Halliburton's role in pounds 3bn carrier contract scaled back

GEOFF HOON, the Secretary of State for Defence, came under attack in the Commons yesterday after confirming that the controversial American defence contractor Halliburton has been selected to manage the pounds 3bn project to build two new aircraft carriers for the Royal Navy.

The Halliburton subsidiary Kellogg Brown & Root has been chosen as "physical integrator" of the two vessels, but its role has been restricted following lobbying from BAE Systems, which had threatened to quit the alliance building the ships unless its concerns were met.

This means that KBR will not be responsible for managing the alliance, nor will it be in overall charge of the shipbuilding programme. As a result, final assembly of the two 60,000 tonne carriers is likely to take place at Babcock's Rosyth yard in Scotland, which is next to the constituency of Gordon Brown, the Chancellor, and is BAE's preferred location, rather than KBR's Nigg offshore facility in the north of Scotland.

Gerald Howarth, the Tories' defence spokesman, accused Mr Hoon of giving Mr Brown a "pre-election bung" by ensuring the work would go to Rosyth, where more than 1,000 jobs are dependent on the contract.

Vince Cable, the Liberal Democrat Treasury spokesman, criticised the choice of Halliburton, which was formerly run by Dick Cheney, the US Vice- President. He said Halliburton had an "absymal record" for cost overruns, was being investigated for corruption and had been in Chapter 11 bankruptcy protection in the US last year. "I am sure KBR are competent but there is a cloud over the parent company and that is worrying," Mr Cable added.

BAE said KBR's primary role would be "the implementation and maintenance of the planning and project control processes" for the main alliance, which will be led by the Ministry of Defence. Together with BAE, KBR will also establish a shipbuilding entity to design and manufacture the two carriers.

The vessels will need to be constructed at different sites - BAE's Govan yard on the Clyde, Swan Hunter in the North-east, VT Shipbuilding in Portsmouth - before being transported to the integration yard at Rosyth.

BAE said it had now agreed to KBR's involvement because its role had been scaled back and redefined. It said its previous concerns had been about KBR's lack of warship building experience. "Its role has been contained whereas frankly, it was running wild before," said one executive. Announcing the choice of KBR, Mr Hoon said they had been selected "in recognition of their track record of both operating in alliances and delivery of complex, bespoke projects in the offshore industry and other sectors".

KBR will become a risk-sharing member of the carrier alliance. The other members will be the MoD, BAE, Thales, the French company that designed the two ships, and the new shipbuilding entity. The two carriers, which will be three times the size of the ships they replace, are due to enter service in 2012 and 2015 but the timetable has already slipped by 12 months.

Halliburton's chief operating officer, Andy Lane, said: "This award underscores KBR's long-term commitment to the UK defence industry."