(Bloomberg) -- Australia and the UK selected defense manufacturers BAE Systems Plc and ASC Pty Ltd to build a fleet of next generation nuclear-powered submarines that are expected to be deployed in the 2040s, the latest step in the Aukus security pact.

Australia’s Deputy Prime Minister Richard Marles and UK Defence Secretary Grant Shapps will formally announce the decision on Friday as part of annual bilateral defense and foreign policy talks known as AUKMIN. They’ll be joined by Australia’s Foreign Minister Penny Wong and her UK counterpart David Cameron.

The roadmap for Australia’s nuclear-powered submarine fleet is “progressing at pace,” Marles, who is also defense minister, told a joint press conference in Canberra on Thursday. Shapps rebutted claims that the UK’s submarine industry is suffering from underinvestment.

“We’re putting in huge investment, and not just to the kit that you need to produce, but also the skills and things like the roads, which we’re upgrading,” Shapps told reporters. “We have this as a national endeavor that is important for us to deliver.”

As part of that infrastructure upgrade, Australia will provide £2.4 billion ($3.1 billion) over 10 years to help modernize the UK’s industrial base. It previously pledged to invest $3 billion in US industry as part of the Aukus program.

In an interview with Australia Broadcasting Corp. radio on Friday, Marles said the initial funding would go toward developing the nuclear industry around Derby in the UK, where the reactors for the Aukus submarines will be constructed.

The Australian defense minister said the facility in Derby had already begun to produce parts required to construct the reactors for the Aukus subs.

Australia signed the wide-reaching Aukus security partnership with the US and UK in September 2021, part of a pivot by Washington and London to strengthen their presence in the Indo-Pacific region as China’s military power grows. Under the deal, the US and the UK are expected to help Australia field a fleet of US nuclear-powered Virginia class submarines by 2032.

The three countries will then cooperate to manufacture a new model of nuclear submarine known as the SSN Aukus, which will enter service in the 2040s. 

BAE Systems and ASC — major defense contractors in the UK and Australia — will initially form a collaborative agreement to put in place the foundations of the complex manufacturing project, both governments said in a statement, before establishing a longer-term incorporated joint venture within Australia.

Marles said on Friday that decisions around the joint venture’s board structure or share ownership hadn’t been determined and would “take some time” to work through.

The announcement comes just over a week after the Biden administration’s latest defense budget sparked concerns in Australia about a decision to cut the number of new Virginia class submarines to one from two in 2025. Both Washington and Canberra played down the decision, saying the Aukus partners are committed to the agreed timeline.

(Updates with deputy prime minister’s comments)

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