Queen Elizabeth CVF - Demonstration Phase

With estimated procurement costs of £2.7 Bn at out-turn prices, the Project awarded two competitive contracts for the Assessment Phase in November 1999 to industry teams headed by BAE SYSTEMS and Thomson-CSF (now Thales Naval Systems). Each contract is potentially worth up to £30m. The contract for the Demonstration and Manufacture of the vessels is planned for 2004. In-service dates are 2012 and 2015.

CVF received Initial Gate approval in December 1998 and Invitations to Tender were issued in January 1999. Responses were received in May 1999 from industry teams led by British Aerospace (now BAE Systems) and Thomson-CSF. Following tender evaluation, competitive firm price contracts for the Assessment Phase, each potentially worth some £30m, were awarded to both teams in November 1999. The Assessment Phase breaks down into two stages. The first involves the examination of various carrier designs including conventional take-off and landing, short take off and vertical landing, and short take-off but arrested recovery. The second stage will involve detailed work to determine CVF design parameters and reduce technological risk for the preferred carrier option that is to be taken forward.

The two industrial teams led by BAE Systems and Thomson-CSF. Both teams are working to investigate a range of aircraft carrier design options and, by 2003, will deliver their proposals. Orders for the two carriers should be placed in 2004 if they are to enter service in 2012 and 2015.

In the House of Commons on 22 June 2001, the Secretary of State for Defence reaffirmed the Government's commitment to buy two aircraft carriers to replace the current Invincible class. The first of the new carriers is planned for 2012, the second 2015, and they will offer significantly greater capability than the present carriers, carrying up to fifty aircraft. The aircraft themselves will include the most modern types, with the Joint Strike Fighter the most likely choice for the fast jet role.

Assessment work on the new carrier project began in November 1999 when contracts were awarded to two competing consortia headed by BAE Systems and Thales Naval Ltd. The first stage of the assessment was completed in June 2001. Since then officials worked to determine the most efficient and cost-effective way forward for the remainder of the Assessment Phase, taking into account the views of both consortia about the amount of work required to minimise the level of risk in the CVF program.

On the basis of that work, contracts were signed 21 November 2001 for both BAE Systems and Thales Naval Ltd to proceed to Stage 2 of the CVF assessment phase. For the following 12 months, until November 2002, the competing consortia would concentrate on refining their designs and on taking key trade-off decisions. During this period, there would be a continuous assessment of the two consortia's work, leading to an announcement of a single preferred prime contractor in early 2003.

The preferred consortia would then continue assessment work through the summer of 2003 in order to provide the robust cost, time and performance information needed to make the main investment decision. This would allow a decision to place a formal build contract in early 2004. The selected prime contractor would be expected to maintain the time, cost and performance proposals agreed at the end of the assessment phase. Following the announcement of a preferred contractor, there would be maximum competition at the sub-contractor level to ensure that robust prices are achieved.

This approach reflected a sensible revision to the original procurement approach envisaged for the future carrier project. By applying smart procurement principles, it would help to ensure the maximum potential for competition throughout the remainder of the assessment phase. It would ensure achievinf best value for money for the taxpayer. As part of the new approach, the UK would make around a further £20 million available to the contractors during the assessment phase. The in-service dates of the two new carriers remained unchanged at 2012 and 2015.

On January 30, 2003 the Defence Secretary Geoff Hoon announced that the Royal Navy's new generation of aircraft carriers will be designed and built by an Alliance between the Ministry of Defence and industry, bringing together the UK's best design capability and project management expertise.

Subject to detailed final negotiations, BAES Systems will take the leading position as preferred prime contractor, with Thales UK performing a major role as key supplier. The project will develop the carrier design put forward by Thales UK. The ships will be designed and built entirely in the United Kingdom, with shipyards at Babcock BES at Rosyth in Scotland, BAE Systems on the Clyde, Swan Hunter in the North East and Vosper Thornycroft at Portsmouth playing key roles, creating or sustaining around 10,000 jobs in the United Kingdom.

The MOD carefully reviewed the work carried out by BAE Systems and Thales UK in the Assessment Phase, and concluded that BAE Systems had demonstrated a better understanding of the programme and its complexity and had developed a good relationship with the key shipyards. Thales UK had provided a robust technical solution and a strong flexible design.

The MOD therefore approached both BAE Systems and Thales UK to discuss a possible alliance with the MOD on the programme. Both companies have accepted the logic of the approach. Detailed contractual discussions will now start to determine formally how the Alliance will operate.

A third stage of assessment was subsequently taken forward to increase the maturity of the design and determine the alliancing strategy for CVF and completed on 31 March 2004.

On 19 July 2004, Ministers announced the extention of the Assessment Phase to carry out further risk reduction work and increase the maturity of the design prior to making our main investment decision on D&M. The Navy also agreed the alliancing principles with industry which confirms the commitment of all parties to the programme and to an alliance based on commercial best practice.

This extension will enable the Navy to maximise risk reduction activity and to conclude the Alliance Agreement and contracting arrangements for D&M. It does not adjust the underlying program but rather shifts the point at which the Navy makes the investment decision - the target ISDs remain 2012 and 2015. Work will now continue on the detailed arrangements and the Navy anticipates moving into the D&M phases during 2005, following the main investment decision.

A three-way competition to appoint a "physical integrator" to oversee the £4bn construction of two aircraft carriers for the Royal Navy pitched KBR, the controversial subsidiary of Halliburton, against the UK's Amec and Bechtel, a rival US engineering consultancy. The "physical integrator" does not have the right to allocate the work for the ships to any specific shipyard. The "physical integrator" is envisioned as a neutral arbitrator for the project, which meant that enterprises which owned shipyards were unlikely to be chosen. For that reason, both BAE Systems and VT Group, the UK's two largest naval shipbuilders, pulled out of the competition in early 2004.

On 03 December 2004 it was reported that Professor Roy Anderson, the MoD's chief scientific officer and chairman of its Investment Approvals Board (IAB), had recommended that the "physical integrator" contract be given to the Kellogg Brown & Root (KBR) subsidiary of Halliburton, the controversial American company once headed by the US vice-president Dick Cheney. There was speculation that this might have repercussions for the Rosyth shipyard in Fife, close to MP Gordon Brown's constituency, Halliburton was expected to press for final assembly of the ships to be carried out at Nigg, a disused oil platform yard that it owns.

In early December 2004 the Financial Times reported the government intended to honor a pledge made to Rosyth Dockyard, owned by Babcock International Group, in 2003 to build the two new aircraft carriers at the Fife yard. Without the carrier contract, 1,700 jobs, and the future of Rosyth Dockyard, would have been in doubt. Speculation had mounted that final assembly work on the carriers might be transferred to the Nigg oil yard in the Highlands. KBR was the front-runner to take on the project management role to construct the Royal Navy's two new aircraft carriers. KBR owns a mothballed oil production platform yard at Nigg, near Inverness, which was a rival to Rosyth for final assembly of the 60,000-ton vessels.

On 07 February 2005 Kellog Brown & Root UK Ltd was selected as the preferred Physical Integrator. After a competition KBR were selected in recognition of their track record of both operating in alliances and delivery of complex, bespoke projects in the off-shore industry and other sectors. KBR has a proven track record of delivering bespoke, geographically spread and logistically complex construction projects. Previous contracts KBR have successfully delivered for the MoD include CONLOG, the Heavy Equipment Transporters and Temporarily Deployable Accommodation that were successfully used during OPERATION TELIC. KBR will also bring extensive experience of alliances from other sectors including oil and gas and infrastructure.

The MoD established that due to the size of the proposed carriers no single shipbuilding facility in the UK has the infrastructure, skills or capacity to build the two ships on its own. The carriers will need to be constructed at a number of different sites before transportation to a final integration facility which will both create and sustain thousands of jobs in dockyards across the country.

Building and integrating the two carriers, the biggest warships ever built in Europe, represents a major challenge requiring considerable project management skills. In discussion with Alliance partners, it was agreed that there was a need to appoint a company - as a risk bearing member of the Alliance - to further strengthen our approach to this area and introduce innovation to the manufacturing phase. This will be a key role for the Physical Integrator on behalf of the Alliance. KBR will also lead for the Alliance on a range of programme management functions; and will bring its best resources and competences to complement the capabilities of other Alliance Participants.

Although the final dimensions of CVF have yet to be confirmed, initial indications suggest that the carriers could be amongst the largest warships ever built for the RN. The carriers will be built in the UK and their construction is expected to offer good opportunities for UK shipyards. CVF represents an excellent opportunity for UK industry and early indications are that up to 10,000 jobs could be created or sustained during the course of the design and build of the two ships.

On 14 December 2005 Defence Secretary John Reid announced a series of major developments in MoD's multi-billion pound programme to build a new class of aircraft carrier for the Armed Forces. The current carrier Alliance team of MoD, BAE Systems, Thales and KBR, is to be joined by VT Group and Babcock. Plans for the construction and assembly of the ships at Alliance members' yards have been agreed. MoD is to spend some £300M to develop the design of the ships to the point at which manufacturing can begin. Commitment to some long-lead items for the ships will be made, where necessary, to maintain the program. It is also planned to explore, with the same companies, encompassing in-service support for the new carriers and the existing carriers through to their out of service dates. As part of the announcement, some 60% of the ships' construction was allocated to named UK yards: BAE Systems at Govan and Barrow; VT in Portsmouth and Babcock in Rosyth. Final assembly of both carriers will be at Rosyth. At the same time there is a substantial opportunity for the involvement of other UK shipyards in the remaining parts of the build program that will be open to competition. This could go well beyond traditional shipbuilders since the project will use modern modular production techniques.

Plans for the construction and assembly of the ships in yards owned by members of the new expanded Alliance include hull block 4 at BAES Govan, block 3 at BAES Barrow, block 2 at VT Group Portsmouth, and the bow (block 1) and final assembly at Babcock Rosyth, all subject to value for money and cost effectiveness considerations. This work is some 60% of the overall build. Substantial elements of the remainder of the ship super structure are to be competed for by other shipyards and manufacturing facilities.

The Main Gate approval required before projects move to manufacture has been split into two incremental steps. The 14 December 2005 announcement marked the movement of the Future Aircraft Carrier project through the first step, from the MoD's assessment phase into the demonstration phase. This next phase of design work will further remove risk from the project and give greater understanding of projected costs which will allow MoD to make its main investment decision in confidence. At that time, MoD will announce expected program costs and in service dates for the ships.

The total cost of the Demonstration Phase (excluding Indirect Resource Departmental Expenditure Limit, but including non recoverable VAT) was approved at £297m (not to exceed). The Demonstration Phase activity completed in mid 2008 with total expenditure to 31st March of £266m.