The Clipboard: British defense contractor warns of 'train wreck' if Halliburton brought in

From an article¹:

BAE Systems, Britain's largest defence contractor, has warned the Government that it will pull out of an alliance building two aircraft carriers if Halliburton, the controversial US defence contractor, is awarded the role to manage their construction.

Mike Turner, BAE's chief executive, and Dick Olver, the chairman, issued the threat at a meeting on Wednesday with Geoff Hoon, the Secretary of State for Defence, Lord Bach, his deputy, and Sir Peter Spencer, the chief of defence procurement.

Olver - the respected former deputy chief executive of BP - told Hoon that the way the Ministry of Defence was planning to manage the £4bn contract would precipitate "a train wreck".

BAE has also informed Hoon that unless the crisis is averted soon, there will be politically embarrassing job losses at BAE's three shipyards: Govan and Scotstoun on the Clyde, and Barrow-in-Furness.

With work on major programmes, notably the Astute submarines and the Type 45 frigates, starting to wind down, an estimated 800 skilled engineers would lose their jobs in the coming weeks. Thousands more would be put at risk without an agreement between BAE and the Government in the longer term.

Hoon is desperately attempting to find a compromise solution to prevent the redundancies in the run-up to a general election. This week senior BAE executives will meet MoD officials to see if a compromise can be found.

The meeting with Hoon followed an earlier one, on January 10, between Spencer and Turner, in which BAE's chief executive said he could not participate in the project under the proposed structure. The potential for damage to BAE's reputation was simply too great, he said. Hoon is due to meet Turner and Olver again in a fortnight.

The Government had been planning to appoint Kellogg Brown & Root (KBR), a subsidiary of Halliburton, as "physical integrator" of the £4bn project, or effectively its manager. However, the appointment has been delayed after BAE warned the MoD that it felt KBR lacked sufficient experience and expertise.

Last night a spokesman for KBR defended the company's expertise in naval shipbuilding. "We have knowledge, through our Devonport dockyard, in refitting and commissioning large warships," he said.

However, BAE has told the MoD that appointing KBR would "add confusion and cost and delay". It believes that its own reputation would be damaged if it remained in the alliance in these circumstances. (link)

Halliburton really does have its fingers in everything, doesn't it?

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Complete text of the article, BAE warns Hoon of carrier 'train wreck', by Sylvia Pfeifer and Robert Peston

BAE Systems, Britain's largest defence contractor, has warned the Government that it will pull out of an alliance building two aircraft carriers if Halliburton, the controversial US defence contractor, is awarded the role to manage their construction.

Mike Turner, BAE's chief executive, and Dick Olver, the chairman, issued the threat at a meeting on Wednesday with Geoff Hoon, the Secretary of State for Defence, Lord Bach, his deputy, and Sir Peter Spencer, the chief of defence procurement.

Olver - the respected former deputy chief executive of BP - told Hoon that the way the Ministry of Defence was planning to manage the £4bn contract would precipitate "a train wreck".

BAE has also informed Hoon that unless the crisis is averted soon, there will be politically embarrassing job losses at BAE's three shipyards: Govan and Scotstoun on the Clyde, and Barrow-in-Furness.

With work on major programmes, notably the Astute submarines and the Type 45 frigates, starting to wind down, an estimated 800 skilled engineers would lose their jobs in the coming weeks. Thousands more would be put at risk without an agreement between BAE and the Government in the longer term.

Hoon is desperately attempting to find a compromise solution to prevent the redundancies in the run-up to a general election. This week senior BAE executives will meet MoD officials to see if a compromise can be found.

The meeting with Hoon followed an earlier one, on January 10, between Spencer and Turner, in which BAE's chief executive said he could not participate in the project under the proposed structure. The potential for damage to BAE's reputation was simply too great, he said. Hoon is due to meet Turner and Olver again in a fortnight.

The Government had been planning to appoint Kellogg Brown & Root (KBR), a subsidiary of Halliburton, as "physical integrator" of the £4bn project, or effectively its manager. However, the appointment has been delayed after BAE warned the MoD that it felt KBR lacked sufficient experience and expertise.

Last night a spokesman for KBR defended the company's expertise in naval shipbuilding. "We have knowledge, through our Devonport dockyard, in refitting and commissioning large warships," he said.

However, BAE has told the MoD that appointing KBR would "add confusion and cost and delay". It believes that its own reputation would be damaged if it remained in the alliance in these circumstances.

BAE would remain in the alliance if KBR's role were downgraded to that of a programme management adviser to the MoD.

KBR's appointment has proved controversial ever since it was first mooted. Its parent, Halliburton, has close links to the Bush administration - Dick Cheney, the vice-president, is a former chairman - and has repeatedly been forced to defend itself over its work for the US government in Iraq.

In the UK, KBR is best known for its construction and programme management work in the oil and gas industry. It therefore surprised many in the industry when it beat Amec, the British contractor, to win the recommendation of Spencer to be the physical integrator.

BAE's warning to withdraw is the most serious threat yet to the carrier programme, which has been dogged by controversy. Two years ago BAE was awarded the role of "preferred prime contractor" to run the programme in a partnership with Thales, the French defence contractor, which was chosen to do the design.

However, a series of budget wrangles - the ships are likely to cost £4bn to build, rather than the MoD's original £2.9bn estimate - led to a number of changes.

Last March the MoD told BAE that it would no longer be prime contractor and that the ships would instead be built under a broad alliance led by the ministry itself. A physical integrator would be brought in to help oversee the construction.

BAE executives believe that so-called "alliancing" works well in the oil and gas industry but would not be sensible in the carrier project, where there will be fewer interested parties to reconcile during the construction process.

An MoD official said: "The MoD remains committed to the alliancing strategy as the best method of delivering the future aircraft carriers and to the alliance principles that we, the MoD, BAE and Thales UK signed up to in June 2004."

BAE said: "BAE is in continuing discussions with the MoD concerning the management of the carrier project."

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