MoD blow to British shipyards

Doubts over capacity and skills could lead to warship contracts going overseas. Clayton Hirst reports

The Ministry of Defence is conducting a major review of the UK's shipbuilding industry which could lead to future contracts being awarded to foreign firms.

The Ministry of Defence is conducting a major review of the UK's shipbuilding industry which could lead to future contracts being awarded to foreign firms.

UK shipbuilding directly employs 24,000 people, with a further 50,000 involved in a support role. But according to well-placed sources, the MoD study is likely to conclude that the UK lacks sufficient skills and capacity at its yards to handle a number of forthcoming projects and certain contacts could be awarded to overseas firms.

This would represent a big shift in Government policy. At present, the MoD insists that all warships are built in the UK on security grounds.

The news is also likely to anger companies such as BAE Systems, Swan Hunter, VT Group and Babcock International which represent the mainstay of the UK's shipbuilding industry.

Geoff Hoon, the Secretary of State for Defence, has charged two teams with studying the UK's shipbuilding industry. The so-called pricing and forecasting group, part of the Defence Procurement Agency, is looking into the available capacity of UK shipbuilders to take on more work. Meanwhile, the Defence Logistics Organisation, one of the largest units within the MoD, is examining the available skills within the UK's shipyards. On top of this, the MoD has commissioned consultancy Rand to look into the two issues. Rand is due to present its report to MoD officials in the next few weeks.

While no final conclusions have been drawn, it is understood that the reviews are pointing to a skills shortage and limited shipbuilding capacity in the construction of certain types of ship. Industry sources believe that this could reduce the chances of UK yards winning work on a forthcoming £2bn contract with the Royal Fleet Auxiliary. The project, code- named Mars, will see 10 to 12 ships built to go into service between 2010 and 2020.

However, UK shipbuilders have not built this type of ship - mainly tanker and cargo vessels - for a number of years, so the construction could go to continental European shipyards.

The MoD is still assessing the exact scope of the Mars project but there is speculation that a British company could be awarded a project management role in Mars.

A spokesman for the MoD confirmed that it was reviewing the UK's shipbuilding industry and that the conclusions would be published later this year. He refused to comment on the possible conclusions.

The news comes as speculation mounts that BAE Systems will pull the sale of its shipyards. In April, the company declared that it was reviewing the future of its yards and one option was a sale. A spokesman said that no decisions had been made. However, BAE, represented by investment bank Goldman Sachs, has received only limited interest in its shipyards and industry sources believe that a sale is no longer likely.