How the deal with Naval Group to build Australia’s diesel-powered submarines was scuttled

The French submarines deal started with a grand $50bn announcement, blew out to $89bn and today is in tatters. Here’s how it was scuttled.

It was a “great day for our Navy, a great day for Australia’s 21st century economy (and) a great day for the jobs of the future,” then-prime minister Malcolm Turnbull declared when the federal government announced DCNS – now known as Naval Group – had won a contract to build the nation’s next fleet of submarines.

Mr Turnbull made the announcement amid much fanfare in late April 2016, saying the $50bn deal would result in 12 new submarines being built at Adelaide’s Osborne shipyards, creating 2800 jobs across the country.

The French defence contractor beat competitors from Japan and Germany to win the lucrative contract and began working towards bringing the Future Submarines to fruition.

Five and a half years later, the deal is in tatters, leaving 350 jobs in Adelaide in limbo.

Prime Minister Scott Morrison announced in the early hours of Thursday morning the government was ripping up its contract with Naval Group. The deal started with such promise, but cracks started to appear as the cost blew out from $50 billion to $89 billion and the project began running behind schedule.

Criticism was also raised over whether the submarines would be obsolete by the time they were finished.

Despite this, the program appeared to be progressing but in January this year, the biggest indication to date that the project may have been in serious trouble emerged when Naval Group was put on notice to deliver a better deal – or risk losing the contract altogether.

The Advertiser at the time reported senior defence officials were considering the possibility of abandoning the contract and instead building an updated version of the Collins Class to replace the old fleet. The shock move came amid concerns over the vast cost and timeline blowouts.

In February, finance minister Simon Birmingham downplayed growing speculation.

Naval Group global chief executive Pierre Eric Pommellet with Finance Minister Simon Birmingham at the under-construction Port Adelaide shipyards, February, 2021. Picture: Mike Burton

In March, the company and government had a breakthrough when they signed a contract that guaranteed at least 60 per cent of the Future Submarines contract would be spent in Australia.

And in May, the company opened up expressions of interest for local suppliers to provide about 1000 items, from welding machines to whiteboards, for the shipyard. At the time, more than 2000 businesses in Australia had already registered their interest.

But fast-forward to Thursday and the deal is dead.

Naval Group issued a statement, saying for five years, the company had “given their best” and “delivered on all its commitments”.

“This is a major disappointment for Naval Group, which was offering Australia a regionally superior conventional submarine with exceptional performances,” it said.

“Naval Group was also offering Australia a sovereign submarine capability making unrivalled commitments in terms of technology transfer, jobs and local content.”

The company said it would analyse the consequences of the decision over the coming days, but there are obvious ones for the more-than 350 SA workers.

Originally published as How the deal with Naval Group to build Australia’s diesel-powered submarines was scuttled