Sub-optimal oversight is opening a bottomless pit

Federal Defence Minister Linda Reynolds with a model of the Barracuda-class submarine. Picture: AAP

Its now time to discover what the real cost of the submarine project is going to be. We need an independent, highly qualified group of people with the talents to discover the truth and reconcile the apparently conflicting public statements.

Most of the debate about the submarine project has concentrated on the high risk technology and US-French tangle that we are embracing. We hope that the 12 submarines will be relevant in 20 or 30 years. But this comment is about cost.

The current official “out-turn” construction cost adjusted for inflation is $90bn. The total cost including operations is estimated at $225bn.

Even at that level, the stated cost now looks unaffordable, given the risks and the huge budget deficits ahead. But we still don’t really know what the real cost is and there are indications that it will be substantially higher than anything that has so far been mooted.

Accordingly, any responsible Australian politician needs to determine exactly what we are up for. And knowing the likely bill is doubly important because of the conflicting statements that have been attached to this project, which raise clear danger signals.

Those danger signals extend back to the bizarre negotiations for a contract of this size.

You will remember that it was the magnificent French negotiator Madame Marie-Pierre de Bailliencourt who did the deal with the Australians. As soon as the ink was dry on the deal documentation she was removed and the tough French CEO of Naval Group, Herve Guillou, took control with a very different agenda. The final deal was different to the Madame Marie-Pierre de Bailliencourt proposal, with implications for cost.

Back in 2015-16, the most definitive statement about the cost was made by one of our most respected public servants of recent decades, Dennis Richardson, who was defence secretary at the time.

Speaking to Senate estimates, prior to the actual announcement, Richardson disclosed that the construction cost for the French bid was $50bn on an “out-turn” basis. He was then questioned by senators.

Senator Conroy: “$50bn for acquisition of submarines sounds a little high.”

Mr Richardson: “It is an out-turn cost.”

Peter Baxter (then deputy

secretary of defence strategy): “It is on an out-turn cost basis.”

Mr Richardson: “It is inflation into the 2040s etc.”

Mr Baxter: “The last of the submarines is likely to be built into the 2040s.”

Mr Richardson: “For the last of the submarines — if they were built, say, in the early 2040s — it is the out-turn cost of what the submarines would cost in 2040 dollars.”

The Australian National Audit Office confirmed the Richardson/Baxter testimony.

Last year, the head of the future submarine program Rear Admiral Greg Sammut told a parliamentary inquiry that the $50bn cost figure was “on a constant price basis” — ie, the dollars of 2016, not inflation-adjusted or out-turn dollars, as described by Dennis Richardson.

Suddenly the cost of the project in out-turn dollars had risen from $50bn to $90bn. There should have been a government inquiry then.

Two months ago, in a written question via the Standing Committee on Foreign Affairs, Defence and Trade, senator Malcolm Roberts asked about the costing and received this written reply from the navy:

“The government has been clear and consistent in its advice that the estimated cost of acquisition of the Attack class submarine is $50bn in 2016 dollars. Since this budget was established for the Future Submarine Program following completion of the Competitive Evaluation Process, it has not changed.”

I will leave it to the parliament to discoverer an explanation for the apparently conflicting statements, but via these statements we have received a clear warning that something is seriously wrong. Now we are in deficit so we must discover the truth.

During questioning, Roberts raised a cost of $145bn, which was not addressed. I fear the $90bn and $225bn figures are just the start of the higher estimates.

The Joint Strike Fighters were originally estimated to cost $12bn. The latest guess is between $30bn and $40bn.

There is simply no proper cost control on our military projects. Ministers are too scared to take on the defence officials and it’s got to stop.

Around 2010, the US introduced a series of committees to oversee military spending to make sure it was properly undertaken. Congress realised it was being hoodwinked. Unfortunately, the committees were sidelined by the military establishment.

Some five years ago, one of the committees warned that the Joint Strike Fighter would not achieve what had been promised and the final cost would be many times original estimates.

The US military establishment ignored the warnings, as did Australia, and we all proceeded on the basis that nothing had happened. We need strong defence spending but we also need engineers and other qualified people to make sure we deliver what’s really needed at a proper price.

We can no longer afford uncontrolled military adventures. There is no member of parliament on either side of the house who should object to the discovery of the truth — pleasant or unpleasant.

Footnote: I am grateful to Marcus Hellyer writing in The Strategist for uncovering the Richardson testimony.