Babcock posts £140 million Type 31 Frigate charge after rework
Babcock International has posted a £140 million charge against its type 31 frigate contract after design changes and out-of-sequence build activity pushed up rework costs. The company said around £100 million will be recognised in FY26, with the cash costs spread over the rest of the programme.
The charge covers Babcock’s five-ship programme and follows higher-than-expected rework during outfitting and commissioning on the lead ship. Babcock said it completed an engineering maturity review and updated its estimates to complete the contract.
Babcock five-ship programme
“During the year we floated off the first and second ships in the five-ship programme, laid the keel of ship three and formally commenced the build of ship four at its steel cutting ceremony,” Babcock International said. The company said ship one is nearing structural completion, while ship two is close behind and shares some of the design-related rework.
Ships three and four remain in early construction, and Babcock said the impact on those vessels and later ships is comparatively reduced. That leaves the charge concentrated on the later stages of ship one and the related work on ship two, rather than evenly across the full programme.
FY26 charge breakdown
“As we finish structural completion of ship one, the bulk of the remaining work now relates to outfitting and commissioning,” Babcock said. It added: “During the outfitting stage we have experienced higher than expected levels of rework as a result of changes to the design and the long-term impacts of out-of-sequence build activity earlier in the programme.”
“Whilst the number of such rework events is not entirely unexpected, the work is being performed in the later stages of completion and therefore is more complex and more costly,” the company said. “As a consequence, we have performed an engineering maturity review, and we have updated our financial estimates to complete the programme, given the elevated levels of work due to engineering change and productivity.”
Underlying profit
Babcock said the £140 million charge is subject to audit and will be fully recognised in FY26, with about £100 million booked as a revenue reversal and the balance added to the contract loss provision. Excluding the Type 31 charge, it reported underlying operating profit of £433 million and an operating margin of 8.2 per cent, above its 8.0 per cent full-year target.
For readers tracking the programme, the immediate change is that the cost hit is now being carried in this financial year’s accounts, while the cash impact will land over the remainder of the contract. That puts the focus on how much of the remaining work can be completed without further rework on the ships already under way.
