Will Sunak make UK the first port of call for Navy contract?
British shipbuilders want to clinch £1.65bn deal to give sector huge jobs lift,
Save money or save British jobs. That is the dilemma facing Rishi Sunak as he prepares to decide on who will be given a £1.65bn contract to provide three massive supply ships to the Royal Navy.
The so-called Fleet Solid Support (FSS) vessels will provide Britain’s new Queen Elizabeth class aircraft carriers with everything from munitions to food and spare parts.
A number of foreign companies are in the running to build the new ships including an Anglo-Spanish bid from Harland & Wolff and Navantia, the state-owned Spanish shipyard.
Indian shipyard Larsen & Toubro, which includes UK company Leidos Innovations, is also a contender, as are incumbent military shipbuilders BAE Systems and Babcock, which have bid jointly as Team UK.
Team UK claims it can create around 2,000 UK jobs directly from the contract and a further 1,500 in the supply chain. The consortium estimates around £650m will be returned to the Treasury through direct or indirect taxes. While the official deadline is March, a decision on the contract winner may come sooner.
Sources close to the UK industry are concerned that the Spanish bid is the frontrunner, meaning that less work will be available to British shipbuilders. The Team UK bid is understood to be more expensive because of higher wage costs than their foreign rivals.
“Not one ship has been delivered in the UK on time on budget in decades. And it seems everybody just gets rewarded for failure,” says John Wood, the owner of Belfast’s Harland & Wolff shipyard. “When you look at the new mood music that’s coming out of government, there’s a new dynamic and it’s all about getting the very best value for money, and the best practices to deliver that.”
Wood claims that a win for his consortium could help transfer much-needed shipbuilding skills to the UK from Spain. While not all of the work will be carried out in homegrown shipyards, he believes the transfer of knowledge will help the UK bolster its shipbuilding industry and allow it to take advantage of export opportunities driven by a weak pound.
“You’re going to find it’s going to make it more expensive to acquire things offshore and that is going to make the UK a bit more attractive, with work going the other way, rather than out of the UK abroad, it’ll be coming here,” he says.
A source close to the shipyard said up to 60pc of the work could land in Britain. Ian Waddell, leader of the Confederation of Shipbuilding and Engineering Unions (CSEU) doesn’t believe this will be enough.
“The Government’s got a clear choice here, it either takes a logical decision and ensures that this work is done in the UK and that it supports the shipbuilding strategy and yards that are struggling for work, or allows effectively the offshoring of warship build.”
Fears are mounting that Sunak may opt to save money after he refused to back a promise to spend 3pc of national output on defence.
The CSEU wrote to Sunak in the summer asking him to commit to building the ships in the UK. It pointed out that £355m of income and corporate tax income is at stake.
Defence bosses are more sanguine. One describes the deal as big in tonnage but not profitability because of the ships’ lack of weaponry.
The contract is being closely watched because shipbuilding is seen as a talismanic industry in the UK, says Stuart Young, visiting fellow at Cranfield University and an expert in defence procurement. This could give a UK-focused bidder the edge, he says.
“I think in the current circumstances for building overseas, the optics aren’t too good.”
But there are bigger trends in military spending, other than simply who offers the cheaper bid, that need to be observed to make the right decision in any defence contract, he says.
When it comes to defence spending, moving from 2.2pc of Britain’s economic output to 3pc is not the leap it might first seem to be, he explains.
The increasing technical demands of big purchases like submarines and attack aircraft lead to larger sticker price increases over time.
“Historically, defence inflation has run at one and a half to two times the normal inflation rate.” He says 30pc more budget does not mean double the number of jet fighters or ships – “it is more like 10-15pc”.
The Government, he adds, could opt in future programmes to be more conservative in the capability it demands rather than asking for products that can do everything everywhere. “We tend to go for the gold-plated solution. And you could quite easily get 80pc of the capabilities you need for 50pc of the price.”
Babcock, Serco and Leidos declined to comment.
A government spokesman said: “The contract for the Fleet Solid Support competition will be awarded to a UK business, either solely or as part of a consortium, promoting growth across the UK shipbuilding sector.”