Rivals engage in battle for warship contracts

Shipbuilding industry experts have condemned the government’s competition policy for failing to provide value for money.

Shipbuilding industry experts have condemned the government’s competition policy for failing to provide value for money, as two of the UK’s largest warship builders fight over the Royal Navy’s new destroyer contract.

Sandy Morris, an analyst with ABN Amro, said the plan to split construction of the first three Type 45 destroyers between BAE Systems and Vosper Thornycroft could prove expensive.

‘There is overcapacity in the industry, and to make up for that, all the Ministry of Defence may end up doing is buying more ships than it needs, or paying too much for them,’ he said.

BAE Systems was chosen in July as the prime contractor for the first three destroyers, with Vosper Thornycroft appointed to assemble one vessel. The design work would also be shared.

Troubled waters

However BAE said it had proved impossible to agree a price for the third destroyer with Vosper Thornycroft, so the company had put in an unsolicited bid to build all the first three ships.

The company has also said it could build the ships more cheaply if it were to make all 12 of the destroyers that will eventually be ordered for the navy.

Morris said the government was seeking to exploit the modular system of shipbuilding, which allows for different sections of each vessel to be built in different yards. This means work can be spread between companies in need of work.

But each module of the Type 45 will be too big and heavy to travel by road, and will instead be transported for assembly by barge, between Vosper Thornycroft’s site on the south coast and BAE Systems’ Scotstoun yard.

No figure was available from the MoD for the overall cost of transporting such large modules around the country.

Morris said not winning the contract for any of the destroyers could actually be a blessing in disguise for Vosper Thornycroft, as the company has recently been successful in its support services and small warships businesses: ‘Vosper Thornycroft’s credentials are now in minehunters and small warships — if it wants to go head-to-head with BAE in a business it has already been forced out of once that’s fine, but it could be on a hiding to nothing.’

A spokesman for BAE said there were limits to how far the government’s competition policy could be taken, and pointed out that BAE Systems itself has been the only submarine builder in the UK for some time.

BAE Systems argues that the cost of Vosper Thornycroft building the destroyer is too high. Vosper Thornycroft will have to invest over £10m to move its yard to Portsmouth to allow it to build larger ships, creating more capacity in the over-burdened industry.

‘There is a rationale for saying “let’s look again at whether the competition system provides the best value for money”,’ the spokesman said.

Under consideration

Defence secretary Geoff Hoon has said he is considering BAE Systems’ unsolicited bid to build all 12 destroyers. A spokesman for the Ministry of Defence said a decision would be made as soon as possible, and was expected in the early summer. But the MoD spokesman said the higher initial cost will lead to savings from increased competition. ‘Even if there is a greater cost in the short term, in terms of a greater initial outlay, in the long term there should be a big saving from this system,’ he said.

A spokesman for Vosper Thornycroft said the company has always made a wide range of warships, from smaller craft to destroyers and frigates, and was continuing to pursue the contract on the basis of protecting competition in the industry. ‘We have always supported and will continue to support the government’s competitive procurement strategy,’ he said.