One Sussex firm could be forced to shed jobs after missing out on a £1.8 million contract while a second will gain up to 40 at its expense.

Crawley based Thales, formerly Racal Electronics, missed out on the Government contract to supply the army with new battlefield radios yesterday.

It was awarded to a Canadian firm, Computing Devices Canada, a subsidiary of US company General Dynamics, which has a base in Hastings.

Thales, which has 465 workers in Crawley, Bracknell and Harrow, said a successful bid would have sustained 2,000 jobs and created 1,000 more.

A spokesman for the company said it was too early to say whether there would be job losses but they could not be ruled out. He said it was "a missed opportunity" for Thales and the UK.

He said: "Thales will have to adapt its UK industrial structure to match present workload and future opportunities.

"We hope to strengthen Thales' leading position in defence communications.

"Thales remains confident of its ability to deliver major programmes across defence, aerospace and information technologies and services."

Mike Steeden, managing director of Computing Devices Company in Hastings, said: "This is fantastic news for both CDC Systems and our parent company General Dynamics, who over the last 18 months has been striving together to secure this most important contract with the Ministry of Defence.

"It is also tremendous news for us at Computing Devices in Hastings. I am delighted because we have had a number of senior staff on secondment with CDC Systems, helping them in key areas, while at the same time we have been bidding for major manufacturing and software support subcontracts.

"CDC Systems' success now means that we have the opportunity to secure in excess of £80m of subcontracts over the next few years, which could result in around 40 jobs at a new manufacturing facility in Hastings.

"From a strategic perspective this work will also put us in an excellent position to win more Army Land Systems business with CDC Systems, an important factor in our expansion from the company's present aerospace market focus.

"With the support of the local authority and local agencies we are already in a position to bring rapidly on-line the new manufacturing facility."

Defence Secretary Geoff Hoon said 90 per cent of the work would be based in the UK, securing 1,600 jobs, with 75 of those created in the South-East.

He said: "This is good news for the Armed Forces and for British industry. CDC offered an impressive solution that fully meets the military requirement in the right timescale and offers best value for money. It was the clear winner."

Ministers hope to let the contract in late summer, with the new system in service by early 2004.