Fears Federal Government could scrap $89bn contract with Naval Group to build Future Submarines

Simon Birmingham has downplayed reports the $89bn Future Submarines contract could be terminated – but it does appear Australia is eyeing a Plan B.

Finance Minister Simon Birmingham has downplayed speculation the government could tear up its $89bn Future Submarines contract with French defence company Naval Group over cost and time blowouts.

It comes after a second report emerged today that the contract to build 12 Attack Class subs in Adelaide – which will involve 1700 local jobs in coming years – could be abandoned, after an initial report in January.

While the Federal Government has rejected the report, the Defence Department does appear to be seriously eyeing a “Plan B” for Australia’s subs fleet as its relationship with Naval Group becomes increasingly toxic.

Simon Birmingham has downplayed reports the $89bn Future Submarines contract could be terminated – but it does appear Australia is eyeing a ‘Plan B’ with its Collins Class subs. Picture: Royal Australian Navy

A trio of top Navy officials have been tasked with looking at a massive upgrade of the ageing Collins Class submarines to extend their life, which is being seen as a potential alternate option if the Future Submarines contract with Naval Group needs to be abandoned.

As part of the study, Captain Philip Stanford, Vice-Admiral Jonathan Mead and Commodore Tim Brown are expected to look at designs by Swedish company Saab Kockums, the original designer of the Collins Class, which has a long history with South Australia.

The Australian Financial Review reported today the trio will also be looking at how the Federal Government could terminate its $89bn contract with Naval Group.

Senator Birmingham downplayed the speculation this morning but said: “I do think that it is always prudent to look at contingencies, to know what your options are and to be prepared for them in any eventuality.”

Finance Minister Simon Birmingham says: “It is always prudent to look at contingencies.” Picture: Gary Ramage

Senator Birmingham and Acting Defence Minister Marise Payne will meet with Naval Group’s global boss Pierre Eric Pommellet in Canberra today.

Under-fire Defence Minister Linda Reynolds had been due to meet with Mr Pommellet, but she went on medical leave yesterday on the advice of her doctor.

“We are not meeting with Mr Pommellet to terminate a contract,” Senator Birmingham told ABC radio.

“We’re meeting with him to seek to negotiate an outcome in accordance with the commitments Naval Group has made.”

The company has been under pressure over its pledge to spend at least 60 per cent of its contract value in Australia, which has not yet been formally written into the contract 12 months after the company made the promise.

Another sticking point is that Defence Department and Naval Group are in negotiations for the next phase of the Future Submarines contract, and it’s understood the company’s cost estimates were significantly higher than the government was expecting.

Senator Birmingham said the government was “working in good faith with Naval Group” to secure the subs project.

Naval Group global chief executive Pierre Eric Pommellet at LeFevre High School this week with students Savanna Hull and Mitchell Baker, and a submarine model made by the students. Picture: Dean Martin

A Naval Group spokesman said the company was “fully committed” to maximising Australian industry content in the Attack Class submarines with its pledge to spend at least 60 per cent of the contract in Australia.

He said the company remained in talks with the Commonwealth “about the best way to achieve this common goal”.

It’s understood Defence and Naval Group are close to locking in the agreement.

SA Senator Rex Patrick said there had “clearly been a breakdown in the Defence – Naval Group relationship” which had started as far back as negotiating the initial contract.

“This is a marriage gone bad,” he said.

Senator Patrick welcomed reports senior Navy officials were looking options for the fleet, saying: “The Government must have a Plan B to inject competition back into the program and ensure there is a fallback.”

“Taxpayers’ interests and national security demands this,” he said.

He said the Collins Class upgrade could potentially become a “son of Collins” which would give the government “a genuine Plan B”.

State Labor leader Peter Malinauskas urged Premier Steven Marshall to seek assurances the Federal Government would not terminate the Future Submarines project, which is expected to deliver up to 1700 direct jobs in SA and thousands more in the supply chain by 2030.

“South Australia has the worst unemployment rate in Australia – we cannot afford to lose the biggest jobs project in our state’s history,” Mr Malinauskas said.

“It is alarming to read reports this morning that terminating the contract is now on the table.

“Steven Marshall needs to immediately contact his Liberal colleagues in Canberra and seek assurances SA won’t lose this $90 billion project and the thousands of jobs that come with it.”

Mr Marshall said he was not privy to any discussions between Naval Group and the Federal Government but said the South Australian Government had “a great working relationship with Naval Group” which “will continue into the future”.

“We are leaving no stone unturned in delivering the skilled workforce required to ensure the ongoing success of the defence industry in our state for decades to come,” he said.

“We are fully committed to working hand in glove with industry to make sure we meet the needs of the defence sector, and take full advantage of this once-in-a-lifetime opportunity for South Australia.”