(Ministry of
Defence):I am today laying a Departmental Minute to advise
that the Ministry of Defence (MOD) has received approval from Her
Majesty’s Treasury (HMT) to recognise a new contingent liability
associated with the Type 26 Global Combat Ship Manufacture Phase 1
Contract.
The Departmental Minute describes the contingent liability that
the MOD will hold as a result of placing the Type 26 Global
Combat Ship Manufacture Phase 1 Contract, which will provide for
the manufacture and testing of the first batch of Type 26 Global
Combat Ships. The maximum contingent liability against the MOD is
unquantifiable and will remain until the latest Out of Service
Date of the ships manufactured under the contract, in the second
half of the 21st century.
It is usual to allow a period of 14 Sitting Days prior to
accepting a contingent liability, to provide hon. Members an
opportunity to raise any objections. I regret that on this
occasion pressing commercial and industrial requirements to sign
the contract within the next few days together with the
dissolution of Parliament, have meant that it has not been
possible to provide the full 14 Sitting Days prior to taking on
the contingent liabilities. Any delay would have risked losing
significant financial benefits for the taxpayer. The Secretary of
State for Defence has decided to proceed with the agreement,
following scrutiny by the Department’s Investment Approvals
Committee which confirmed that the contract offered best value
for money for the taxpayer, and subsequent approval by HM
Treasury.
Within the contract the exposure of BAE Systems Maritime – Naval
Ships to a number of specified claims and to Direct Losses is
limited to £50 million, while in respect of Indirect Losses and,
within certain prescribed categories, catastrophic risks the
contractor is indemnified against claims in excess of £50
million. It is the view of the Department that the likelihood of
any claim is extremely low.
