BAE Systems slams cost of contract competition

BAE Systems has accused the government of wasting taxpayers’ money by forcing companies into a costly competition for defence contracts.

The company is competing to be prime contractor for two naval aircraft carriers against a consortium led by Thales, formerly Thomson CSF. They will cost £2.6bn to build, and will be capable of operating 50 aircraft.

Mike Turner, the chief operating officer at BAE Systems, told The Engineer the government should decide which company will build the ships before the costly development work begins, rather than after nearly three years of investment by government and competitors.

‘To take a development contract, you need to have done significant risk reduction work so company and customer know the overall cost. I don’t think it’s sensible for the government to fund two teams for this work.’

Under the competitive assessment system, each company could be awarded £30m by the government before the contract is even awarded. The downside is that they are forced to invest in development work with no guarantee of winning the contract.

‘Smart procurement should be about selecting the prime contractor now and funding the risk reduction work with that contractor,’ said Turner. ‘We’re trying to ensure naval shipbuilders can make a reasonable return on investment and we’re also looking for value for money.’

BAE recently incurred £300m in extra costs after an over-run on a £2.2bn fixed-price contract to refurbish the Nimrod patrol aircraft. shipbuilding analyst Sandy Morris said this demonstrates the high cost of developing technology, and that such work is not worth the risk to companies.

‘BAE Systems isn’t saying there is no place for fixed-price contracts; there is if you have the risks under control,’ he said. ‘Otherwise it doesn’t make sense.’

The US had a similar policy of competitive procurement, Morris added, but has moved towards ‘an open-book system, where companies know each other’s costs, but have incentives to beat them’.

The first stage of the competitive assessment process for the aircraft carriers, worth £6m to each company, involves studying carrier design options. The second, worth £23.5m to both companies if they make it through, focuses on risk reduction on a specific carrier design.

Ralph Dunn, a spokesman for the MoD Defence Procurement Agency, said there are no plans to curtail the competition by excluding Thales. ‘The MoD is committed to delivering value for money through effective competition,’ he said.

Nick Moss, director of strategy planning at Thales, whose consortium also includes Lockheed Martin, Raytheon and British Maritime Technology, told The Engineer the company is committed to the government’s competition policy. ‘We support the opportunity to work with the customer under the Smart procurement initiative,’ he said.

BAE Systems is vying with Vosper Thornycroft to build 12 Type 45 Royal Navy destroyers. The company has proposed dividing the military shipbuilding market into two, with VT building ships below 85m long and BAE building larger vessels.

The government could then support each companies’ export activities, BAE said.

The bidding process: is this value for money?

Future Aircraft Carrier, £30m: A two-stage competition between BAE Systems and Thales. Each will receive £30m from the government during this phase. Contracts will be awarded in 1999, and final bids are due in 2003.

Tracer (Armoured Scout and Reconnaissance Vehicle), £90m: A Joint UK/US project. The competition will last 42 months between two rival consortia: Marconi Land and Naval Systems and Alvis Vehicles with United Defense and Raytheon; and SIKA, a joint-venture between BAE Systems (then British Aerospace) and Lockheed Martin. Both groups will receive £90m each during the competition phase.

Terrier (Air Transportable Combat Engineer Vehicle), £5m: A 21-month, single-phase competition between BAE Systems, RO Defence and Vickers Defence Systems, worth £5m to each.

Light Forces Anti-tank Guided Weapon, £3m: A one-year, single assessment phase competition between the Raytheon and Lockheed Martin consortium, and Rafael, supported by Matra BAE Dynamics. The competition is worth £3m to each.