MoD's showpiece ship contract hit by delays and cost overruns

A £330m Ministry of Defence shipbuilding contract that was supposed to mark an end to cost overruns and delays is running millions over budget and a year behind schedule.

A £330m Ministry of Defence shipbuilding contract that was supposed to mark an end to cost overruns and delays is running millions over budget and a year behind schedule.

The project to build four 16,000-ton ships for the Royal Navy was one of the first to go ahead under a system called "smart procurement". Introduced after the MoD was savaged by the National Audit Office for wasting billions in taxpayers' money on ill-conceived projects, the system was intended to herald a new relationship with private contractors.

However, The Independent on Sunday has learnt that the two contractors building the ships for the Royal Navy have lodged hefty claims with the MoD over the project, known as Landing Ship Dock Auxiliary.

Britain's largest defence company, BAE Systems, is claiming over £20m and shipbuilder Swan Hunter is asking for more than double that, it is understood. The claims relate to last-minute changes to the design by the MoD. As a result, the project is a year behind schedule.

Norman Brownell, Swan Hunter's commercial director, said: "There have been delays and cost overruns. The problems are being resolved but I can't comment at this stage on the cost. The in-service date will probably slip a year."

Mr Brownell blamed problems with smart procurement for the extra costs. "The concept was taken on by the upper levels of the Ministry of Defence, but it never filtered down," he said.

Swan Hunter is the lead contractor on the project. As well as building two of the vessels, it produced the designs that are being used by BAE.

A BAE spokesman refused to comment on the size of its claim but said: "We are working towards recovering costs on the programme. We are currently in discussions to agree the actual numbers. There have been changes to the programme but we are not interested in finger pointing at the moment."

A spokesman for the Defence Procurement Agency, part of the MoD, confirmed that it was working on a "revised programme for the project" as a result of "technical difficulties".

"The MoD is in discussion with Swan Hunter and BAE regarding any costs that may be incurred by this revision," he added.

The decision on the claim is critical to Swan Hunter's future. Delays to other MoD shipbuilding projects mean that it faces a work drought until 2008.