$89bn Future Subs: Naval Group, Defence contract dispute could threaten project, industry warns
Defence and Naval Group are locked in a bitter contract dispute over the next phase of work on the $89bn Future Subs, angering Australian industry.
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A major contract for the next two years of work on the $89bn Future Submarines has yet to be signed, angering Australian defence companies.
The Defence Department is reportedly refusing to sign a contract with French defence giant Naval Group for the next core phase of work, which covers detailed design for the Attack Class subs and its input into the construction of a new shipyard at Port Adelaide.
Defence has also rejected Naval Group’s request for a bridging contract to keep money going into the project, prompting concerns work could grind to a halt.
The department is also refusing to pay the company’s profit margin and is only covering its costs, according to a report in The Australian Financial Review.
Any delays or reduction in scope of the contract could “have a negative impact on Australian industry,” according to the Australian Industry & Defence Network, which represents local companies.
AIDN chief executive Brent Clark said if there was going to be a delay in the next phase, it should not impact Naval Group’s transfer of intellectual property, technical specifications and technology to the Australian industry.
“Any delays in this part of the program will directly harm Australian industry,” he said.
Defence expert Marcus Hellyer said: “Naval Group are probably surprised by how tough Australia is negotiating – in the protected environment of the French defence industry, they aren’t used to the customer pushing back.”
The Australian Strategic Policy Institute analyst saidit was good to see Defence standing firm but it could put the Future Subs at risk.
“If Defence pushes Naval Group’s profit margins down too far and the French walk away, we’ve wasted five years and gotten no closer to having new submarines,” Mr Hellyer told The Advertiser.
“Similarly if Naval Group offered price, schedule and capability that they can’t deliver on, it’s Australia that ultimately pays the price.
“No amount of financial damages imposed on Naval Group will make up for blown schedules or a submarine that can’t provide the performance required of it.”
Naval Group and Defence did not comment directly on the negotiations.
A Naval Group spokesman said: “Significant progress is being made on the Attack Class design, and construction of a new and modern shipyard at Osborne, as we prepare for the submarine build phase.”
“Naval Group Australia’s direct local workforce also continues to grow, as we add the permanent staff required to deliver 12 regionally-superior submarines.”
A Defence spokesman said the Commonwealth and Naval Group were “working closely to ensure the project continues to meet key contact milestones”.
It’s understood Defence’s concerns are about Naval Group’s reduced pitch for the scope of work it would do in the next phase, which it cut back after Australia raised concerns about the initial estimate’s cost.
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