continued or repeated nature with their prospective employer at any time during their civil service career; fifthly, they have had access to the commercially sensitive information of competitors of their prospective employer in the course of their official duties; sixthly, the proposed appointment or employment would involve making representations to, or lobbying the Government on behalf of a new employer; and seventhly, the proposed appointment of employment is consultancy work, either self-employed or as a member of a firm, and they have had official dealings with outside bodies or organisations involved in their proposed area of consultancy work.

The number of applications made under the business appointment rules is relatively modest and has averaged around 200 per year over the past five years across grades 1 to 4. For example, in 2012-13 there were 258 applications, of which 172 were approved with conditions, and the rest approved unconditionally.

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[Baroness Garden of Frognal (LD)]

Can my noble friend clarify whether the minimum three months would relate to an employment which was absolutely nothing to do with the previous work? In practice, people who go to work for defence contractors tend to have to wait considerably longer than three months before they can take up that appointment, do they not?

[Lord Astor of Hever]

My noble friend makes a very good point, which I was just going to mention. The period is three months but obviously, if a Permanent Secretary has any conflict of interest, that would be extended to two years under the normal rules. My noble friend makes a very good point.

[Lord Rosser]

Once again, I thank the Minister for the thoroughness of his reply on the amendment explaining the current situation, which has clearly caused some surprise in relation to some aspects. Clearly, we will want to look at what he has said when we read Hansard. I assume from his reply that the Government as a whole are satisfied with the present arrangements, and that they are being adhered to—and that there is no problem with the rules being broken, which is what I suggested might be the case. It would be helpful if the Minister could confirm that as far as the Government are concerned, there is no significant or worrying breach of the rules. Perhaps he could also comment on the role and effectiveness of the Advisory Committee on Business Appointments, as that is a matter that I and my noble friend Lord Robertson of Port Ellen raised.

I will be withdrawing the amendment, but I hope that the Minister will be able to reply to those points. I am loath to keep asking him whether he will reply in writing, as I appreciate that what he says will appear in Hansard but, bearing in mind some of the concerns that have been raised, it would be helpful if he could put in writing what he said about the distinction between the three-month period, and the circumstances in which that applies; and the two-year period, and the circumstances in which that applies.

[Lord Astor of Hever]

My Lords, I will be very happy to do that; in fact I was going to offer to write to the noble Lord, Lord Robertson, with copies sent to other interested noble Lords. I have been handed a fairly detailed brief on that point. Rather than reading it out, I would like to put it in a letter and address all the concerns that have been raised.

[Lord Rosser]

In that case, I beg leave to withdraw the amendment.

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[Lord Roper]

My Lords, I would be grateful if my noble friend in replying to this debate could give us more information on why Clause 2 is necessary and what sort of financial assistance we are discussing here.

[Lord Astor of Hever]

My Lords, Amendment 7 would require the Secretary of State to withhold approval on any relevant contract price change until a detailed report has been laid before both Houses setting out the circumstances why the increased price is required. The amendment also requires the Secretary of State to write to the chairs of the relevant parliamentary committees, which I assume to be the House of Commons Defence Select Committee and the Public Accounts Committee, telling them that the report has been laid. Although I fully support the principle of being transparent with Parliament regarding the performance of the defence equipment programme, I do not believe that this amendment is appropriate, as it would significantly constrain the operational freedom of the Secretary of State and the department. The amendment is also not required as the performance of the equipment programme is already regularly reported on, including by the National Audit Office, and scrutinised by Parliament.

In addition, the proposal would introduce significant practical issues. Under the proposal, every change of price within a contract managed by the future GOCO would require a report to be laid before both Houses. Given that DE&S manages many thousands of contracts, this requirement could impose an unmanageable burden on the GOCO and the department. Gaining better control over the schedule delivery and cost of the equipment programme is a fundamental part of the likely future GOCO arrangements, and that will not be helped by imposing an excessively burdensome reporting constraint on the GOCO. Indeed, it could result in the opposite effect. The amendment also provides no mechanism for how contract price changes would be approved while Parliament is in recess. It is clearly unreasonable for the day-to-day operation of the department and GOCO in delivering equipment and support to the front line to be constrained in this fashion.

Turning to Amendment 9, it is important to stress that Clause 2 of the Bill is designed as a fallback option to be used as a last resort in circumstances where a GOCO company is in need of financial assistance and unable to obtain it from the commercial market at acceptable rates. We would expect a future contractor to be a financially robust company that would only very rarely need to seek financial assistance from the market and that, should it need to do so, the assistance required would be available on acceptable commercial terms. Therefore, the power to provide financial assistance to the contractor from the Secretary of State is anticipated to be required only in extremely rare circumstances and as a last option to prevent the business from becoming insolvent and ensure business continuity. Clearly, continuity is critical and must be ensured when the business in question is the provision of defence equipment procurement and support services that are vital to supporting our troops on the front line. That risk must therefore be effectively managed. A further important point is that the Ministry of Defence would seek to claw back any financial assistance provided under this clause through deductions from future contractual payments to the GOCO.

The effect of the amendment is to require the Secretary of State to withhold approval for the grant of financial assistance until a report has been laid before both Houses setting out why financial assistance is required and until he has written to the relevant chairs of the parliamentary committees telling them that the report has been laid.

The purpose of this amendment is about ensuring transparency to Parliament—a principle, as I said in my opening remarks, that I fully support. I understand and agree with the desire for Parliament to be kept fully informed and to have the opportunity to consider and comment on the provision of financial assistance from Government funds. However, although the amendment seeks only to constrain the ability of the Secretary of State to provide financial assistance—to the extent that he could not do so until the report has been provided to Parliament—it would have the effect of introducing a time delay to the provision of such assistance, which could have very significant consequences if assistance is required urgently to ensure business continuity.

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[Lord Roper]

Before my noble friend sits down, could he explain—I thought I understood this but now understand it less—whether the reference in Clause 2 to “a contractor” is to the GOCO contractor or to an individual company that is supplying goods to the Ministry of Defence? That is not totally clear.

[Lord Astor of Hever]

My Lords, I totally agree with my noble friend. Before Committee I had a long debate with the team about this, and we changed my speaking notes radically. We changed “‘contractor” to “GOCO” in many cases. The answer to my noble friend’s question is GOCO, but the terms “contractor” and “GOCO” are interchangeable as far as the Bill is concerned. One can use both when describing provisions in Part 1 of the Bill, but for consistency and clarity we have decided, in my speaking notes, to use the term “GOCO” as far as possible. I note that a “contractor” slipped through the net.

In the light of what I have just said, I need to resist these amendments as unnecessary, and I hope the noble Lords will withdraw Amendment 7 and not move Amendment 9.

[Lord Rosser]

Once again I thank the Minister for his detailed response. I make two brief comments. Clearly the point of Amendment 7 was to seek to ensure that Parliament would still be kept advised on cost increases in defence contracts in the changed circumstances of the GOCO.

In relation to Amendment 9, if I have understood the Minister correctly, one could argue that if there is provision for financial assistance, it would mean that the risk was not being transferred to the GOCO operator but would remain ultimately with the taxpayer. That raises an important issue about the GOCO operator and the proposals: what risk is being transferred? The response given by the Minister suggests that, come the crunch, not much risk at all is being transferred. However, I do not intend to pursue the matter any further, certainly at the moment. I beg leave to withdraw the amendment.

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[Lord Rosser]

The amendment inserts a new clause after Clause 1 to provide that employees transferred to a company under Clause 1 may not be required to geographically relocate outside the UK without full and proper consultation, which, frankly, one would hope in reality would mean that it would be done only by agreement, although that specific wording is not in the amendment.

There will be an opportunity under later amendments to consider all the possible implications for the employees affected by being transferred to a GOCO contractor organisation, and indeed of being part of the new DE&S organisation after April, with its greater flexibilities and freedoms. However, this amendment deals with a specific issue: the need to provide assurance that staff transferred to a GOCO consortium made up of at least some major international companies will not find themselves being told they must move to a position outside the UK when it is not something they would wish to do, nor would have been compelled to do when part of the current DE&S organisation. I am assuming that this could not happen under the new post-April 2014 DE&S organisation, but it would be helpful if the Minister could confirm that that is the case.

The provisions of the amendment would at least reduce the prospect of such transfers being required against the wishes of the individual concerned. This is not some minor point, because requiring an employee to move abroad is a not unknown way of either removing an employee who has fallen out of favour, or is no longer needed, out of an organisation in the UK, or alternatively if they refuse, out of a company altogether. I very much hope that the Minister will be able to provide some assurance on this point. I beg to move.

[Lord Astor of Hever]

My Lords, going back to the previous amendment, the noble Lord asked me about risk. I can confirm that risk is transferred but must be capped; otherwise no company would bid for a GOCO, due to unlimited liability. The noble Lord may wish to come back on that.

Amendment 8 raises an important issue. I am grateful for the points that the noble Lord raised and I agree that it is important that we protect the interests of those members of DE&S who would be transferred to the GOCO. I believe strongly that the interests of the transferring employees should be protected in the event that the new company should decide to relocate some or all of the services outside the UK. However, I must resist the inclusion of the amendment because it is not needed. Those employees transferring to the GOCO would be sufficiently protected by UK employment legislation in this regard and, accordingly, there is no requirement to include this provision in the Bill.

Noble Lords may recall the note on the Transfer of Undertakings (Protection of Employment) Regulations 2006—SI 2006/246—provided in another place for reference, which explained the protections that those regulations afford to transferring employees. In summary, the TUPE regulations protect employees if the business in which they are employed changes hands, or the services that they provide are to be provided by another organisation. The effect of the regulations is to transfer employees and any rights, powers, duties and liabilities associated with them from the old employer to the new employer. This includes any rights specified in their contract of employment, statutory rights and the right to continuity of employment. Additionally, the new employer cannot change the terms and conditions of employment of transferred employees if the sole or principal reason for the change is the transfer. This is also the case where the sole or principal reason is connected to the transfer, unless there is an ETO reason for the change, usually requiring a change in number of the workforce. This often makes it difficult, if not impossible, for new employers to amend terms and conditions of employment of staff immediately after a TUPE transfer.

The fact that this Bill makes it clear that the TUPE regulations would apply to the transfer of employees to the company would have the effect of protecting the employees’ terms and conditions of employment in place at the point of transfer, as well as representational rights. The terms of employment that will be protected include any obligation with regard to mobility. Civil Service terms and conditions of employment generally contain a mobility obligation within the UK and abroad for all but the most junior of grades. Some employees who would transfer to the GOCO will have, on previous occasions, relocated for work-related reasons both within the UK and abroad throughout their career in the Civil Service. Any proposed change of work location would be subject to general employment law constraints, which require that any enforcement of a mobility obligation must be fair and reasonable, dependent upon the personal circumstances of the individual concerned.

Noble Lords will be aware that amendments to the TUPE regulations came into force last week, and those amendments will not have a detrimental impact on employees. Further to the protections afforded to employees by the TUPE regulations, part IV of the Information and Consultation of Employees Regulations 2004 (SI 3426/2004) places a general obligation on employers to provide information to, and consult, employee representatives. Consultation is the process by which management and employees or their representatives jointly examine and discuss issues of mutual concern. It involves seeking acceptable solutions to problems through a genuine exchange of views and information. Consultation does not remove the right of managers to manage—they must still make the final decision—but it does impose an obligation that the views of employees will be sought and considered before decisions are taken.

To comply with their obligations under the ICE regulations, employers must provide relevant information to, and consult employee representatives on, all matters in relation to: first, recent and probable development of the undertakings activities and economic situation; secondly, the situation, structure and probable development of employment within the undertaking and on any anticipatory measures envisaged—in particular, where there is a threat to employment within the undertaking; and, thirdly, decisions likely to lead to substantial changes in work organisation or in contractual relations. The information must be provided at such time, in such fashion and with sufficient content as are appropriate to enable the representatives to conduct an adequate study and prepare for consultation.

Furthermore, any consultation must be appropriate in terms of timing, method and content, and conducted with a view to reaching agreement on decisions within the scope of the employer’s powers. In other words, the employer must ensure that any consultation that is conducted must be meaningful, and commensurate to the change which is being consulted on. For example, if an employer were planning to move their current premises to a new building half a mile from where they were currently located, with no effect on working practices or workforce numbers, it could be deemed that the impact of this change would be minimal and, accordingly, a minimal time period of consultation of two to three weeks would be appropriate. However, if the proposal were to relocate to new premises at the other side of the UK, or even abroad, this would have a significant impact on the workforce and a period of two to three months would probably be deemed more appropriate.

I do not have an answer to the noble Lord’s question, except “confirmed”, and I would need to pad that out in the form of a letter to him. In summary, established UK employment legislation provides the required protection to the employees that this new clause is seeking to achieve and I therefore ask the noble Lords to withdraw their amendment.

[Lord Rosser]

I thank the Minister for his detailed and considered response, which I will read carefully in Hansard. In the mean time, I beg leave to withdraw the amendment.

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Schedule 1 agreed.

[Lord Astor of Hever]

My Lords, this may be a convenient moment for the Committee to adjourn.

Committee adjourned at 6.01 pm.