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Contingent Liability

Volume 626: debated on Tuesday 27 June 2017

I am today laying a departmental minute to advise that the Ministry of Defence (MOD) has received approval from Her Majesty’s Treasury (HMT) to recognise a new contingent liability associated with the Type 26 Global Combat Ship Manufacture Phase 1 Contract.

The departmental minute describes the contingent liability that the MOD will hold as a result of placing the Type 26 Global Combat Ship Manufacture Phase 1 Contract, which will provide for the manufacture and testing of the first batch of Type 26 Global Combat Ships. The maximum contingent liability against the MOD is unquantifiable and will remain until the latest Out of Service Date of the ships manufactured under the contract, in the second half of the 21st century.

It is usual to allow a period of 14 sitting days prior to accepting a contingent liability, to provide hon. Members an opportunity to raise any objections. I regret that on this occasion pressing commercial and industrial requirements to sign the contract within the next few days together with the dissolution of Parliament, have meant that it has not been possible to provide the full 14 sitting days prior to taking on the contingent liabilities. Any delay would have risked losing significant financial benefits for the taxpayer. The Secretary of State for Defence has decided to proceed with the agreement, following scrutiny 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.

Within the contract the exposure of BAE Systems Maritime-Naval Ships to a number of specified claims and to direct losses is limited to £50 million, while in respect of indirect losses and, within certain prescribed categories, catastrophic risks the contractor is indemnified against claims in excess of £50 million. It is the view of the Department that the likelihood of any claim is extremely low.