BAE SYSTEMS THREATENS TO PULL OUT OF CVF PROJECT

01 Feb 05. The FT reported that, BAE Systems, once the Ministry of Defence’s preferred choice to build two aircraft carriers, has threatened to pull out of the project if Halliburton, the US contractor, is chosen to manage the £2.9bn programme. This month KBR, a Halliburton subsidiary, won a competition to lead an alliance to build the ships, but the ministry has balked at formally announcing the selection because of BAE’s objections, according to industry officials involved in the programme.

BAE declined to comment on its talks with the MoD, other than to say it was hopeful of resolving any problems. But its objections are believed to centre on the scope of KBR’s role in the alliance, which BAE has argued is too broad.
According to one industry official briefed on KBR’s proposal, the US-based engineering and construction group wants to place its own personnel at BAE’s shipyards. In addition, there are issues over whether KBR would have a say in the design of the carriers, a realm BAE believes should be left to itself and Thales, the Paris- based defence electronics group teamed with BAE to build the ships. KBR declined to comment on its proposal. Despite BAE’s objections, industry officials said it was unlikely the MoD would change its mind on selecting KBR. Several believed, however, that KBR’s role would be pruned in order to meet some of BAE’s objections. KBR’s selection has been controversial from the start. Its prime competitor for the contract, UK-based Amec, had done the original consulting work for the MoD that led it to choose an alliance arrangement instead of selecting a traditional prime contractor to run the programme. As a result, Amec was widely viewed as the most likely winner, and was backed by BAE.

In addition, KBR is the owner of a shipyard in Nigg, near Aberdeen, which is seen as a possible alternative final assembly site for the carriers instead of the Rosyth dockyards in Fife. Rosyth is in the constituency of Gordon Brown, the chancellor, and the KBR selection has caused concern in the Treasury.

One former MoD official said its procurement agency continued to have strained relations with BAE, particularly in shipbuilding, because of past struggles on programmes such as the Astute submarine.

An industry executive said Sir Peter Spencer, the head of the procurement agency, was also concerned about the “cosy relationship” between the UK’s main shipbuilders, and saw KBR’s widened role as a way to rectify this. Amec, in contrast, was seen as a BAE ally in the competition and proposed a more traditional project management role for itself.

The programme has had a slow start, with its assessment phase being extended by more than a year.