Business View: Forget patriotism and politics. Make bid battles a good, clean fight

"Do you really want the UK tax system run by a French company?" This, report- edly, was EDS's parting shot to the Government in a final, desperate attempt to win a £3bn Inland Revenue IT contract over its rival, Cap Gemini Ernst & Young.

The Texan company has run the Revenue's computers for nine years and been blamed for a catalogue of errors, so officials and ministers sensibly ignored its jingoistic jibes and last week CGE&Y was duly handed the spoils.

The decision represented more than just a snub to EDS. When the Government invited tenders for the contract last year, the industry complained it was a "stitch-up" for EDS. But after the Revenue had agreed to shoulder some bidders' costs, the competition produced a genuine alternative, offering the prospect of a better deal for taxpayers.

Crucially, ministers followed the technical advice of officials and didn't let grubby politicking muddy the waters.

If only the same could be said for defence procurement. Take the £2.9bn project to supply the Royal Navy with two aircraft carriers. After a gruelling contest between BAE Systems and Thales, Ministry of Defence officials recommended that the French firm should be awarded the contract. But then the Trade and Industry Secretary, Patricia Hewitt, waded into the debate, citing a somewhat tenuous policy document which she claimed supported BAE's case. The Treasury countered with a pro-Thales cry on the basis of value for money. Presumably with his head in a spin, Defence Secretary Geoff Hoon handed the contract to both companies but told BAE that it was the boss. Unsurprisingly, the project is now dogged by rows over money.

Next month, ministers are due to decide on another defence project: the £13bn scheme to equip the Royal Air Force with a fleet of refuelling aircraft. Officials have made their final recommendation and the lobbying machines are firing up in earnest. The Air Tanker consortium, made up of Thales, EADS, Rolls-Royce and Cobham, claims to have garnered significant support among MPs. It has even taken out a series of full-page newspaper advertisements, presumably to the bemuse- ment of the many readers who have no idea what an air tanker is. The other team, TTSC, made up of Boeing, BAE and Serco, has kept its peace so far. With BAE on board, that won't last long.

The truth is that when it comes to creating and safeguarding British jobs, there's very little to separate the bids. Ministers should blank out noises from the lobbyists and take a leaf out of the Inland Revenue's book. They should plump for the bid that offers the best balance of value for money and technical capability. Nothing more.

Trouble ahead for BA

British Airways will continue its yo-yo in and out of the FTSE 100 in just over a week's time, when it rejoins the premier league of leading companies. Walloped by the war in Iraq and the outbreak of Sars, BA is again on an upward trajectory, buoyed by improved trading.

But I have a niggling worry about the airline. It has nothing to do with competition from budget airlines, or overcapacity, or its ongoing restructuring. Instead, take a look at its pension funds.

BA has been fairly open about its pension problems, with a stated £900m deficit. It is in negotiations with the unions about how to deal with this, and last week it spelt out the implications, warts and all, in a staff newsletter.

But the deficit could actually be much bigger that it is telling us.

Actuaries still can't agree on how best to value pension schemes. To keep it simple, there are two methods: the BA way (estimating the return on assets) and a holier-than-thou approach used by the troubled engineering firm Invensys.

John Ralfe, former head of corporate finance at Boots and now an independent pensions consultant, has calculated BA's pensions deficit using the Invensys model. The results are startling. In a report for RBC Capital Markets, he shows that the deficit would swell from £900m to £1.6bn. As a result, BA would have to pump an additional £87m - on top of the £113m it has agreed to pay - into its pension scheme.

Putting it crudely, this would leave less money for shareholders and a slimmer cushion for already nervous creditors. BA's flight into the FTSE 100 could be brief.

clayton.hirst@independent.co.uk

Jason Nissé is away.