French Naval Group holds out on submarine contracts

France’s Naval Group is resisting enforceable annual targets for Australian involvement in the $90bn Future Submarines program.

Defence Minister Linda Reynolds. Picture: Getty Images

France’s Naval Group is resisting enforceable annual targets for Australian involvement in the $90bn Future Submarines program, arguing that its pledge to give 60 per cent of contracts to local companies should be tallied when the 12th boat is delivered.

The company agreed to the 60 per cent benchmark in February last year but is yet to formalise the commitment in its contract with Defence.

It says any penalty for failing to meet the 60 per cent target should be taken from its profit on the final submarine, which won’t be completed until some time in the 2050s.

Defence Minister Linda Rey­nolds, who hoped the agreement would be finalised in December, lashed out at the company in parliament yesterday, saying she would “never ever agree to any terms or conditions that go against Australia’s interest in ­delivering this capability”.

“I am frustrated and I am very disappointed that Naval Group have yet to be able to finalise this contract with Defence,” she told the Senate.

“But it will not be done at the expense of Australian jobs or Australian industry.”

While the government says Australia will order 12 of the boats, it has only formally committed to eight.

Defence has argued that without annual Australian industry content targets, overseas suppliers would become entrenched in the program.

The pace of technology transfer from France to Australia has also been a key sticking point, with Defence arguing for a more rapid development of the nation’s sovereign submarine building capability.

The company’s chairman, Pierre Eric Pommellet, is due to meet with Senator Reynolds on Wednesday afternoon after she delivers a speech at the National Press Club.

Defence and Naval Group are unsure whether the issue will be resolved during Mr Pommellet’s visit, which required him to quarantine for two weeks on arrival.

Naval Group says there are different ways to arrive at 60 per cent Australian industry content.

“We remain in productive discussions with our commonwealth partners about the best way to achieve this common goal,” a spokesman said.

Senator Reynolds is battling worsening public perceptions over the project amid schedule delays and budget blowouts.

The $45bn Future Frigates program is also facing delays and design problems, while special forces reforms have stalled.

But the minister has struggled to focus on her portfolio for more than a week as she comes under fire over her handling of alle­gations by former staffer Brittany Higgins, who says she was raped in the minister’s office.

The Australian Industry and Defence Network, which represents suppliers vying for contracts on the program, urged Naval Group and Defence to finalise the 60 per cent commitment.

“Whatever the impasse, it needs to be resolved with urgency,” AIDN chief executive Brent Clarke said. “The minister previously advised that the contractual change would occur by December 2020.”