Lord Rosser
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Defence Reform Bill
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Lord Rosser
Lord Rosser (Lab)
My Lords, I should like to talk first about the amendment before progressing to brief comments on Amendments 2, 3, 4 and 5. Clause 1(1) provides for the company providing defence procurement services or,
“another company … to acquire from the Secretary of State rights in or over premises and property used for the purposes of”,
defence equipment and support. Under what circumstances might that involve a company other than a company providing defence procurement services? The Bill makes no reference to conditions on maintenance and upkeep. It would be helpful if the Minister were to indicate the key conditions that would apply to the company concerned, bearing in mind that the premises will continue to be owned by the Government and that the defence procurement service operation could, in certain circumstances, be transferred back under complete government control.
Will the Secretary of State be continuing to oversee the upkeep of the premises, and would it be the Secretary of State or the company concerned that would renegotiate any rental or leasing of goods, equipment or property transferred under this clause? Will it be open to the company concerned to rent or lease out property acquired under subsection (1)(b)(i) that is not being rented or leased out at the time of acquisition? Will the new government trading entity responsible for DE&S from April this year be operating under arrangements in respect of property and premises similar to those intended under subsection (1)(b)(i), and, if not, what will be the arrangements in respect of property and premises that will apply to the new DE&S organisation?
Amendments 2 to 5 stipulate action that has to have been undertaken or requirements that have to be met before the arrangements for providing defence procurement services can be brought into force. The Bill appears to be largely silent on these matters. Amendment 2 requires the Secretary of State to publish guidance on the operation of the GOCO contract, which has to include,
“the system by which available defence contracts will be advertised”,
an issue of some importance, not least to small and medium-sized enterprises. Amendment 2 also puts a responsibility for operating the GOCO contract,
“to produce and report annually against progress on an export strategy”.
At the moment, we do not know—and neither do potential bidders—how available defence contracts will be advertised. This is an area in which transparency and openness is essential if we are to provide a level playing field for those interested in bidding. Perhaps the Minister can also say if the move to a bespoke, central government trading entity from April this year will or could lead to a change in how contracts are let or advertised, bearing in mind that we are to see the introduction of a significant element of private sector support.
Likewise, the extent to which equipment to be used by our Armed Forces can also be sold to other countries is an important aspect of our export strategy, and makes a valuable contribution to our export earnings. Such exports also provide us with important links, influence and contacts with other countries and their armed forces. If there were to be a change in our defence procurement arrangements, we need to ensure that an outside company operating a GOCO contract is mindful of the importance of defence exports and continues to give this area of activity the priority it needs. Perhaps the Minister can say whether the setting up of a DE&S as a bespoke central government trading entity from April, with new freedoms, flexibilities and private sector support, will or could lead to any change in approach as far as the potential for defence exports is concerned.
Amendments 3 and 4 provide for contractual obligations to be placed on the company operating the GOCO contract under subsection (2), specifically including provision to prohibit the sale of financial securities in any publicly listed company appointed under subsection (2) where such sale would result in a change of majority ownership; a provision to require non-UK companies to establish special security arrangements for the operation of the contract; and provisions to disqualify certain categories of individuals, as stated in the amendment, from a directorship of the company operating the GOCO. Amendment 5 defines special security arrangements, as referred to in proposed subsection (7A)(a) in Amendment 4.
The purpose of Amendments 3 to 5 is to draw attention to the possibility of unacceptable foreign influence over British defence interests as a result of the GOCO operation, with the private sector involvement and the consequential issue of the ownership or possible change in ownership of one or more of the companies concerned. There is also the issue of possible conflicts of interest at director level and how that will be addressed or avoided, and that is the subject of Amendment 4.
I am sure that the Government are more than aware of the significance of these issues, and I hope the Minister can say something about how they would have been addressed had the GOCO option been pursued. It would also be helpful if the Minister can say how these issues will be addressed in DE&S organisation from April, with its newly significant element of private sector support and its separate governance and oversight structure.
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.
Lord Rosser
I thank the Minister for his considered response and the noble Lord, Lord Palmer of Childs Hill, for his comments. The Minister appeared to address most of the questions I raised but there is one I am not sure he gave an answer to—he may well have done so. He said that the Secretary of State would be involved if it was a case of renting or leasing out property. Could I just check that it will not then be open to the company with the GOCO to rent or lease out property acquired under Clause 1(b)(i) which was not being rented or leased out at the time of acquisition?
The Minister also made a number of references to the GOCO contract. To what extent will the terms of that contract be in the public domain or—if I can use the expression—hidden from view as far as the public is concerned? I believe that the Minister said that freedoms and flexibilities had been agreed with the Treasury and will come back to that issue on a later amendment. Once again, I thank the Minister for his response. I do not know if he is in a position to respond to the two issues I just raised but it is of course my intention to withdraw the amendment.
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
My Lords, we had a lengthy debate at Second Reading on the Government’s decision no longer to proceed with their then plans for the GOCO option but to continue nevertheless with Part 1 remaining in the Bill. It was not made clear then why Part 1 was still relevant or needed and, in my opinion, that remains the situation.
Part 1 is not about some minor change, it is about a major change to the £10 billion annual defence procurement arrangements and procedures, a change to an as yet untried and untested way of doing defence procurement not only in this country but in any other country in the world. The Government now intend to go down the road of further developing DE&S+, something which one might have thought they would have done before deciding whether the GOCO option should be considered. Surprisingly, the further development of the DE&S+ organisation will be under the leadership of someone who, it has been claimed, does not actually believe that it is the best way forward but favours the GOCO alternative.
One suspects that that decision has been made at least in part because the view of that individual reflects the Government’s stance, a stance that also involves putting in place the necessary legislative provision to proceed with the GOCO option at some time in future, but with the added advantage for a future Government of being able to make the change with the minimum of further scrutiny and challenge by Parliament. There can, after all, be little or no effective scrutiny now of Part 1. There is a limit to the amount of hard information that the Government can provide about why the GOCO option would be better or what the financial advantages would be compared to other options, because we did not even get to this stage of having two or more private consortia willing to tender and set out their stall, a development which in itself raises question marks about the whole GOCO proposition.
Why then are the Government persisting with the retention of Part 1 when, even on their own admission, nothing will happen that needs the powers contained in Part 1 this side of a general election? Part 1 is not about giving this Government statutory powers that they plan to use; in fact, it is the exact opposite, it is about giving statutory powers that this Government have now explicitly said that they will not be using, following the collapse of the commercial competitive tendering process.
Part 1 should be deleted because it provides for an untested and untried major change in defence procurement which this Government do not intend to introduce and for which they cannot and will not be able to produce any evidence that it will provide a better alternative at some time in future than either the existing arrangements—or, significantly, the further developed DE&S model, which does not even come into being until April this year.
By retaining Part 1 at the same time as they say that they want to develop further the DE&S+ option, the Government create a situation of continuing uncertainty over the future of the defence procurement organisation for a period of a few years at a minimum. It will not make it easier to recruit people, for the highest levels of the organisation at least, if it is faced within a relatively short period with the real prospect of becoming a GOCO under new private ownership, as it will be the most senior people in the new DE&S+ organisation who will be the most likely to be replaced by the new owners with their own appointees.
What is the Government’s objection to saying that we are now going down the road of DE&S++ and only if that does not deliver the improvements in defence procurement that we are seeking will we look at the other options? What is their objection to saying that, in the mean time, we are not even considering other options or providing legislative provision to introduce them with inadequate scrutiny—not least because we are talking about radically changed arrangements for the future delivery not of £10 million-worth of taxpayers’ expenditure but of £10 billion-worth of taxpayers’ expenditure each year?
A major change in the arrangements for delivering on such a large sum of taxpayers’ expenditure in an area of cutting-edge technology that is crucial to the nation’s security should be subject to the fullest parliamentary scrutiny, based on the facts available and the position in relation to any new procurement arrangements at the time that the change is proposed to be made, not on the basis of the virtually non-existent facts and details that appertained a minimum of three or four years previously, at a time when it had then been decided not to proceed with such a change in defence procurement arrangements.
The Government’s proposed amendment for affirmative orders as a means of providing parliamentary scrutiny in a minimum of a few years’ time, and possibly considerably longer, is, frankly, inadequate. There is no requirement as to how much information, including comparative information, should be provided, and by whom, with such affirmative orders, or the extent to which the information justifying the action and decision covered by the order should be subject to scrutiny.
That is quite important when we are talking about a significant, untried and untested change in the arrangements for procuring defence equipment worth, as I have said, some £10 billion per annum of taxpayers’ money and when we are talking about affirmative orders that cannot be amended but have either to be accepted or rejected as a whole. The Government’s proposed affirmative orders provide no proper checks or scrutiny, bearing in mind the magnitude of what we are talking about. I fear that no soothing or calm words from the Minister about what information might be provided, or however much debate or discussion there might be will alter that fact, not because such words would not be genuinely meant, but because nothing the Minister says commits the Government who would be involved to anything. For it will not be this Government who are in office when decisions are made on whether to continue with DE&S+ or establish a GOCO.
If the decision is made to establish a GOCO it will not be this Government but the next or a subsequent Government who will decide how much information should or should not be provided to Parliament. It cannot be right to pass legislation now which enables a future, unknown Government to make a major change in defence procurement at some time ahead in circumstances that are currently unknown without having to come back to Parliament with a Bill so that they can be made to justify their proposals in detail in the light of the circumstances at the time, with their proposals subject to possible amendment as well as rejection. That is a further reason why Part 1 should be deleted from the Bill. Since it will be a future Government who will take the decision to make a radical change in our defence procurement arrangements, if that is what they decide, it is that Government, not a Government who have decided not to make the change during their term of office, who should have their proposals and reasons for the change subject to full scrutiny by Parliament through a Bill.
How do we meaningfully discuss what the GOCO option will mean in practical terms and the many questions that will need answering when we are not discussing it with the Government determining what the GOCO option means in practical terms and giving responses to the questions that need answering? There are many questions that will need to be discussed and answered but these must be answered by the Government who are making the switch to the GOCO, if that is the stage that is reached. They include questions on the GOCO relating to conflicts of interest, impact on national security, treatment of intellectual property, retention of sovereignty, the operation of any civil and criminal penalties, actual risk transfer and retention of the skills base, for example.
There are other reasons why we should not be giving some future Government at some future, unknown date the power to make major changes to our defence procurement arrangements simply through affirmative orders without full parliamentary scrutiny. Such scrutiny would also take into account how effective the changes have been that are now proposed in the DE&S+ organisation, changes which this Government did not intend to test or evaluate before making a decision on the GOCO option, since it is only now that the Government have decided to make the further changes to the DE&S+ proposition. One would have thought that the Government would have done their utmost to keep defence procurement as a core business for the Ministry of Defence and would not even have considered outsourcing through a GOCO until all options which would keep it in house had been tried, to see whether the necessary improvements could be delivered through that channel. If that can be achieved it would have the advantage of retaining the procurement capability within the Ministry of Defence and the knowledge that goes with it, which will, at the very best, be significantly weakened under the GOCO proposition.
Defence procurement is not simply about what may be the best course of action in commercial terms, but involves a multitude of considerations including political considerations such as the impact of procurement decisions on national, regional and local economies and the future of the defence industry. Such decisions can have international and strategic implications on collaborative projects, for example. It is also the case that the provision of Armed Forces equipment involves uncertainty over both the cost and capability, now and over some years, of cutting-edge technology. This has to be capable of being upgraded or adapted as necessary to meet the increasing sophistication of the equipment deployed in the future by those we might confront in differing conditions in different parts of the world. In addition, the effectiveness of equipment used by our Armed Forces can only be definitively assessed once it has been used in action.
How all these issues and considerations will be addressed and covered in the terms of a GOCO also requires answering, but by the Government who decide to make the switch to a GOCO and not by the Government who do not, and by the Government negotiating the arrangements with the successful GOCO operator and not by the Government who are not. Questions of that magnitude and importance cannot be addressed and considered in a discussion on an affirmative order, as opposed to a parliamentary Bill. Neither can this Government say that there would not be time in the legislative programme for a further Bill dealing with defence procurement, because that would be a matter for the next or a subsequent Government to decide when determining their legislative priorities. One thing that we do know is that there will have to be a further Armed Forces Bill shortly after the next general election, which will provide a legislative opportunity if one is needed at an early stage.
The Government have stated their intention to change DE&S into a new, bespoke central government trading entity with effect from April and have said that the new organisation will be permitted significant freedoms and flexibilities agreed with the Treasury and the Cabinet Office. At Second Reading, the Minister referred to,
“getting the best out of freedoms that we have agreed with Her Majesty’s Treasury and the Cabinet Office, which are necessary for the new DE&S”.—[Official Report, 10/12/13; col. 771.]
Will the Minister now spell out what those freedoms are that have been agreed with the Treasury and the Cabinet Office, what changes they will lead to in the DE&S organisation from April that do not apply in the DE&S organisation as it is today, what their impact is expected to be and what their additional cost, if any, is expected to be? What goals, objectives or targets are being set for the DE&S organisation that comes into being in April and how will they differ from those applicable to the current organisation?
It rather appears as if the new DE&S organisation, in the eyes of this Government, is to be used as little more than a stalking horse for the GOCO, since the Minister said at Second Reading:
“We believe that a GOCO remains a potential future solution for transforming DE&S once we have put in place a more robust baseline from which to contract with a GOCO partner”.—[Official Report, 10/12/13; col. 768.]
That suggests that bringing in private sector support to transform DE&S further within the public sector is being regarded simply as a stopgap measure by this Government. Be that as it may, perhaps the Minister could indicate the extent and breadth of the private sector support that is being brought in now and the form that it will take and where it will come from. Is the private sector support going to come from companies that the Government would like to see as GOCO partners?
As I have indicated, our view is that Part 1 should be withdrawn from the Bill, for the reasons that I have already given, and I hope that at some stage that is what the Government will do. Likewise, for the reasons that I have mentioned, we certainly do not believe that the Government’s proposals that Part 1 should be capable of being brought into effect by some future Government, by the passage of affirmative orders in both Houses, represents adequate scrutiny or the potential for adequate in-depth consideration or challenge.
A further amendment that we are proposing, which we regard as very much the second-best option behind withdrawal of Part 1, is for a super-affirmative order, which would require to be passed by both Houses before Part 1 could be brought into force. The amendment provides conditions that the Secretary of State must fulfil before a statutory instrument containing an order under subsection (1) in respect of Part 1 can be made. Those conditions are set out in Amendment 25 and require the Secretary of State to lay before Parliament evidence-based impact assessments of the risks and merits of at least the DE&S model as modified in 2014, the arrangements for defence procurement as laid out in Part 1 of the Bill—that is, the GOCO—and other options as may be recommended following consultation with the House of Commons Defence Committee. It also requires the Secretary of State to lay before Parliament an independent report setting out the comparative advantages of defence procurement arrangements and options to which I have just referred and for the Defence Committee to report to Parliament its findings on the independent report.
If the Government are determined to leave Part 1 in the Bill, we believe that the measures set out in our amendment would at least help to ensure that the next or a subsequent Government, if they decide to go down the GOCO route, would have to justify their decision to Parliament in some detail based on hard evidence relating to the circumstances at that time before they can proceed and that Parliament, when making its decision, would have the benefit of impact assessments, an independent view of alternative defence procurement arrangements and a review and report on that independent report by its own Defence Committee in the House of Commons. That will be the minimum necessary if Part 1 is not withdrawn from the Bill to at least ensure appropriate scrutiny of a future Government’s proposals and reasons for establishing the GOCO option for defence procurement.
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.
Lord Rosser
“Code of conduct
(1) A code of conduct shall be prepared by the Ministry of Defence governing contact between members of the armed forces and Ministry of Defence officials and employees or representatives of defence contractors.
(2) The code of conduct shall contain the following provisions—
(a) employees of the armed forces or the Ministry of Defence at or above the rank of Brigadier General or the equivalent Civil Service grade, shall be prohibited from undertaking paid employment with a defence contractor unless two years or more have elapsed since the termination of their contract with the armed forces or Ministry of Defence;(b) the appointment of an individual as described in subsection (1) by a defence contractor shall be treated as a public appointment;(c) individuals employed under the terms of paragraph (a) shall not, whilst in the employment of a defence contractor, undertake any activity that brings them into contact with the Ministry of Defence;(d) defence contractors shall publish on an annual basis a list of current employees whose appointment was under the terms of paragraph (a);(e) a register of gifts and hospitality shall be published quarterly by the Ministry of Defence;(f) any gift or hospitality to an employee of the Ministry of Defence, member of the armed forces at or above the rank of Brigadier General, or Civil Service equivalent, or spouse or partner of such, of a value greater than £660 from a defence contractor must be placed on the register prepared under paragraph (e).(3) “Defence contractor” means a company, organisation or person whose main business is in the manufacturing or provision of equipment, works or services for defence purposes.”
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 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
“Duty of Secretary of State to report to Parliament on increases in cost of defence contracts
(1) Where it is proposed that the total price payable for the provision of goods, works or services, procured from another person for defence purposes under a contract entered into by the Secretary of State, or a contractor acting on behalf of the Secretary of State under the provisions of section 1, should rise beyond that detailed in the original terms of the contract, the Secretary of State shall—
(a) lay before both Houses a report detailing the circumstances requiring the increased price,(b) withhold approval of any adjustment of the total price for the contract until the report has been laid, and(c) write to the chairs of the relevant parliamentary committees indicating that such a report has been laid.”
Lord Rosser
This group also contains Amendment 9. Amendment 7 addresses the issue of scrutiny and transparency over increases in the cost of defence contracts, whether entered into by the Secretary of State or a contractor acting on behalf of the Secretary of State. The second amendment provides for scrutiny of financial assistance given to a contractor by the Secretary of State under the terms of Clause 2.
The form of scrutiny provided for in the amendments is parliamentary, through reports to both Houses, and with two other requirements as set out. The Secretary of State would not be able to approve any adjustment of the total price provided for in the contract or provide financial assistance to a contractor unless the required reports had been laid.
With the responsibility for keeping within the original financial terms of the contract likely to become more remote from the Ministry of Defence and the Secretary of State if the provisions of Clause 1 are implemented, there is a need to be precise about what checks and controls will be in place and how Parliament will be kept advised and aware of increases in the cost of defence contracts. Likewise, with the Secretary of State being given power under the Bill to give financial assistance to a contractor on terms and conditions that the Secretary of State thinks appropriate, there is a need to be precise about what checks and controls will be in place over the use of that power and of taxpayers’ money, and how Parliament will be kept advised and aware of how and when the power is being used.
In that regard, perhaps the Minister could give some examples of the kind of circumstances in which this power for the Secretary of State to give financial assistance might be used and is intended under the terms of Clause 2. It would be helpful if the Minister could say whether the new DE&S organisation that will come in from April as a bespoke central government trading entity with greater private sector involvement and new freedoms and flexibilities will lead to any changes in the current arrangements for reporting on or dealing with any increases in the cost of defence contracts or changes in the role of the Secretary of State in that regard. I beg to move.
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, 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.
Lord Rosser
“Transfer of employees
Employees transferred to a company by virtue of arrangements mentioned in section 1 may not be required to geographically relocate outside of the UK without full and proper consultation.”
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.