(Minister for Defence
Equipment, Support and Technology): I have
retrospectively laid before Parliament a Ministry of Defence
(MOD) Departmental Minute describing the contingent liabilities
within the Astute Boat 5 and 6 Whole Boat Contracts with BAE
Systems Marine Ltd.
The Departmental Minute describes the Contingent Liability that
the MOD will hold as a result of placing the Astute Boats 5 and 6
Whole Boat Contracts, which will provide production, test and
commissioning of the fifth and sixth Astute Class submarines, HMS
ANSON and HMS AGAMEMNON. The maximum contingent liability against
the MOD is unquantifiable and will remain until the respective
Out of Service Date of the submarine.
It is usual to allow a period of fourteen Sitting Days prior to
accepting a Contingent Liability, to provide Members of
Parliament an opportunity to raise any objections. I apologise,
but on this occasion, it was not possible to do so.
For Boat 6 the Department was faced with exceptional sequencing
from the completion of difficult negotiations. The Department
faced the prospect of losing the deal and its associated £110
million savings, due to new changes to Single Source Contract
Regulations introduced on 1 April 2017. As such I decided to
proceed with the agreement, following scrutiny of the contract 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.
As a result of detailed work in connection with the Boat 6
contract it has been recognised that contingent liabilities
arising from the Boat 5 contract, which has hitherto been
considered not to require notification to Parliament, are in fact
the same as those for Boat 6 and should therefore have been
notified, notwithstanding the fact that that no credible scenario
has been identified in which a claim could exceed contractual
limits.
Within both the Boat 5 and 6 contracts, BAE Systems Marine Ltd
limited their exposure to Product Liability to £1 billion per
incident and £300 million in any 12-month period. This limits the
contractor’s exposure for claims by the MOD for losses associated
with the product being defective or deficient, and creates an
exposure for the MOD for third party claims against the
contractor for losses associated with the product being defective
or deficient. It is the view of the Department that the
likelihood of any claim is remote.
