A £200m contract crucial for the future of shipbuilder Swan Hunter has been delayed - forcing the Tyneside company to lay off more staff.

The Wallsend shipyard is in talks with Swiss firm Allseas to start work on rebuilding a pipe-laying vessel, a lucrative contract that will create 1,500 jobs in the region.

Swan Hunter, which also has a mothballed yard on Teesside, has been waiting weeks to find out if its bid to refurbish the Audacia has fought off competition from German, Dutch and Spanish rivals.

John Mitchell, a project manager at Swan Hunter, said: "We thought we would have found out in the last two weeks, but the whole process has been delayed because Allseas wanted to buy the ship before tendering for engineers.

"They have now bought the vessel and we expect to know whether we have won the contract in the coming months - definitely before the end of the year."

Swan Hunter has been forced to lay off workers on a monthly basis because of an order book gap.

"We now have less than 1,000 people working here and we will have to reduce staff numbers further in the short term," said Mr Mitchell.

"We have been letting guys go on a gradual basis but we are trying to keep as many as possible for as long as possible. This contract is therefore very important to us."

The contract includes building an accommodation block for 400 crew members, installing new engines and decking and fitting out the ship to carry pipes.

The project is on par with the Solitaire contract, which helped relaunch shipbuilding on the Tyne in 1995 and brought 3,000 jobs to the region.

The Solitaire ship was also an Allseas ship and Swan Hunter remains confident that it will be chosen over its rivals because of its vast experience.

Mr Mitchell said: "We know the client very well and he knows how we work. We have got some very experienced staff here."

He said Swan Hunter is in talks with regional development agency One NorthEast about a possible financing agreement.

"The client may not pay for the ship until it has been refurbished, and even then it could be in instalments, so we will have to look at ways to pay a year or more of salaries to all workers for example," he said.

If the job came to the Tyne it would bring 18 months of work and the contract would fill an order book gap which is faced by Swan Hunter from now until 2008 when work starts on two aircraft carriers.

* Yesterday, it was announced that McNulty Offshore yard, in South Shields, had won a contract to convert two large barges into floating hotels for oil rig workers.

The deal is thought to be worth tens of thousands of pounds and will create about 100 jobs. The first barge is expected to arrive in the region on Friday, with the second coming next month.

No one was available for comment at McNulty.