BAE Systems, Europe’s largest defence company, has been shortlisted to develop the next generation of Humvee military vehicles in a contract worth$40 billion (£24.4 billion).

The Pentagon last night announced BAE, Lockheed Martin and General Dynamics had been awarded 27-month technology development contracts to build and test prototypes of the Joint Light Tactical Vehicle.

BAE Systems is in two of the three chosen teams. It leads a team which includes Navistar International and is part of a team lead by Lockheed Martin. The three teams have until January 2011 to develop and test the vehicles for the army and marines

Lockheed Martin Systems Integration was awarded a $35.9 million development contract, General Tactical Vehicles received a $45 million contract, and BAE Systems Land and Armaments-Ground System Division won a $40.4 million contract.

Six consortia had been in the running.

The next generation Joint Light Tactical Vehicles (JLTV) will replace the United States Army’s existing fleet of 160,000 Humvees.

The Humvee is the backbone of the Army’s transport fleet and it has spawned a civilian model, the Hummer, which is made by General Motors.

The Humvee, which stands for High Mobility, Multi-Wheeled Vehicles, entered service in 1985 and became famous during the two Gulf wars as the vehicle that carried troops into combat.

The US Army deployed more than 10,000 Humvees during the invasion of Iraq in 2003.

The Humvee’s design places the drive shaft inside the cabin to give it extra ground clearance.

The replacement contract is expected to be worth up to $40 billion with an initial order for 60,000 vehicles.

The Pentagon has asked for the new design to have more protection against roadside bombs than the current model as these devices have been responsible for many of the casualties suffered in Iraq.

BAE, the world’s largest manufacturer of armoured vehicles, has teamed up with Lockheed Martin in one consortium and with Navistar Defence in the other team.

The other consortia include Northrop Grumman and Oshkosh; General Dynamics and AM General, which makes the current Humvee model; Textron, Boeing and SAIC; and Raytheon Co and Blackwater USA.

The cost of the JLTV programme has spiralled upwards during the development phase and each vehicle will now cost $418,000, according to Army estimates. The original budget was $250,000 per vehicle.

The Pentagon may look to reduce its development costs by bringing other countries in as technology-sharing partners.

The UK, Australia, Israel and Canada are all said to have expressed an interest in the project.

Lt Col Martin Downie, an Army spokesman, said: “After the technical development phase the current intent is for another full and open competition for the system development and demonstration phase which will allow all interested parties to compete.”

BAE has established a leading position in the armoured vehicle market with the acquisition of companies such as Vickers in the UK, which makes the Challenger battle tanks, and UDI in the US, which makes the Bradley Fighting Vehicle.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts