Britain's newest aircraft carriers are sparking controversy months before the first welding torch is lit as cost overruns and delays appear certain to cloud plans for the Royal Navy's most powerful warships. The matter is expected to come to a head soon as the Ministry of Defence appoints an outside company to act as foreman, or "physical integrator", to make sure the project goes to schedule. Rather than use the traditional approach of appointing a prime contractor to design, build and subcontract parts of the vessels, the MoD is trying to innovate by spreading the project's wealth and risk among designers, shipyards and other contractors. But the physical integrator - mooted by some reports to be Kellogg Brown & Root, a unit of US-based Halliburton - faces the brunt of what industry insiders say are wholly unrealistic targets for delivery of the ships between 2012 and 2015 and a projected cost of £2.9 billion. The physical integrator - Bectel, Amec and Alstom are also in the race for the job - will be given about six months to reach production agree-ments with yards across the UK, a task industry officials say will take longer, delaying delivery. "They are just making themselves look foolish by staying with the current dates," an official at a shipbuilder said of the Ministry of Defence. He said the Royal Navy could be forced to wait an extra year or more for the first carrier. Costly blow-ups with the ministry in the past have hardened the resolve of Europe's biggest defence firm, BAE Systems, to avoid being stuck with the bill and blame this time, and analysts say that is already proving wise. BAE decided not to bid on the physical integrator role. Neither did shipbuilding group VT. Price is a key stumbling block, with industry officials maintaining the programme will cost closer to £4 billion, or more than 33 per cent over the ministry's budget. They note that the Royal Navy wants the two carriers at 60,000 tonnes, the top end of the range being considered. BAE under chairman Dick Olver, who took over in July, has opted for a less confrontational approach with the MoD, but analysts note this has not yet produced an agreed price. When the ministry blamed BAE for cost overruns on nuclear submarine and maritime patrol plane projects in late 2002, the company's shares plummeted more than 35 per cent, its results were rocked by a £750 million oneoff charge and a year of damage control ensued. It took BAE's stock nine months to recover from the damage done in just three trading sessions. The carrier programme is the biggest MoD deal since and reflects changes sparked by that clash, including plans for the ministry to shoulder some of the cost risk and to assign risk to the physical integrator as well. But prospects of a win by KBR has stirred controversy. "It's causing a riot," said one spokesman for a shipyard involved, noting the Government plans to help consolidate, not spread, shipbuilding work. Halliburton, the firm formerly headed by US vice-president Dick Cheney, has reportedly won initial backing within the ministry for the foreman role. "A decision is expected in the coming weeks," an MoD spokesman said. Chancellor Gordon Brown could also be drawn into the fray if Babcock International Group's Rosyth yard which borders on his constituency fails to land a substantial share. Analysts say the MoD had hoped to put past acquisition problems behind it by fostering competition among companies on this project. It tapped France's Thales for the design and while earmarking BAE for a role in building the ships, denied the firm its common position as prime contractor. "It is a ploy to try to put competitive pressure on the alliance between BAE and Thales and they are not falling for it," said Francis Tusa, editor of industry journal Defence Analysis. Critics say the programme has been plagued by the MoD's vague initial procurement plans, a lower-than-expected number of ships on order and costly mid-stream design change requests - issues seen behind a threat by BAE earlier this year to sell its warships business. BAE has recently backed away from that idea, citing the Government's pledge to help shipbuilders coordinate workshare. The risk is that the physical integrator selection could throw those talks off course and further delay the carriers. "The carriers cannot be viewed alone, but in the context of the restructuring of the UK shipbuilding industry," one shipbuilder official said. Delays would further dent the ministry's record on procurement, said Mr Tusa. "When you delay and delay, it costs." The MoD spokesman said the ministry's delivery schedule remained unchanged and it aimed to formally begin the programme "sometime in the first half of 2005". | 
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