Two defence groups submit bids this week for a £4 billion deal that will decide the future shape of Britain’s tank and armoured vehicle industry.

BAE Systems and General Dynamics are squaring up over the Fres (Future Rapid Effect System) specialist vehicles contract. On Thursday the groups will pitch their offers to the Ministry of Defence for the £2 billion first slice of the deal, for 600 vehicles. The winner is expected to be in pole position for the rest of the Fres order.

The chosen Fres vehicle will eventually replace most of the armoured vehicles now in service with the British Army, with the probable exception of the Challenger main battle tank. The size and scope of the contract means that if BAE loses the deal, it is likely to have to close its armoured vehicle design and manufacture business in Britain. It has already shrunk operations significantly, laying off more than 700 staff in the past year. Senior sources at BAE confirmed it was a make-or-break deal for the division.

Neither company, however, is pitching a British-made vehicle for the Fres deal. BAE is offering the CV90, whose chassis will be made in Sweden by Hagglunds, a BAE subsidiary. The vehicles’ turrets will be made and installed in Britain, as will other systems. BAE said the CV90 already had a significant UK content.

General Dynamics, an American defence company with a large presence in the UK, is offering a new version of Ascod, a vehicle first built as a joint effort between the governments of Austria and Spain. The first tranche of UK vehicles will be built in Spain, with manufacture later transferred to Britain.

The Fres programme was originally a much larger deal, worth £16 billion, but has been scaled back. The MoD will choose a winner next year, with the first Fres vehicles expected to enter service in 2015.

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