Royal Ordnance, now owned by British Aerospace, is thought to have lost millions of pounds worth of business and about 1,000 jobs because of bribes taken by Gordon Foxley, an MoD official.
Yesterday, unions urged the company to take legal action against the Government if the MoD refused to pay compensation for loss of orders - and threatened their own court proceedings if necessary.
In one of the biggest financial scandals involving an individual civil servant, Foxley was found guilty of corruptly awarding contracts to German, Norwegian and Italian companies. He will be sentenced on 7 February, after an investigation into his wealth, at least pounds 1.5m of which is known to have been obtained corruptly from those firms.
Jack Dromey, national secretary of the Transport and General Workers' Union, urged Royal Ordnance to suspend 162 redundancy notices at its plant in Blackburn, Lancashire. The jobs are to be lost from a department involved in the manufacture of fuses. Foxley was found to have taken bribes from firms manufacturing such equipment.
Mr Dromey said: 'Foreign companies greased the palm of a corrupt civil servant to win contracts for inferior products, including a fuse for British Army shells that does not work in wet weather.' He said that all work still being done by the companies involved in the bribes should be repatriated and Royal Ordnance compensated.
He added that Royal Ordnance should challenge the MoD in the High Court and if the company refuses to do so the five unions involved are ready to mount their own legal challenge.
Steve Wallace, chairman of the Blackburn shop stewards' committee, pointed out that the taxpayer, the Army and the Lancashire factory had lost out because of corruption. 'The time has come to call a halt to the decline of Royal Ordnance Blackburn. And we want a public inquiry so that never again is Britain ripped off.'
A spokesman for the Ministry of Defence confirmed that talks had taken place with Royal Ordnance. He said that there was no guarantee that orders corruptly awarded to the foreign companies would have gone to the British company.
All the contracts negotiated by Foxley were now at an end and subsequent orders relating to the firms involved were being 'urgently reviewed'. He said the Government had recently negotiated a pounds 200m deal with Royal Ordnance.
A spokesman for British Aerospace said that there was no case for legal action against the MoD because the group bought Royal Ordnance after the corrupt contracts were awarded. The jobs at Blackburn would have to go on the grounds of efficiency and competitiveness, the spokesman said.
However, a German company found to have bribed Foxley is still supplying the MoD, according to Mr Dromey. He believes that if the contract was scrapped it would save the 162 jobs at Blackburn.
At Snaresbrook Crown Court where Foxley was found guilty, Roy Amlot QC, his counsel, urged Judge Andrew Brooks to ignore reports which claimed that British firms had lost MoD orders because of his client's activities. Such allegations were unsubstantiated, harmful and wounding to Mr Foxley and should not be taken into account when he was sentenced, Mr Amlot said.