November 3, 2013 9:01 pm

Aircraft carriers’ cost to rise to £6.2bn

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Queen Elizabeth aircraft carrier

The Queen Elizabeth aircraft carrier under construction

Britain will this week reveal another substantial increase in the cost of building its two new aircraft carriers, declaring that total funding for the programme will rise by another £800m to £6.2bn.

Philip Hammond, defence secretary, is expected to say that a new set of demands – including the need to build a sophisticated aircraft landing system on the ships – have added to the financial burden of the Royal Navy’s flagship project.

Building the UK’s biggest warships

aircraft-carrier-graphic

Explore the Queen Elizabeth by clicking on the ship, and find out about the main companies and shipyards involved in the project

The revised price tag for the 65,000 ton carriers – which will not operate until the end of this decade – will alarm some opposition MPs. When the last Labour government gave the green light to build the ships in 2007, it set the projected cost at £3.5bn. That figure is now close to being doubled.

Two months ago, Labour’s Margaret Hodge, the chairman of the Commons Public Accounts Committee, said she was “not convinced the MoD has the carrier programme under control,” adding that it remained “subject to huge technical and commercial risks, with the potential for further uncontrolled growth in costs”.

The announcement of the new cost over-run comes amid growing debate in Britain about the management of big infrastructure projects as the government presses ahead with plans for the HS2 high speed rail link. Within parts of the MoD, there has also been concerns that the cost of the carriers is crowding out other spending on defence equipment at a time of deep cuts.

Mr Hammond will seek to mitigate concerns over this new cost increase by saying that the new £6.2bn figure represents a “realistic price”. He will also announce that he has renegotiated the contract to build the carriers on terms that have more benefit to taxpayers.

MoD officials say that, until now, some 90 per cent of any cost over-run on the project has been paid for by the taxpayer and only 10 per cent by industry. Mr Hammond believes this was a flawed arrangement that reduced the incentive for industry to ensure the carriers were delivered on time and at cost.

Mr Hammond is expected to announce that any additional costs – above the new baseline of £6.2bn – will be split 50-50 between the government and contractors.

Two years ago, Mr Hammond announced the UK would buy the vertical take-off and landing – or STOVL – version of the US-built F-35 to fly from the carriers. This replaced a plan to buy the conventional take-off version.

As a result of that decision, Mr Hammond says the UK must now spend some £200m on landing systems that allow the STOVL aircraft to land on the carriers with greater precision.

However, Mr Hammond is expected to say that the newly revised cost will not imperil the MoD’s equipment budget. This is because the department has recognised the risk of cost pressures in the programme and decided to set aside extra funds.

An MOD spokesman said on Sunday night: “Negotiations between the MoD and the Aircraft Carrier Alliance 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.”

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Letter in response to this report:

Aircraft indecision led to suboptimal and costly carriers/ From Dr Mark Campbell-Roddis

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