I am pleased to inform the House that I am today laying a departmental minute to advise that the Ministry of Defence (MOD) has received approval from His Majesty’s Treasury to recognise new contingent liabilities associated with the Skynet 6 programme. This programme, as set out in the defence Command Paper “Defence in a Competitive Age”, will provide the MOD with a world class, modern military satellite communications network to support our and our allies’ operations globally. This will be achieved through new capital investment in the ground stations, spacecraft and user terminals that form the Skynet strategic capability. These new contingent liabilities are specifically related to the launch of our first next generation satellite, known as Skynet 6A, which is scheduled to take place in financial year 2025-26 using a SpaceX Falcon 9 launch vehicle from Cape Canaveral. This follows four Skynet 5 satellites (A, B, C and D) currently in orbit, which will be initially supplemented, and then incrementally replaced by 6A and a further four satellite systems being procured through the Skynet 6 enduring capability (EC) project. His Majesty’s Treasury approved the proposed three contingent liabilities and Chairs of the Public Accounts Committee and Defence Committee were notified on 23 June 2020.
Three contingent liabilities are recognised.
The first contingent liability relates to loss of capability of the Skynet 6A system. The MOD will take ownership of the Skynet 6A spacecraft at launch and has not sought to secure insurance for the launch or acceptance phases, as it was assessed as not providing value for money. The post mitigation worst-case financial exposure of risk of loss of capability related to these events, assuming the need to re-procure a spacecraft with similar capabilities, has been assessed at a value of £720 million.
The second contingent liability relates to long delay of launch. The MOD has agreed to bear the allowable costs of a launch-related delay which arise for reasons entirely outside of the control of the contractor. A long launch delay would result in the MOD incurring additional storage, prelaunch insurance, maintenance, launch service provider and other delay-related allowable costs. The post mitigation worst-case financial exposure of a long launch delay has been assessed at a value of £253 million.
The third contingent liability relates to a cross-waiver of liability in favour of the Skynet 6A launch service provider. Cross-waivers are standard practice in space launches. The MOD has agreed a cross waiver of liability in favour of SpaceX and related parties in respect of damage to Ministry of Defence property and personal injury, death or property damage incurred by Ministry of Defence employees. This liability is assessed as unquantifiable due to the nature, scope, range, and scale of possible scenarios that might occur, which means that it is not currently possible to provide a realistic estimate of cost.
[HCWS436]