US rival fights off BAE for MoD's £2bn tanks order

The American defence giant General Dynamics has secured the £2bn contract from the Ministry of Defence to build 600 next-generation light tanks for Britain's armed forces.

The deal was subject to some controversy last week as rival bidder BAE Systems rejigged its proposal in a desperate attempt to claw its way back into the race. It pledged to create 400 jobs and save 400 more, and warned that the loss of the contract would spell the end of Britain's tank-building industry. The winner of the order had already been decided, however. Yesterday, the MoD confirmed that General Dynamics was its preferred bidder for the demonstration phase of the Future Rapid Effect System Specialist Vehicle (Fres SV) programme.

"This represents a very important milestone towards replacing the ageing [tracked combat reconnaissance vehicle] and is one of the highest equipment priorities for the Army," said the Defence Secretary, Bob Ainsworth.

"In addition, the development of the common-base platform will enable the delivery of further vehicles to meet requirements informed by the outcome of the Strategic Defence Review."

But the Conservatives branded the move precipitous. The shadow Defence Secretary, Liam Fox, said: "It is quite wrong for the Government to sign multibillion-pound contracts, unless they are urgent operational requirements for Afghanistan, just weeks before a general election and ahead of a strategic defence review which all parties are committed to."

BAE Systems said it would now go ahead with 500 redundancies that it had hoped to prevent if it won the contract. The jobs will be lost at BAE's plants in Newcastle, Leicester and Telford. Closure of the Telford and Leeds plants had already been planned.

The company's share price barely moved yesterday, indicating that the lost competition was already priced in. Under the General Dynamics bid, 70 per cent of the work on the new Ascod vehicle will take place in the UK and the programme will create or sustain up to 10,000 jobs. The basic frame will be built at its Spanish factory, but only because the MoD stipulated that all bids must use an "off-the-shelf" chassis.

The Ascod is designed to replace the ageing Scimitar scout vehicle, providing British troops with more protection and firepower.