Subs jobs: Naval Group put on notice to offer better deal on Australia’s Future Submarines

Naval Group has been sent a warning sign to deliver a better deal on Australia’s Future Submarines - or risk losing the $89bn contract.

The French company designing Australia’s Future Submarines is being put on notice to deliver a better deal – or risk losing the $89bn contract.

Senior Defence officials are reportedly considering the possibility of building an updated version of the Collins Class to replace the old fleet, and abandoning the contract with Naval Group for 12 Attack Class subs over concerns about cost and timeline blowouts.

The leak has emerged while Naval Group and the Defence Department are in talks for the next phase of the lucrative contract.

The company’s estimated costs for the next phase, which will include detailed design work and upgrades to the Osborne shipyard, are reportedly up to 50 per cent higher than Defence and the government were expecting.

Australia’s Collins Class fleet are set to be replaced by the Future Submarines, but there is mounting angst over the cost of the project. Picture: Supplied

Industry and government sources believe the report inThe Australian Financial Review on Monday that Defence is looking at a “Plan B” will add to public and private pressure on Naval Group to offer a better deal. Naval Group Australia opened a local headquarters in Port Adelaide last year and is ramping up hiring staff ahead of the first sub build, starting in 2023.

Industry sources told The Advertiserit was highly unlikely the Federal Government would scrap its contract with Naval Group – but it was less farfetched than 12 months ago, given growing frustrations at costs and time frames.

Australia could leave the contract, but there would be a break payment, which could be up to $404m depending on when it left. Premier Steven Marshall said he was not privy to talks between the company and the Commonwealth, but said the State Government had “a great working relationship with Naval Group, which will continue into the future”.

The Premier said SA was “leaving no stone unturned in delivering the skilled workforce” to ensure a strong defence industry for decades to come.

Federal Treasurer Josh Frydenberg downplayed the report, saying the relationship with France was “very strong”.

Defence Minister Linda Reynolds rejected speculation the department was considering opening talks with Saab for a “Son of Collins” design. The Swedish defence company was ruled out of the competitive process for the Future Subs in 2015.

Naval Group did not comment on the speculation about a Plan B, but a spokesman said the company’s pledge to spend at least 60 per cent of its contract in Australia would be locked into the contract soon.

Federal Labor’s defence spokesman Richard Marles said the government had “bungled” the subs acquisition.