Why did we agree to pay too much for French submarines?

The nuclear submarine "SNA Barracuda" under construction in a DCNS plant in northwestern France. AFP Photo/Charly Triballeau

The evidence now mounting shows that the submarine tender is one of the most irregular ever conducted in Australia. Defence officials in the US, Japan and Germany are shocked at what is now being revealed.

Within 24 hours of the tender being announced, both sides are saying different things so, as anyone experienced with tenders knows, that means the deal has every prospect of becoming a disaster. (The good, the bad and the ugly of the submarine tender process, Apr 29)

There is mounting evidence that the French do not want to build the first two submarines in Australia. They need to make the first two submarines back home.

In Paris, they were shocked that Prime Minister Malcolm Turnbull was so definitive in his statement that all 12 submarines would be built in Australia.

To understand how this bizarre situation developed and the implications that stem from it, we need to go back to the defence white paper which estimated the cost of the 12 submarines at $50bn (we learned later that this is an inflation-adjusted figure).

At the time, the Japanese were mystified because they knew their tender was less than half that and the German “all local” tender was even lower — probably under $20bn.

Japanese and German defence tenderers wondered why Australia would use such an inflated figure. Perhaps they were safeguarding themselves against yet another ‘stuff up’. To the Americans, Japanese and Germans, it now looks like it was because the high-cost French tender had already been selected.

The $50bn figure was repeated in the Australian announcements but it was the French media that released the details that shocked the defence-tendering world.

The French media were told by their government that some 30 per cent of the expenditure on the submarines, or €8bn, would be spent in France.

That equates to approximately $12bn which (using 30 per cent of the value) in turn prices the project at $40bn, or roughly in line with the defence white paper estimate.

The French shipyards are highly unionised and are not regarded as operating at the top levels of global efficiency.

Nevertheless, when the French declared that they would need 4,000 people to build their 30 per cent of the 12 submarines, it was a huge number. We don’t know how many people would have been involved in the Japanese tender but the Germans made it clear in tender pre-publicity that they could build the 12 submarines in Australia with merely 1,200 people.

Why would you need 4,000 French workers — three times the number of Australian workers required for the German bid — when 12 submarines are to be built in Australia?

The other strange aspect of the submarine tender is that the submarines are not going to be delivered until 2033 or 2034. The Germans were offering to have submarines available around 2028.

But maybe there was something about doing the deal with the French that has not been disclosed. Perhaps a group of defence officials believe longer term that Australia needs nuclear submarines because of their greater range. Given its 15 years before the first submarine arrives, everyone would have forgotten what Malcolm Turnbull said this week. Indeed, he will have retired.

To build a nuclear submarine in Australia requires a change in the legislation, and a nuclear industry, which we don’t have, although the climate is changing and South Australia looks set to become a nuclear hub.

When the tender was first announced, I noted that there might be a nuclear agenda but at that stage I had no idea of the tendering mess (Australia’s defence options open up, April 27).

If it’s a nuclear submarine that Australia wanted, then it would have only been fair the other tenderers know about it and be given an opportunity to include a nuclear option.

This article has been updated after publication to clarify details around the submarine build estimates.