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Spain could land a £1bn contract to build new Royal Navy supports ships - despite ongoing tensions over Gibraltar.

Union chiefs are incredulous a Spanish firm Navantia are still in the running, and want Ministers to award a UK shipyard the bumper deal to build Fleet Solid Support vessels. However, of the five bids in the running for the contract, only one is British - but it features Babcock, who manage Devonport Dockyard.

Giving evidence to the Commons Defence Committee, the Confederation of Shipbuilding and Engineering Unions’ Ross Murdoch pointed to repeated incursions into Gibraltarian waters by Spanish naval vessels.

He told MPs: “Our members are saying to us, ‘With all this going on in Gibraltar, are we seriously going to award the contract (to a Spanish firm)?’”

He added: “You can see their point.”

The revelation a Spanish company could win the deal unleashed fury because of the ongoing dispute between the UK and Spain over ownership of the Rock, reports The Mirror.

Gibraltar was given to Britain under the 1713 Treaty of Utrecht, and is a key strategic port with the Strait of Gibraltar providing the eastern entrance to the Mediterranean.

The competition to design and construct the FSS vessels for the Royal Fleet Auxiliary unleashed a major political row after the Tories claimed they were not warships – even though they will be armed and steam into battle zones, resupplying the Queen Elizabeth-class carriers, frigates and destroyers.

That meant the deal to build two, possibly three ships, could be offered to foreign yards – potentially denying British workers and firms a massive windfall.

The Ministry of Defence announced in November that companies from Italy, Spain, Japan and South Korea were in the running for the contract – with a UK consortium also shortlisted. The British team is made up of leading manufacturing and engineering companies Babcock, BAE Systems, Cammell Laird and Rolls-Royce.

The winner will be revealed next year.

Labour MP John Spellar, a former Defence Minister who sits on the Defence Committee, accused the Government of creating an “artificial separation between military and non-military vessels”.

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