No explanation for conflicting claims on submarines

Controversy continues to surround Australia’s next-generation submarine project. Picture: Naval Group

The federal Coalition government is enjoying the quagmire that has captured the Victorian ALP. But they need to curb their smiles because the Coalition ministry has its own quagmire and that has two ministers making conflicting statements.

Last month in the parliament the Minister for Defence Senator Linda Reynolds swore on oath what seemed to be a very simple statement:

“There is no cost blowout to the Future Submarine project. When we announced the program in April 2016 the estimated cost for acquisition in 2016 dollars was $50 billion. There has been no change to this cost in constant dollar terms”.

This was in line with similar statements by the head of the future submarine program Rear Admiral Greg Sammut.

When compared to three previous government statements, the Linda Reynolds statement shows that something is seriously wrong with the pricing of Australia’s largest defence equipment project.

• Previous statement one: Late in 2015, some months before the French won the contract the then Secretary of Defence Dennis Richardson and his Deputy Peter Baxter were crystal clear that the $50 billion dollar submarine price tag was on “an out-turn cost basis” which means that the $50 billion price was not in 2016 dollars but rather dollars adjusted for inflation including 2040 dollars.

• Previous statement two: Seven weeks before the winning tender was announced when all the proposals had been submitted the then Minister for Defence Senator Marise Payne presented to the parliament a defence white paper which set out very clearly that the estimated cost of the future submarine program was $50 billion on “an out turn price basis”. It is almost inconceivable that the minister did not know the proposals that were on the table. Payne also costed the American supplied combat system separately. There is no suggestion that Senator Marise Payne, Dennis Richardson or Peter Baxter misled parliament in those statements, but mathematically (and allowing for the construction of necessary infrastructure ) for them to be right then the French, German and Japanese bids had to be in the vicinity of $20 to $25bn in 2016 dollars - around half the level stated by Senator Reynolds. The Australian nation needs an explanation for the difference.

• Previous statement three: Then it came to the fateful April 2016 day when French were awarded the contract and the press release described the contract as a “50 billion dollar investment”.

At that time, unfortunately, I was not aware of the previous statements of Richardson, Baxter and Payne and I wrote a comment stating that the $50bn stated in the announcement was about twice the tender price of the Germans and the Japanese. My comments had not been on The Australian website long before a somewhat irate very senior minister (not Payne) phoned me from a government car and, speaking on a non-quoting basis, said that I was completely wrong and that the $50bn figure quoted was adjusted for inflation. I changed the commentary and added the lines: “This article has been updated after publication to clarify details around the submarine build estimates”. And separately: “In the last three hours I have learned a great deal more about the submarine tender process than was available this morning. I have learned where it went wrong and where it was right. My phone rang hot following my original commentary.”

On the same day, my colleague Adam Creighton wrote: “For starters, the $50bn figure is based on future, not current, dollars”. I did not brief him about my conversation.

At the same time Mark Thomson, a defence expert at the Australian Strategic Policy Institute, estimated the $50bn inflation adjusted cost at about $31bn in 2016 dollars but that included infrastructure.

Little price difference

After giving me a hard time, the very senior minister added a really important addition: that the actual 2016 dollar price tendered by the French was not that different to the German and Japanese. Now we know that the Germans and Japanese tendered in 2016 figures of between $20 and $25 billion with the Germans at the bottom end of the range. And that’s the same 2016 dollar figure you can calculate from the Payne, Richardson and Baxter statements.

But now Reynolds is saying that the estimated cost for acquisition in 2016 dollars was $50bn - at least twice the Payne, Richardson and Baxter imputed statements. If Reynolds is right then the cost of the project has escalated dramatically, which is why inflation-adjusted figures of $80bn to $90bn are now being quoted.

Clearly it is possible that somehow someway the statements of Linda Reynolds, Marise Payne, Dennis Richardson, Peter Baxter and my very senior minister can be reconciled but I can’t work out how that can be so.

Prime Minister Scott Morrison has done a brilliant job in handling the COVID-19 crisis and other matters but whenever the submarine is mentioned out of his mouth comes a diatribe of words that have been prepared by the navy. Morrison has been in business and he knows that in complex contracts it is really important to be very clear about the price (plus the contract details but that is another story).

Once you have different stories about the price then it is the beginning of a disaster. It is time for him to cast aside the PR machine and look at what actually happened in this contract.

Grilling required

Shadow defence minister Richard Marles last week broke the shadow defence minster’s traditional rank and raised concerns about the submarine contract.

His task and that of cross benchers like Rex Patrick is to grill both Senator Payne and Senator Reynolds endlessly on how they came to make these conflicting statements. Dennis Richardson and Peter Baxter need to be brought before the parliament to explain their statements. Marles task will require great persistence and detailed work. But if he can get to the truth then he is well on the way to one day being deputy prime minister or prime minister.