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28 Jan 03. Following speculation over the week-end that the UK CVF requirement would be split between BAE SYSTEMS and Thales, unconfirmed reports suggest that a compromise deal may have been reached whereby BAE SYSTEMS may prime the bid, with some Management expertise input from the Defence Procurement Agency in Bristol. BAE SYSTEMS will gain the build and support contract, Thales will supply the weapons system, with AMS supplying the communications systems. This will satisfy all parties to some extent but also ensure that the new EUROSYSTEMS obtains some business and follow-on systems from Type 45.

These unconfirmed reports follow news to day that the total spend on the CVF project by the DPA and Mod alone was £100m, not including the millions spent by both bidders. It may be that lawyers decided that the risk factor made it unworkable for both contractors to share the contract? It is not clear yet what level of risk will be taken by BAE SYSTEMS given the current balance sheet problems with Astute and Nimrod.

There may be strings attached to a BAE win such as management changes and assurances on Astute and Nimrod. Reports suggest that the Electric Boat Company may be planning some form of deal at Barrow, heralding a takeover of the site or a JV to ensure the success of Astute. This would bring GD a valuable European site and could bring in the AS90, Terrier and XM177 UFH contracts and much needed cash to the BAE coffers.

For Thales the pay off should be a win in the FIST requirement against BAE, this month and a downselection for Watchkeeper with Northrop Grumman as the other contractor, which will be announced at the end of February.

The City certainly believes that BAE is well placed with the shares registering their largest one day move for some time up 12p to 118p at the Close.

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