18 January 2001 | Cathy Hayward
Procurement jobs could be among the hundreds being considered for cuts at defence and aerospace giant BAE Systems after financial penalties incurred from the late running of a Ministry of Defence contract wiped out the deal's profits.
The MoD is demanding liquidated damages of £46 million after the Nimrod MRA4 maritime reconnaissance aircraft programme, which is worth £2.4 billion, fell more than two years behind schedule.
"We are looking at ways of recouping the money, which is a similar sum to the contract's profits," a BAE Systems spokesman told SM. "Job losses are a possibility, but we are also exploring offering additional services to the programme. Last month we suggested to the MoD that additional equipment and in-service support could become part of the contract."
The MoD said it was considering the company's proposal and had always worked closely with it on in-service support. But it warned that further penalties would be imposed if there are more delays. "BAE is working to reduce the programme risk and deliver to agreed timescales, but should the agreed timescales not be met or slip further, then we will demand additional liquidated damages," a spokesman said.
BAE Systems admitted in December 1999 that it could not meet an in-service date of April 2003 for the Nimrod, agreed in December 1996. A new date of March 2005 was set.
The firm blamed the two-year delay on management problems. "There were insufficient engineers set aside for the project at the beginning and that, combined with complex engineering difficulties, meant that the project was delayed. And once it was behind schedule it was difficult to catch up."
But its spokesman dismissed the idea that the MoD might consider other suppliers in future. "We are the MoD's principal supplier and have numerous contracts with them. I am confident this relationship will continue."
This latest jobs threat follows 3,800 UK job losses announced last June, and 1,500 redundancies after the acquisition of Marconi Electronic Systems, a division of GEC, in November 1999.
Interim results in September 2000 showed that the group was on track for savings of £275 million from redundancies and restructuring, as well as further planned savings from direct procurement and e-commerce.
Last April, BAE Systems, Boeing, Lockheed Martin and Raytheon formed a trading exchange known as Exostar.