The Ministry of Defence will give Babcock an extra £40 million to meet the rising costs of building five new warships at Rosyth Dockyard. 

But it'll still leave the company out of pocket as a separate claim for cash, to help deal with price hikes due to sky high inflation and increasing construction and material costs on the £1.25 billion contract, was "rejected in full". 

Last month Babcock warned they may need up to £100 million extra to complete the order for five type 31 frigates, parts of which are being made in Poland to save time.  

The company said it had been "unable to reach agreement" with the MoD as to who should stump up the extra money needed to build the warships, and said it would be "loss-making" if they didn't receive extra funding, but there has been some movement. 

Dunfermline Press: The five type-31 frigates are being assembled at Rosyth Dockyard.The five type-31 frigates are being assembled at Rosyth Dockyard. (Image: Babcock)


Replying to a written question in the House of Commons, MP James Cartlidge, the minister for defence procurement, said: "Since the signature of the Type 31 manufacture contract in November 2019 the MoD has agreed with Babcock an increase in the overall price of the contract of some £40m as a result of the impact of COVID and supply chain volatility.

"This amounts to only circa three per cent of the production cost of the ships.

"The average production cost remains £250m per ship."

However, responding to another question at Westminster, he said: "The MoD has received a formal claim from Babcock relating to the Type 31 contract, which has been rejected in full.

"While this issue is being dealt with through formal contractual processes, it would be inappropriate to provide any further details due to the commercial sensitivities of the on-going negotiations.

"The Type 31 programme remains on schedule."

Last month Babcock said a dispute resolution process was underway and may require mediation before a way forward is agreed.

A spokesperson had said: "If the contractual position remains unresolved, the lack of recovery of these additional costs would need to be reflected in the group's year end results.

"Without recovery of the additional costs, the contract would be loss-making and our preliminary assessment, subject to finalisation and audit, is that a one-off provision of between £50m and £100m would be required to cover the duration of the contract."

Mr Cartlidge told MPs that 85 per cent (15,500 tonnes) of the thin plate steel needed for the warships is "not manufactured in the UK to the required specification" and is being sourced from overseas.

He said that, since changing their steel supplier, Babcock had been able to source around 677 tonnes of steel from the UK: "Steel for our major defence programmes is generally sourced by our prime contractors from a range of UK and international suppliers and is procured in accordance with Cabinet Office guidelines.

"We encourage the sourcing of UK steel wherever it is technically and commercially feasible."

Explaining why some of the shipbuilding is taking place in Poland, the Tory MP explained: "Babcock has found it expedient to contract three double bottom units for Ship 2 to the PGZ shipyard in Gdynia, Poland.

"The assembly and integration of all the Type 31 ships will take place at Rosyth. It is normal practice to source components of warships from the global supply chain.

"The contracting of three double bottom units to Poland is a matter for Babcock as the prime contractor and is recognised by the MoD as a means to expedite the Type 31 build schedule and assist the Arrowhead frigate export campaign.

"This work represents less than one per cent of the total value of programme build and is part of Babcock’s aim to maximise the knowledge exchange to benefit both the UK’s Type 31 and Poland’s Miecznik frigate programmes."

Babcock was awarded the contract in November 2019 and spent £31.5m on a new indoor assembly hall, opened in December 2021, which allows them to build two ships at the same time.

The first of the Inspiration class frigates, HMS Venturer, is due to be structurally complete in December and construction commenced on the second ship, HMS Active, in January of this year.

The order should be completed in 2028.