Negotiations over the price of two nuclear submarines being constructed for the U.K. Royal Navy by BAE Systems could be coming to a close. In its response to a Parliamentary Defence Committee investigation into major procurement programs, Ministry of Defence officials revealed on Feb. 27 that government negotiators and BAE Submarine Solutions had agreed on a deal, but that it still required endorsement by the hierarchy of the two sides.
Neither the government nor BAE would comment on the status of the pricing plan.
In December, the Defence Committee report expressed surprise that no price had been settled upon, particularly because that meant the financial liability to the MoD on building the boats was open-ended. The deal relates to Boats 2 and 3 now being assembled at BAE’s nuclear submarine yard at Barrow-in-Furness. If the prices are approved, a new order for the fourth of the Astute-class boats is expected to rapidly follow. The National Audit Office, a government watchdog, reported in November the forecast cost of the first batch of three vessels was 3.6 billion pounds ($7.1 billion).
BAE and the MoD have found themselves in the unusual position of negotiating the deal for Boats 2 and 3 even though construction is well advanced, thanks to severe technical difficulties that became apparent on the Astute program around 2002. The 1997 contract to build three nuclear submarines was renegotiated with the understanding that the prices of the first two subs would only be decided after the first of class had reached sufficient maturity to understand the costs.
HMS Ambush, Boat 2, is due to be launched in February 2009 and the third boat, HMS Artful, is scheduled for launch in August 2010. The first of class, HMS Astute, is scheduled for launch June 8. Despite last-minute hiccups on the reactor commissioning, Boat 1 project director Stuart Godden was quoted in the company’s Wavelength in-house magazine as saying the program was still achievable. A Submarine Solutions spokesman said the company was confident it would meet the launch date.
The in-service date for the first of up to eight submarines to replace the current Trafalgar and Swiftsure classes of submarines is scheduled for late 2009 — some four years late. But BAE’s Barrow yard has had something of a renaissance since its earlier problems with Astute. Having once threatened to sell the nuclear submarine business, BAE is now a dominant player in government-backed talks to consolidate the nuclear submarine industry.
One option BAE is looking at is to purchase the DML maintenance and nuclear refueling business at Devonport in association with U.S. private equity investor Carlyle Group. The government could order a further four Tomahawk missile-equipped nuclear submarines, followed by a new class of ballistic missile boats, providing work at Britain’s only nuclear shipbuilding yard until 2020 and beyond.
The first order is likely to be in the shape of a fourth Astute-class boat. Long-lead items have already been ordered and Submarine Solutions reported it has begun procuring combat system equipment in the shape of a towed array handling system. The spokesman said the company had completed preparations for manufacture of Boat 4 on Feb. 8.
Speaking to the Defence Committee late last year, David Gould, Defence Procurement Agency deputy chief, said he expected to make a decision about Boat 4 just after they had agreed on a price for the two earlier boats. In its response to the Defence Committee, the MoD said the approval to build Boat 4 was being sought on the basis of meeting a construction drumbeat that required a new submarine order every 22 months to ensure vital skills and capabilities were not lost to BAE and its supply chain.
However, Britain’s defense budget is under severe strain. A group of leading ex-military, industry and MoD officials in a report for the Royal United Services Institute here recently estimated the defense equipment plan over the next 10 years could be underfunded by as much as 15 billion pounds. One of the solutions should be to review the Astute program, they said, arguing that the only reason Britain needed more than three or four nuclear-powered attack boats was to retain onshore industrial expertise.
With affordability being a critical issue for the British, BAE and its suppliers have been under orders from the MoD to slash the cost of future nuclear boat construction. The MoD in its response to the Defence Committee admitted the Astute program faced significant financial challenges and work was progressing to drive out costs. Studies on Boat 4 had “indicated the potential for design simplification and efforts are focused on achieving the mean to deliver the associated costings,” it said. No figures are available to back that up, but last year the MoD challenged industry to slash acquisition costs on Boat 4 by 30 percent. By the sixth submarine, they wanted a 45 percent reduction. Wavelength said BAE had identified 40 initiatives that will save more than 60 million pounds on the combat system alone compared with Boat 3.
