PEER over the fence at the eastern end of the Rosyth naval dockyard on the Firth of Forth and you stare down into an enormous hole.

This man-made mini-Grand Canyon – 30 metres deep, 200 metres long and 170 metres wide, complete with foundations strong enough to withstand a major earthquake – is known locally as “Rifkind’s Hole”.

It was dug in the 1980s as the refuelling centre for the Trident submarines that carry Britain’s nuclear deterrent. But in 1993 the Ministry of Defence, led by the then defence secretary Malcolm Rifkind, decided to move the work south to Devonport, the naval base near Plymouth.

Rifkind’s Hole has stood yawning and empty ever since.

The ferocious political battle over the Trident work encapsulated the plight of Britain’s naval dockyards. As the Royal Navy shrank after the cold war, they had to fight for maintenance and support work, contending at the same time for irregular awards of contracts to build new ships.

The fight may finally be coming to an end. The companies involved – Babcock International, BAE Systems and VT Group – are drawing up, and in some cases have already implemented, agreements that will see the work shared and the savings split with the Ministry of Defence.

In return for industry cooperation, the government will guarantee a steady stream of work stretching up to 15 years, long enough, the participants hope, for the companies to make the investment in equipment and training needed to keep the fleet afloat.

While the changes appear common sense, there are hurdles to cross. The suspension of normal competitive tendering on multi-billion-pound government contracts will require the approval not only of the Ministry of Defence, but also of the Treasury and the Office of Fair Trading.

And one of the leading architects of the reforms, Lord Drayson, unexpectedly resigned as defence procurement minister last month, leaving some people in the industry wondering whether his initiatives will survive.

The companies, meanwhile, have been doing some rationalisation of their own.

One example is at Rosyth and Devonport. The two dockyards, once mortal enemies over Trident, are now owned by the same company, Babcock. It bought Devonport earlier this year, paying the previous owner Devonport Management Ltd (a consortium of KBR, Balfour Beatty and Weir Group) £350m.

The deal brings together all of Britain’s submarine support facilities (Babcock also runs the submarine operations base at Faslane).

With surface ships, something similar has happened. Earlier this year BAE Systems and VT Group agreed to put their yards into a joint venture. The agreement is understood to have passed scrutiny by the Treasury and the US Department of Defense, and is likely to be officially confirmed soon.

This will bring bring together for the first time the BAE yards on the Clyde and the VT operations on the south coast at Southampton. VT is expected to sell out of the venture in a few years, leaving BAE in control.

Babcock and BAE will be the main players in the various alliance agreements that are now under discussion.

The first, which is already in operation, covers support of the surface warship fleet. The Surface Ship Support Alliance was created two years ago by a memorandum of understanding between the Ministry of Defence and the companies, and the OFT granted a waiver from competition rules in February 2006.

“It grew out of a realisation that while competition between dockyards had driven down unit costs, it was not necessarily the most economic option in the long term,” said Archie Bethel, chief executive of Babcock Marine.

The alliance has committed itself to making £90m of savings over five years.

Three other alliances are under consideration. One will deal with the construction of two new carriers for the Royal Navy (see panel on left).

A second will cover submarine support (encompassing Babcock, BAE and Rolls-Royce, which makes the nuclear plants that power the submarines) and the third a review of entire naval dockyard operations and estates.

Business cases for all four alliances are being drawn up at the moment, and should be submitted next year.

In exchange for the industry agreeing to collaborate, the Ministry of Defence will sign a “terms of business agreement” that will set out roughly what work it will fund over the next 10 to 15 years.

“We are saying that what yard does the work will no longer be so important – it is who has the skills and where will it be done best. In return, the government will say this is the workload there will be,” said Bethel. “It basically sets out how we will do business with each other, and defines behaviour on both sides.”

The alliances come against ferocious pressure on the Ministry of Defence’s budget, which is being stretched by several big equipment programmes coinciding with the expensive continued operations in Iraq and Afghanistan. Some estimates put the budget shortfall as high as £2 billion – large enough to threaten some of the planned new big-ticket items.

Defence analysts say the third tranche of Eurofighter Typhoon planes for the Royal Air Force could be at risk – although cancelling them may be just as expensive as buying them. Suggestions have also surfaced that the number of new Type45 frigates could be cut, or the number of new Astute-class hunter-killer nuclear submarines.

One item, however, does seem to be secure. Designers at BAE and Babcock have already begun work on the next generation of submarines to carry the nuclear deterrent. They will replace the current Vanguard-class boats some time in the early 2020s.

CARRIERS TAKE SHAPE

IN a nondescript, single-storey building tucked into a corner of the Rosyth dockyard in Fife, 100 designers are beavering away on the design of the most powerful ships ever to sail for the Royal Navy.

The Babcock group is just one part of the design team for the Queen Elizabeth and the Prince of Wales, two new aircraft carriers.

They are likely to enter service in about six years, although the Ministry of Defence will not confirm dates.

The carriers, which have had a lengthy gestation, are being built by a who’s who of British shipbuilding. The carrier alliance includes BAE, VT and Babcock as well as France’s Thales.

The ships will be assembled at Babcock’s Rosyth yard, in a dock opened 100 years ago for first-world-war battleships.

To accommodate the bulk of the two aircraft carriers, the dock entrance will be widened, and its sides scooped out.

A giant travelling crane, capable of lifting 1,000 tonnes, will be erected to arch over the dock.

The hull will be built in four blocks, the largest weighing about 18,000 tonnes.

BAE’s Clyde yard will build one block, its Barrow yard another, VT a third, with Babcock building the bow. The blocks will travel to Rosyth by barge.

The carriers will be 280 metres long and 74 metres wide, weigh between 60,000 and 65,000 tonnes, and will carry the new F-35 Joint Strike Fighter aircraft.

Their construction is expected to cost close to £4 billion.

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