BAE signs £127m deal to design new frigates for the Navy

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BAE systems has won a £127m, four-year contract to develop the next generation of warships for the Royal Navy.

The MoD also yesterday signed off the building of a fifth of BAE's Astute-class submarine and the early procurement activities for a sixth – at a cost of more than £300m.

The warship deal signals a shift into the "assessment phase" for the new Type 26 frigates – designed to be used to protect larger battleships or to fight enemy submarines – to replace the Types 22 and 23 which will start to be retired at the end of this decade.

An existing team of 80 people from BAE Systems and the Ministry of Defence (MoD) will expand to 300 over the next four years as the initial concept design is turned into a detailed specification for manufacture.

The Type 26 fleet will complement the Type 45 destroyers now being built and will be central to the shape of the future Navy, Sir Mark Stanhope, the First Sea Lord, said. "You simply cannot have an effective Navy without capable frigates, and the Type 26 combat ship will form the future backbone of the Royal Navy's surface combatant force," he said. "These ships will be highly versatile, able to operate across the full spectrum of operations."

Taken together, Type 26 and Astute are good for both the Navy and for the British defence sector, Bob Ainsworth, the Defence Secretary, said yesterday. "Planning for future defence is crucial," he said. "Programmes like the Type 26 and Astute not only ensure the Royal Navy continues to have cutting edge capability but also sustain the industry that supports them."

The Type 26 is the first of two classes of ships to be built under the Future Surface Combatant (FSC) programme, which is the Navy's next big construction investment after the Queen Elizabeth Aircraft Carrier programme. Both FSC ships will be designed with a view to export, BAE Systems says.

The first Type 26 is expected to go into service in the early 2020s. The timetable for completion of the assessment phase will dovetail with the Strategic Defence Review that is due to start this summer so that any shifts in policy can be reflected in the final design.

Potential uses for the vessels include active anti-submarine warfare, support for land operations, command and control functions, protection of high-value shipping, and intelligence and surveillance. They may also be used to provide humanitarian aid and disaster relief.

BAE Systems' two big contract wins come just days after the group was beaten to a £4bn tank contract by its US rival General Dynamics.

The MoD also yesterday signed a 15-year support agreement for ships and submarines with Babcock Marine. The contract will cut the department's costs by £1.2bn, the MoD said.

The first Astute left the Barrow shipyard for sea trials last November, another two are in the process of being built – at a total cost of £3.8bn – and the keel has already been laid for a fourth. The entire programme is for seven boats to replace the ageing Trafalgars, but the Government's commitment will proceed on a boat-by-boat basis. The clincher will be Trident. If the Government goes ahead with plans to replace the nuclear deterrent, and the Vanguard subs that carry it, the full fleet of Astutes will be needed to provide support.