Britain must renegotiate flawed aircraft carrier deals - panel

LONDON Tue Sep 3, 2013 12:26am BST

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LONDON (Reuters) - Britain should negotiate new contracts for two aircraft carriers and fighter jets to avoid the risk of budgets spiralling further out of control at taxpayers' expense, MPs said on Tuesday.

The project for the biggest ships ever built for the Royal Navy has fuelled broader criticism of the defence ministry's handling of expensive weapons programmes at a time of spending cuts across the public sector.

The programme has been dogged by rising costs, delays and indecision over the choice of aircraft since it was first announced in 2007.

In a highly critical report, a parliamentary committee said flaws in the original contracts meant manufacturers would keep making profits even if they go over budget, leaving the state to pick up the bill.

"Despite assurances from the department, we are not convinced that it has the aircraft contract under control," the report said. "The current carriers' contract is not fit for purpose as it fails to provide industry with any real incentive to control costs."

The contract for the carriers' fighter jets is still too vague on budgets, delivery dates and maintenance fees for when the planes enter service, it added. The ships will use the F-35 Joint Strike Fighter, built by Lockheed Martin.

The committee said the Ministry of Defence was already holding talks with the companies building the ships: Babcock, BAE Systems and Thales UK. A spokesman for the Aircraft Carrier Alliance, the group's umbrella name, said negotiations were continuing.

Recommendations by the committee, which scrutinises public spending, are not binding but often influence public debate on an issue.

The repeated setbacks are embarrassing for Britain, which has the world's fourth-biggest defence budget and played a role in the wars in Iraq and Afghanistan.

Defence chiefs say the country needs the aircraft carriers - 920 foot (280 metres) long and with room for 40 aircraft - to sustain its ability to mount operations far from home shores.

However, the project has become a political football for the two main parties. Launched by the last Labour government, it survived a round of spending cuts by Prime Minister David Cameron's Conservative-led coalition after it came to power in 2010.

The committee said contractors would continue to make a profit until the 5.2 billion pounds ($8.5 billion) estimated total budget has been exceeded by 2.5 billion pounds.

Defence Secretary Philip Hammond said his department's position was undermined by the terms of the deals.

"We are currently negotiating with industry ... but we are doing so within the context of a contract that gives us very little negotiating leverage," he said.

Labour accused the government of being "incompetent and wasteful".

($1 = 0.6465 British pounds)

(Editing by Tom Pfeiffer)