BAE and MoD 'poles apart' in row over £2.8bn project

BAE Systems and the Ministry of Defence are embroiled in a row over the amount of taxpayers' money that should be made available to shore up a £2.8bn aircraft carrier project if it runs into difficulties.

The two sides are negotiating the final terms of the deal to build the two Royal Navy ships. But an insider working on the project said that BAE and the MoD were poles apart.

The row is another blow to the controversial project, which may have to be scaled back to stay within budget. It centres on who is to foot the bill if costs overrun. When BAE was selected as the main contractor on the project in January, the former Chief of Defence Procurement, Sir Robert Walmsley, said of the MoD's exposure: "I would be surprised if we reached two digits in the share that we eventually agree on, but it will be of that sort of order." His circumspect comments were widely interpreted to mean that the MoD would agree to accept 10 per cent of any cost overruns.

However, one insider revealed that BAE now wants the Government to take on a much higher proportion of the risk - over 15 per cent, while the MoD was arguing for a reduction to 5 per cent.

The two sides must come to an agreement before spring next year, when the final contracts are signed.

BAE and the MoD admitted that negotiations on the contract were ongoing, but refused to comment further.

BAE, under chief executive Mike Turner, was chosen over France's Thales by the Defence Secretary, Geoff Hoon, to run the carrier project. But as a consolation prize, Thales was given a role in designing the ships. It is understood that BAE wants to reduce its exposure to potential cost overruns because it doesn't have full control over design.