Blow for BAE as US firm wins contract to build new armoured vehicles for UK

The contract is the first phase of the 4bn contract to build armoured reconnaissance vehicles to replace Britain's ageing Scimitar scout vehicle – seen as vulnerable to roadside bombs – with better protection and firepower.

"Preferred bidder status has been awarded to General Dynamics UK for the demonstration phase of the specialist vehicle programme, subject to successful completion of contractual negotiations," Defence Secretary Bob Ainsworth said in a statement.

"General Dynamics UK's proposed solution contains 73 percent UK content within the supply chain and the assembly, integration and test facilities at the Defence Support Group Donnington."

General Dynamics UK has previously said 10,500 UK jobs would be safeguarded or created over the 10-year lifespan of the deal, if it won the bid.

"This ensures the sustainment of UK jobs, UK skills and

UK capabilities within the armoured vehicle sector," said Ainsworth.

Shares in General Dynamics were 0.5 per cent down at 75.14 cents in New York by 2:25pm.

BAE had said it would protect and create a total of 800 jobs at its manufacturing site in Newcastle to make the deal more attractive to the Ministry of Defence.

Europe's biggest military contractor originally planned to build most of the parts for the Scout armoured vehicle in Sweden.

BAE spent 50m over five years developing a contender based on the latest version of its CV90 chassis, that operates in three countries, including Afghanistan.

The company, which announced 500 redundancies last year, said last week it would be forced to make further cuts if it lost out on the contract.