Reports that Spain to receive shipbuilding work to silence Gibraltar claims

It has been reported this morning that work on the Fleet Solid Support Ships could go to Spain to silence Gibraltar claims.

First reported by the Daily Record here, it has been claimed that the £1 billion order for the ships is ‘being steered’ towards a Spanish yard in a deal over Gibraltar. The paper reports that:

“Senior GMB officials are furious over reports that the Navantia naval dockyard in the north of Spain has been chosen to build Fleet Solid Support vessels.”

As a point of clarification in response to remarks on social media about this topic, this news (if true) would impact Rosyth and not the Clyde. The Clyde isn’t bidding for this work (Rosyth is), the Clyde has no capacity to build the vessels (Rosyth does) and the Clyde wasn’t hoping for them (Rosyth is). We go into depth on this here.

GMB Scotland Secretary Gary Smith said:

“We have been clear that the contracts for the Royal Fleet Auxiliary vessels hold the key to the transformation of our shipbuilding sector.

Three 40,000-ton vessels would provide years of work for yards like Rosyth, where we are haemorrhaging jobs.”

Smith added: “Our fear is that working class shipbuilding communities have just had their futures sold down the river as a result of grubby Brexit politics. Against the backdrop of a ruinous Brexit, the loss of the RFAs would be an absolute betrayal of the UK shipbuilding sector by the Tory Government.”

Stewart McDonald, MP for Glasgow South and SNP Spokesperson for Defence, told me this morning:

“If UK and Scottish Shipbuilders are overlooked as suggested, then it will represent another betrayal of the workforce from which the Conservatives will not deserve to recover.”

Paul Sweeney, MP for Glasgow North East and All-Party Parliamentary Group for Shipbuilding & Ship Repair Vice-Chair, also told me this morning in reference to a recent debate (which will be explored further down in the article):

“It was telling that the Defence Procurement minister made no reply to the questions raised about the Fleet Solid Support ships in the debate this week and perhaps this is the reason why. The economic case for building the £1Bn FSS programme in the UK is self-evident and it nothing more than laissez faire Treasury dogma that is denying British industry this opportunity when it is the most beneficial option for the British economy and the long-term sustainability of the British shipbuilding industry.”

A Ministry of Defence spokesman said:

“We are required by law to procure the Fleet Solid Support ships through open international competition. We issued formal tender documents to bidders in late 2018. The final decision regarding the winning bid will be made in 2020.”

What’s the gist of the dispute around these support ships?

Former shipyard worker turned MP for Glasgow North East Paul Sweeney had earlier criticised the Government on their stance over the tendering process for these ships during a recent debate on UK sovereign capability. He pointed out:

“The Government’s approach to the fleet solid support ships contract is nothing short of absurd. The decision not to factor the socioeconomic value of defence contracts into the procurement process is economically illiterate and flies in the face of common sense. The Minister and I have batted this back and forth, as I mentioned, and I am sure that in a few minutes he will tell me that it is all about value for money for the taxpayer.

However, that argument falls apart because the contract’s socioeconomic value is not factored in at the procurement stage. The reported cost of the contract is £1 billion, but as studies such as those by the GMB union estimate, keeping the contract in the UK would secure up to 6,500 high-paid, high-skilled jobs, including almost 2,000 shipbuilding jobs that pay about 45% more than the average UK salary. Just think of the difference those jobs could make to the UK economy and to communities across Scotland.

At Rosyth, there is a gap between the completion of HMS Prince of Wales later this year and the expected refit of HMS Queen Elizabeth in 2030. The contract for the fleet solid support ships could ensure that the shipyard runs at smoother capacity during that timeframe. However, as I have said, the Government’s economic illiteracy could well prevent that from happening, leading to much greater inefficiency and costs down the line. I am sure the people of Fife will not let them get away with that. The Government are keen to celebrate the continuous at-sea deterrent, but I would much rather see continuous in-shipyard building across the country. We would far rather celebrate that.

That brings me to the fact that there is clearly no wider industrial strategy not only for the defence sector but for manufacturing as a whole. To use Fife as an example, the Government are refusing to keep the FSS contract in the UK. At the same time, not even 10 miles away, the BiFab yards in Burntisland are sitting there idle because of a lack of contracts. That is another example of the Government’s complete and utter short-sightedness.”

Stuart Andrew, The Parliamentary Under-Secretary of State for Defence, replied with only a vague allusion to the points made:

“I want to emphasise the importance of the UK’s defence industry, both in delivering world-class military capabilities to our armed forces and in contributing to the UK economy. Last year’s report into the contribution of defence to UK prosperity by my right hon. Friend Mr Dunne showed that defence benefits every single part of the United Kingdom. It is a sector with an annual turnover of £22 billion supporting some 115,000 jobs. Scotland shares in that national success by benefiting directly from every pound spent on our defence, which is in itself the biggest defence budget in Europe.

The report highlighted the range and diversity of the defence industry across the whole of the UK, including in Scotland, and the UK Government’s support for the defence industry in Scotland. Last year, defence spend with industry in Scotland amounted to £1.65 billion, supporting some 10,000 jobs and equivalent to £300 per capita, which is above the UK average.”

The above is some more context on what Paul told me this morning, which was in reference to the recent debate (the full text of which can be found here, but I have repeated Paul’s response below):

“It was telling that the Defence Procurement minister made no reply to the questions raised about the Fleet Solid Support ships in the debate this week and perhaps this is the reason why.

The economic case for building the £1Bn FSS programme in the UK is self-evident and it nothing more than laissez faire Treasury dogma that is denying British industry this opportunity when it is the most beneficial option for the British economy and the long-term sustainability of the British shipbuilding industry.”

What’s the status of Rosyth?

Earlier in the year, the shipbuilding union GMB also reacted to 150 proposed job losses at Babcock Rosyth. The union cited the run down of the Prince of Wales contract and uncertainty around future workload, for example this FSS contract, as a reason for the job losses.

Ross Murdoch, GMB National Officer and CSEU National Chair of Shipbuilding:

“Once again we are paying the price for the Government’s betrayal of UK shipbuilding. Rather than ensure a steady drumbeat of shipbuilding orders that keep the industry alive, the Conservatives seem content to let UK shipbuilding die out in the name of the free market. Appledore is on the brink of closure, Cammell Laird is slashing jobs and now this. When will the Government step in to save our centuries old shipbuilding heritage.”

The Unite union also said the news was a “kick in the teeth”. Steve Turner, the union’s assistant general secretary for manufacturing, said:

“The men and women whose skills built the UK’s two new world-leading aircraft carriers at Rosyth are at risk of being lost for a generation in a blow to the Scottish economy and UK shipbuilding.”

Who is bidding?

It is hoped that the bid will be won by Team UK (a UK consortium consisting of Babcock International, BAE Systems, Cammell Laird and Rolls-Royce).

Overseas shipyards who have been invited to tender for the FSS programme include:

• Fincantieri: 70% owned by Fintecna S.p.A the Italian owned investment agency
• Navantia: 100% owned by the Spanish government
• Daewoo Shipbuilding and Marine Engineering (DSME): received a USD 6billion rescue package from the Korean Development Bank and Export-Import Bank of Korea

Can the UK government decide to restrict this contract to the UK?

Recently Sweeney (and many others from all sides of the Parliamentary divide) criticised the Government for failing to restrict the tendering for Fleet Solid Support Ships to the UK.

This isn’t the first time the Government rationale for tendering Fleet Solid Support Ships overseas criticised, especially with regards to what some have referred to as their “questionable usage” of Article 346.

What is Article 346?

EU law requires most government contracts to be procured via an open, competitive process. The main EU legislation in the defence domain is the Defence and Security Directive 2009/81/EC, transposed into UK law by Defence and Security Public Contracts Regulations 2011.13

However, Article 346 of the Treaty on the Functioning of the European Union (TFEU) provides for an exemption to the procurement rules where a country considers it to be necessary for national security reasons: “any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material”. Article 346 refers to a list drawn up in 1958 by the Council of Ministers of products to which the provisions

During a previous debate on UK sovereign capability, All-Party Parliamentary Group for Shipbuilding & Ship Repair Vice-Chair Sweeney said:

“In the context of major shipyard closures and significant downsizing, whether that is at Rosyth or Appledore, it is bizarre that the Government are quite happy to tender contracts overseas in international open competition.

Under article 346 of the treaty on the functioning of the European Union, the Government could quite easily designate the industry as UK protected. It is entirely at their discretion. Any notion that their hands are tied is bogus.

They could do that, smooth the production cycles and build a firm and stable footprint for UK shipyards, which would enable them to get match fit and then go out into the world and compete effectively for other orders. That is exactly what they do in Italy with Fincantieri, and what they do in France with DCNS. It is exactly what happens in Germany.

I do not understand why other European Union member states can achieve the same objectives much more effectively than us, but we are so holier than thou that it hurts when it comes to the zealous application of these EU rules and we seem to undermine our own industrial base and our prosperity as a result, meaning that communities are broken and skills are lost. Ultimately, we undermine our objective of building a more resilient and effective industrial base to serve our defence industry and, potentially, commercial spin-offs.”

This was also highlighted during the debate in this exchange, prompted by Stuart Andrew, Minister for Defence Procurement, saying the following:

“It is not a warship by definition, for the simple reason that the definition is based on the UK’s requirement to retain the ability to design, build and integrate frigates, destroyers and aircraft carriers for reasons of national security, ensuring that the complex nature of the construct is an important part of it from the very beginning. We will continue to have this argument—unions are coming to meet me very soon to discuss it.”

Sweeney responded:

“The Minister’s last remark about the need to maintain the UK’s sovereign ​capability to build complex warships being arbitrarily restricted to frigates, destroyers and aircraft carriers, the only reason we can build those ships in the UK today is that the last Labour Government placed an order for an auxiliary ship, the RFA Wave Ruler, at Govan shipyard in 1999, which enabled that yard to continue in operation.

Also, there are five River class batch 2 patrol vessels being built at Govan to sustain production there until the Type 26 kicks in. By utilising those less complex, but none the less complex, warships to smooth the build cycle, we can retain the skills, infrastructure and critical mass we need to build complex warships including frigates, destroyers and aircraft carriers. 

We must look beyond that arbitrary restriction and maximise the purchasing power of the Ministry of Defence to deliver UK sovereign capability in the long term. We should broaden our horizons.”

Why do some believe the work should be restricted to the UK?

Unions GMB and the Confederation of Shipbuilding and Engineering Unions (CSEU), also published reports last year outlining why they believe the ships should be classified as warships and why they should be competed domestically. The Unions arguments can be summarised as:

• The FSS should be seen as warships. They are armed and take part in counter-piracy and counter-narcotic missions;
• The Government’s commitment to revitalising domestic naval shipbuilding (as espoused in the National Shipbuilding Strategy) will only be achievable with a steady stream of orders;
• Building the FSS in the UK will help protect the UK shipbuilding industry, protect jobs and retain skills: GMB estimates up to 6,500 jobs could be created or secured, including 1,805 shipyard jobs;
• Rosyth shipyard will have a gap between the completion of HMS Prince of Wales (the second aircraft carrier) in 2019 and the expected refit of HMS Queen Elizabeth (the first aircraft carrier) in 2030, and FSS work could keep the shipyard operational in between these dates;
• The UK will financially benefit from returns to the Treasury in the form of taxes and national insurance contributions and lower welfare payments: GMB estimates £285m of the estimated £1bn contract could be returned to taxpayers this way; CSEU estimates 20% of the contract cost could be returned to the Treasury;
• The Government should factor in the revenue that could be returned to the Treasury when scoring bids between domestic suppliers and foreign competitors;
• There isn’t a level playing field as, the CSEU argues, “many foreign yards are either state owned, or receive significant direct or indirect subsidy… UK yards do not benefit in this way and are therefore at an unfair disadvantage.”

The Trades Union Congress has also assessed the Article 346 exemption argument and argues the Government “has the sole right to determine” what its essential national security interests are.

The TUC claims “other European nations have used the exemption to place orders for similar support ships with their own shipyards since the Directive was introduced.”

What’s next?

December this year will see the formal issue of documentation inviting bids for the design and build contract and in 2020, the contract for design and build is to be awarded.