Brussels is now demanding the right to cancel existing contracts with any supplier if the firm is no longer based with the EU community.
In addition European Commission is insisting any supplier removed from the project would be expected to repay all costs to the EU for finding a replacement.
The ongoing Galileo satellite navigation system is an EU-funded project, managed by the European Space Agency, and worth £8.5 billion (€10bn) with the work shared out amongst the member countries.
The EU is attempting to push UK companies out of its space programme
It feels like the UK is being targeted. We have been fighting to stay involved in Galileo whereas some European partners are working to push us out
UK government official
The move means any UK company currently involved in the project would have to renegotiate terms with the EU if it wanted to remain on board.
British companies with interests in the project include Qinetiq, CGI, Airbus and Scisys.
The clause has raised concerns both with companies and the government as it effectively rules out British firms from participating even while it remains a member of the block.
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While signed contracts invariably run for a number of years the new terms mean that any deal could be ripped up with immediate effect once the 2019 Brexit deadline has passed.
A UK government official said: “It feels like the UK is being targeted.
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“We have been fighting to stay involved in Galileo whereas some European partners are working to push us out.”
One supplier currently involved in the project told the Financial Times the clause “makes it quite difficult for a company in the UK to contemplate bidding.”
The new clauses will apply to the contracts for the latest, delayed, phase of the project which could be worth around £339 million (€400m) to UK companies.
Science Minster Jo Johnson is believed to have met with the EU Commissioner Elzbieta Bienkowska to air his concerns about the move.
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Science Minister Jo Johnson
Head of the trade association UKspace Richard Peckham said: “Since the UK Government has so far failed to make any clear statement of intent or even a wish to remain in these important EU space programmes, it is not surprising that the EU is cautious about UK industry participation.”
The development has caused at least two UK firms to consider the possibility of relocating their operations to within an EU member state.
A senior executive from a UK-based space systems company said: “We may be forced to consider withdrawing from our UK market operations.”
A rocket carrying four Galileo satellites launches into space in 2016
Another said: "We will be looking at… who is best placed to participate. If you have the option not to do work from the UK this gives you a reason to think that is safer.”
A commission spokesman said that “similar” termination clauses have been standard since 2003, and insisted that the new clause was “not prepared in view of Brexit”.
Mr Johnson has said the Government is committed to developing a successful UK space programme.
He said: “The UK plays a significant role in the design, construction and operation of the Galileo and Copernicus space programmes.
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“UK businesses and organisations are continuing to bid for EU space contracts.”
“Our space sector is one of our greatest success stories, contributing £13.8 billion annually to our economy. This government is committed to boosting the success of this industry and, through the introduction of the draft Spaceflight Bill and our modern Industrial Strategy, we are ensuring we have the environment and infrastructure in place to continue leading the way in space observation and technologies.”
In December last year the UK Space Agency allocated more than £1.2bn over a five year period to various European Space Agency programmes during a Council of Ministers meeting in Switzerland.
At the time, Mr Johnson said: “We are committed to ensuring the UK remains at the forefront of new technologies, science and daring space exploration. Our sustained investment – alongside our upcoming Industrial Strategy – will ensure we build on the strengths of the UK’s growing space industry.”