Defence advised to walk away from French subs

Key government adviser tells Defence to consider walking away from the $80bn Future Sub­marine Project.

A submarine at the Naval Group shipyard in Cherbourg, France. Picture: AFP

A key adviser to the federal governmen­t was so concerned about the $80bn Future Sub­marine Project it warned Defence it should consider walking away from the French-built boats.

A report by the Australian Nationa­l Audit Office released on Tuesday revealed the Naval Shipbuilding Advisory Board warned that Defence should consider whether proceeding with the project was in the national interest.

The ANAO said in the report the submarines’ design phase was running nine months late, and “Defence cannot demonstrate that its expenditure of $396m … has been fully effective” in achieving key milestones.

The report also revealed Defence­ had approved the fabric­ation of complex hull parts for the first future submarine to be undertaken in France, rather than ­Australia, to guard against delays to the build schedule.

The revelations follow the ­Defence Department’s admission to a Senate estimates hearing late last year that construction of the first boat had been pushed back by up to a year, and the cost to build and maintain all 12 submarines would reach $225bn over their 50-year lifespan.

Defence told the ANAO that if the subs project was delayed by more than three years, it would “create a gap in navy’s submarine capability” that could affect plans for the nation’s Collins-class ­submarines.

In a sign of the tensions between­ Defence and French shipbuilder Naval Group, the report said the government’s Naval Shipbuilding Advisory Board, chaired by former US Navy secret­ary Don Winter, warned in September 2018 that “Defence should assess whether program risks outweighed the benefits of proceeding”.

At that time, Defence was struggling to negotiate a strategic partnering agreement with Naval Group. “The Naval Shipbuilding Advisory­ Board expressed a separate­ view that, even if the strategic partnering agreement negotiations were successful, Defence consider if proceeding is in the national interest,” Defence told the ANAO. “This consideration was represented in the advice to government seeking approval to enter the (SPA).”

The agreement was finally signed in February last year and included a provision for Aust­ralia to break the contract if the subs were delayed or failed to deliver­ promised capability.

Defence has previously warned of “high to extreme risk” to its naval shipbuilding prog­ram, with differing engineering methodologies between France and Australia cited as a potentially major issue.

The Auditor-General said that establishing “an effective long-term partnership between Defence and Naval Group” was a key risk-mitigation measure.

Opposition defence spokesman Richard Marles said government “mishandling” of the nation’s biggest ever defence acquisition­ posed major risks.

“On all three measures of this program — on time of delivery, on the cost of the project, and on the amount of the Australian content — the numbers are all going the wrong way,” he said.

Centre Alliance senator Rex Patrick said the ANAO report was “one of the most concerning reports I have ever seen”.

“The alarm bells are ringing. If the minister is not hearing them, they need to be turned up,” Senator Patrick said. “Defence’s view that they can recover the schedule is naive at best.”

But Defence Minister Linda Reynolds said the schedule delay had been essential to get the submarine design right.

“Doing so will reduce costly changes and uncertainties while the Attack-class submarines are built, and will reduce the need for larger construction contingencies,” she said.

She said the first submarine was still due to be delivered to the navy in 2035, as planned.

The Naval Shipbuilding Advis­ory Board’s role is to provide­ expert, independent advice­ to the government on its $90bn shipbuilding program. Its membership includes three retired­ senior navy officers — Rear Admiral Thomas Eccle, Vice Admiral William Hilarides, and Vice-Admiral Paul Sullivan — and former Department of Education secretary Lisa Paul.

Australian Strategic Policy Institute defence analyst Marcus Hellyer said the advice of the high-level board was normally confidential. “It’s the first time I have seen that gloomy assessment,” he said. Mr Hellyer said the potential “capability gap” was likely to refer to the risk of having fewer than six operational submarines at any point.

He said it was now likely all six Collins-class boats would have to have their lives extended.