Geoff Hoon is facing a difficult decision over which company should receive the £1.5 billion contract for the Armoured Vehicle Training Service programme, which will use advanced simulators to train British Army tank crews.

One consortium is led by Thales, one-third owned by the French government, and one led by Lockheed Martin of the US.

Both companies have UK partners but the issue is causing concern at the MoD because it involves pitching the US against its adversary over Iraq, France.

According to MoD sources, the two tenders are so close that the Investment Appraisals Board, which would normally recommend a winner, cannot choose and the defence secretary must therefore decide himself.