MoD delays decision to award Navy contract to Halliburton

The Ministry of Defence has stalled on plans to recommend the controversial US contractor Halliburton for a key contract on the £4bn construction of two Royal Navy aircraft carriers in Scotland as a result of concerns about the likely political backlash.

The MoD's Investment Approvals Board was planning this week to recommend to ministers that a subsidiary of Halliburton, Kellogg Brown & Root (KBR), should be named "physical integrator" on the project to build Britain's two most powerful warships over the next 10 years. The board has now decided to consider its options for another week.

Awarding the work to KBR would be controversial because the company may press for much of the work on the ships to be done at Nigg, a disused oil platform yard it controls, rather than at Rosyth, Fife, which is owned by Babcock. This could lead to the closure of most of Rosyth's operations, leading to more than 1,000 redundancies.

Such a move is being opposed by local politicians, including the Chancellor, Gordon Brown.

There are also concerns about KBR's finances. KBR in the US is under Chapter 11 bankruptcy protection due to unrelated asbestosis liabilities. Halliburton has also indicated it might sell KBR if it emerges from Chapter 11, creating further uncertainty about who would ultimately be in charge of overseeing the construction.

While MoD officials have visited Nigg to inspect the site, senior sources at Whitehall have said the Government does not want other yards to be frozen out of the work. The decision about where the ships are built is to be taken by the MoD and the alliance of shipbuilders it has formed for the project, rather than by whomever is given the role of integrating the scheme. The alliance includes BAE Systems and Babcock.