Royal Navy aircraft carrier costs 'to double'

 
Computer-generated image issued by the Aircraft Carrier Alliance of the new Queen Elizabeth Class ships This computer-generated image shows how the ships might look

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The cost of two new aircraft carriers being built for the Royal Navy is expected to be almost twice the original estimate, the government is expected to confirm this week.

In the latest budget, the Ministry of Defence is set to estimate the cost of the two ships at £6.2bn.

The department says it is renegotiating the contract to avoid further significant rises.

Six years ago, when the contract was approved, costs were put at £3.65bn.

'Financial fiascos'

The defence project is one of the biggest ever undertaken in the UK and has been beset by construction and design delays.

Analysis

It's perhaps no great surprise that another major defence project is well over budget. And Britain's not alone. The Pentagon is seeing the price tag rise for its new aircraft carrier too.

Nevertheless, this is an embarrassment for Defence Secretary Philip Hammond, who has boasted that he would keep costs under control. He'll be keen to blame the last Labour government for signing a "flawed" contract with industry (David Cameron said it would have cost more to cancel the project than build the ships).

Mr Hammond is soon expected to announce that he has renegotiated that contract to ensure that industry equally shares the burden of any more cost rises - that's the silver lining.

The worry though is that the government - and the taxpayer - still don't know what the final bill will be. That £6bn does not include the cost of buying the new F35 jets for the carrier. Nor has the government made clear whether the Royal Navy will be getting one new carrier or both. The original plan was to mothball one.

A government source said it had inherited a flawed contract that was now being renegotiated to ensure industry shared the burden of any future rises.

The shadow defence secretary, Labour's Vernon Coaker, said: "This is the latest in a series of financial fiascos in the MoD under David Cameron.

"The defence secretary's claim that he has balanced the MoD books looks increasingly nonsensical. Britain deserves better than this shambolic approach to our nation's defence."

During the course of the project, an order for carrier jump jets - capable of short take-offs and vertical landings - was switched to jets with a longer range that could carry more weapons.

However, in February last year, the MoD decided to revert to the original jets for logistical and financial reasons.

This "U-turn" saw £74m of taxpayers' money go "down the drain", Labour's Margaret Hodge, the chairwoman of the Commons Public Accounts Committee, said in September.

The cross-party committee, which assesses value for money in government spending, has said it still regards the project as "a huge technical and commercial risk" and was not convinced the MoD had it under control.

It said in its report that officials had made basic errors, such as failing to factor in the cost of inflation and VAT.

'Advanced negotiations'

Of the latest cost rises, the Ministry of Defence said: "Negotiations between the MoD and the Aircraft Carrier Alliance [the ship-builders] regarding the re-baselining of the Queen Elizabeth carrier programme are at an advanced stage.

"No final decisions have been taken and the department will make an announcement in due course."

Assembly work is taking place on both of the 65,000-tonne carriers at a specially extended dry dock at Rosyth, on the River Forth in Dunfermline.

HMS Queen Elizabeth, which will not be finished until 2016 at the earliest, will be delivered before HMS Prince of Wales.

The Royal Navy says the ships will carry helicopters until 2020, when the fighter jets will become available.

The £6.2bn cost estimate for the project does not include buying the F-35 Joint Strike Fighters. The MoD says there are expected to be 48 jets, although this has not been confirmed.

The UK currently has only one aircraft carrier - HMS Illustrious - but this cannot be used for strike aircraft, only helicopters. This has led to warnings of a decade-long capability gap.

Aircraft carrier infographic showing key points
 

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  • rate this
    +203

    Comment number 74.

    My brother builds small ships, once he prepares a quote , he can't add thousand of pounds halfway through the build. Perhaps a bit for inflation for material but that's it. If he get the quote wrong that his problem not the buyer. The MOD is notoriously poor at preparing contracts. They need to be taken to task!

  • rate this
    +125

    Comment number 39.

    I am fed up of governments of all colours placing the blame for their incompetence on the previous administration. It's the default response when anything goes wrong from the current lot. It's not good enough and our press should hang them out to dry each time they come out with this feeble response.

  • rate this
    +185

    Comment number 24.

    Hang on a bit. I thought the reason the carriers couldn't be cancelled was because of the fixed price nature meaning the contractors would get paid whether they completed the work or not. If the contract was truly fixed price then the costs are fixed (the clue is in the name) and the contractors bear the cost of any overruns. Or is this another example of socialising losses!

  • rate this
    +153

    Comment number 14.

    Something I've never understood - these government contracts increasing in price. Surely whoever in the government who creates these, creates a fixed price project with penalties if it arrives late? There should be no clauses allowing prices to increase? How is this allowed to happen?

 
 

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