Jobs threat at Racal as Canadians set to take £1.7bn defence contract

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The Government is set to provoke a political storm tomorrow by awarding a £1.7bn battlefield communications contract to a Canadian company, putting thousands of UK hi-tech jobs at risk.

Geoff Hoon, the Secretary of State for Defence, is expected to announce that the Bowman contract has been won by Computer Devices Canada, which beat off competition from Racal Electronics, now part of the French electronics group Thales, and TRW of the US.

Thales said yesterday that if it lost the order there would be 470 job losses immediately at its Bracknell, Harrow and Crawley sites and up to 3,000 jobs lost in the longer term. In the past 24 hours, the Ministry of Defence has mounted a damage-limitation exercise in a bid to re-assure union leaders that as many UK hi-tech jobs will be retained as possible.

One option is for some of the equipment orders, such as high-frequency radios, to be placed with the losing bidder. But sources at Thales said that no discussions about work-sharing had taken place with CDC, which is owned by the US defence group General Dynamics. It was also pointed out that if the contract is awarded to CDC, then the proprietary technology will come from Canada meaning that the UK will lose its expertise in battlefield communications technology for good.

In a recent letter to an MP whose constituency will be affected by the decision, Lord Bach, the new minister for defence procurement, maintained that all three bids for Bowman involved "similar levels of UK industrial participation".

Roger Lyons, general secretary of the white-collar MSF union, said last night: "The assurance I have is that there will be a very big UK jobs content. As far as UK defence electronics employment is concerned, this will be a win-win situation."

But defence industry observers say this cannot be the case as the technology will be Canadian. CDC has already said that it will take on another 200 workers in Calgary if and when it wins the contract.

The Bowman project has had a long and troubled history. It is already nine years behind schedule and even if CDC begins work immediately the full system, linking sea, air and land forces through a digitised battlefield communications network, is unlikely to be in operation before 2004 or 2005.

The contract was originally awarded to the Archer consortium made up of BAE Systems, ITT and Racal. But Archer was sacked last year and the contract put out to tender again. Even though Racal was not owned by Thales at the time, it is thought that its involvement in the Archer consortium has counted against the group.

The failure of Thales to win the contract will deal a severe blow to its ambitions of becoming a second force in the UK defence industry in competition with BAE. Denis Ranque, the chairman of Thales, says he was given assurances when the French group bought Racal for £1.8bn in January last year that it would be classified as a UK defence contractor and encouraged to provide the MoD with an alternative to BAE and foreign suppliers.