Defence contractor BAE Systems looks likely to win a crucial victory in its battle to change the way the MoD hands out contracts to defence suppliers and prevent hundreds of job losses at its shipyards on the Clyde, The Engineer can reveal.
The dispute centres around whether BAE should be the sole contractor to build 12 Type 45 destroyers for the Royal Navy, rather than sharing the work with Southampton shipbuilder Vosper Thornycroft, as the existing contract terms dictate. Before the election, the MoD commissioned US consultant Rand Corporation to help resolve the dispute, and to review its warship procurement strategy for the next 15 years.
Speaking exclusively to The Engineer, Stuart Johnson, director of Rand’s International Security and Defence Policy Centre, suggested the study may have a similar outcome to its recent report on production of the Joint Strike Fighter in the US, which said a single contractor was the most cost-effective option.
Same fundamentals as JSF
‘There are different costs in building an aircraft from building a ship, so this review is likely to come out differently, but the fundamental economics are the same,’ he said.Rand will publish its preliminary findings next month. Its team has visited all but one of the UK shipyards, interviewing managers and union leaders, and will visit the final yard within the next few weeks.
‘We are not going to report until we’ve been to every shipyard,’ Johnson said. ‘We’ve been asked to stand back and take an objective look at what the alternatives are for allocating work and getting that work done.’
The consultant will consider the effects of a decision on local economies, but the key issue will be cost efficiency.
‘Competition is not free. You have to invest in the capital and start-up costs of two production facilities. The hope is that by keeping prices down you can recapture those costs.’
The final report will be published in September, and the MoD is expected to abide by its recommendations, although a spokesman refused to confirm this. ‘The review will inform our decision,’ he said. ‘It is being conducted on our behalf, into the areas we want to look at, and we will have to wait and see what it recommends.’
As the review continues, work at BAE’s shipyards could run out in a matter of weeks, a senior union source has warned.
‘There’s absolutely no doubt work is rapidly running out,’ he said. ‘The issue now is whether BAE can hold on in the hope of getting sufficient work to keep its workforce. It’s going to be weeks rather than months.’
The company has often been seen as the bully, trying to seize work from its competitors, but Vosper Thornycroft could not build the Type 45 without BAE’s expertise, he added, and the contract would mean an expansion outside Vosper’s normal sphere of work.
‘The MoD is insisting on competition, but it prescribes the systems and equipment that make up most of the value of the ships, and frankly there isn’t much competition in those areas anyway,’ the union spokesman said.
A spokesman for BAE Systems confirmed its shipyards are running out of work, particularly at the steel-processing end. ‘At the moment ship building orders are very thin. If we were to get a regular throughput of work from within the UK, we could start to look at exports.’
Reaching the end
BAE’s Barrow yard is working on the Astute class submarines, landing platform docks HMS Albion and HMS Bulwark, and a Royal Navy auxiliary vessel.
The Govan yard is reaching the end of contracts for an anchor handler and landing craft assemblies, as well as work for the auxiliary vessel. At the Scotstoun yard, workers are completing a Type 23 frigate and an offshore patrol vessel for export.BAE hopes to build the Type 45 destroyers at Barrow, and create a centre for steelwork at its two Clydeside sites, to develop new shipbuilding techniques. It has said it will invest £150m if assured of regular work.
But Greg Simpson, senior defence researcher for the Liberal Democrats, argued competition in the sector should be maintained. ‘We have been trying to get the government to stick to its agreement on the Type 45s,’ said Simpson. ‘BAE has been attempting to widen the issue completely, to talk about a new form of competition process. We wouldn’t be sympathetic to that at all.’
Vosper Thornycroft said it viewed Rand’s report on the Joint Strike Fighter project as supporting its case for maintaining competition in the industry.
However, it would not be drawn on a possible outcome to the Type 45 dispute.