Fears Future Subs dispute could drag on for months

A bitter contract dispute over the $89bn Future Submarines isn’t likely to be resolved before September, sparking concerns over the delay.

Royal Australian Navy Collins Class Submarines, HMAS Collins, HMAS Farncomb, HMAS Dechaineux and HMAS Sheean sail in formation off Western Australia.

A major contract covering two more years work on the $89bn Future Submarines may not be signed for another five months.

The Defence Department and French defence giant Naval Group’s contract for the next core phase of work is unlikely to be signed before September, industry sources say.

The likely delay has sparked further concerns for Australian industry, while South Australian senator Rex Patrick says the Federal Government must consider a Plan B for the troubled submarine project.

“Alarm bells should be ringing in Canberra,” Senator Patrick told The Advertiser.

The Future Subs will replace Australia’s Collins Class fleet. Picture: Supplied

He described the partnership between Defence and Naval Group as “more like an estranged marriage” and said: “We should be considering a divorce.”

“At the very least we need a Plan B, and Plan B can’t be ‘make Plan A work,” Senator Patrick said.

A sticking point in the negotiations has been Naval Group’s proposal and cost estimates for the next phase of work.

The Advertiser understands the current estimate is still almost 20 per cent above what was originally quoted, despite Naval Group scaling-back the proposed scope of work to cut costs after its initial estimate was almost 50 per cent above what Defence was expecting.

The next phase includes detailed design work for the Attack Class subs, which are set to be built in Adelaide from 2024.

South Australian senator Rex Patrick. Picture: Jessica Ball.

“There’s no doubt that SA can deliver a highly capable submarine, but this can only occur if the project is run properly but right now it’s not,” Senator Patrick said.

“We’ve seen blowouts in costs, schedule slippages and the shunning of local industry by both Defence and Naval Group.”

Federal Labor’s defence industry spokesman Matt Keogh said any delays in finalising the contracts would push out the project and create “potential capability gaps that put Australia at risk”.

“It also creates uncertainty and financial stress for Australian industry, even those already engaged in the project, not to mention uncertainty for workers who are relying on this project getting started,” he said.

“These further delays in Naval contracts and the Future Submarine project shows just how all at sea the Government is with this project.”

Naval Group Australia chief executive John Davis did not comment on the negotiations, but downplayed concerns the subs or the local workforce could be impacted.

“Our local workforce has already grown strongly, including the opening of a new office at Port Adelaide, and we remain on track to create 1700 local jobs during Attack Class construction,” Mr Davis said.

Naval Group Australia CEO John Davis. Picture: Roy VanDerVegt

He said “significant progress” was being made on the Attack Class design and the construction of a new shipyard at Osborne.

The Australian Financial Review reported earlier this week Defence has knocked back Naval Group’s request for a bridging contract to keep money flowing into the project until the next phase is signed.

Defence is also reportedly refusing to pay the company’s profit margin and is only covering its costs.