Local firms sink $120m on subs

Small and medium enterprises face a huge financial hit from the cancellation of the Attack-class submarines.

One firm said it had outlaid $3.4m on new systems, equipment and personnel to become a Naval Group supplier. Picture: AFP

Small and medium enterprises face an estimated $120m hit from the cancellation of the Attack-class submarines, after investing in new systems, equipment, security and personnel to win contracts with France’s Naval Group.

The defence industry estimates the 600 contractors that had qualified as Naval Group suppliers, including 400 with signed contracts, spent an average of $200,000 each in the hope of securing 30-plus years of work on the $90bn program. The Australian Industry & Defence Network surveyed its 1500 members to determine the impact of the government’s submarine decision on domestic firms, finding many had invested heavily on the expectation of rich returns.

One firm said it had outlaid $3.4m on new systems, equipment and personnel to become a Naval Group supplier. It said it would now have to sack about 50 per cent of its workforce, because “all the employees brought on to this program are no longer required”.

Another said: “We have invested considerable time and money into the Attack-class program, in the order of $1m. We will now need to substitute other business to cover future expected business losses (due to) the cancellation.”

A third said: “To date the company has invested $400,000 to qualify to obtain contracts on the Attack-class program. This is now sunk investment with no opportunity to recover costs.”

All of the companies declined to be named, fearing they would miss out on future defence business if they spoke out publicly.

AIDN chief executive Brent Clark said companies that had been strongly encouraged by the government to pursue opportunities on the Attack-class subs program were now counting the costs.

“For member companies entering and concluding the pre-qualification phase and then implementing the upgrading and upskilling as advised by Naval Group, this figure appears to be in the general order of $200,000,” Mr Clark said.

Naval Group sources said $200,000 was a reasonable and “possibly conservative” estimate of the average investment by firms that had achieved qualified supplier status. A termination process is under way for firms that had progressed to contract stage, but qualification costs are unlikely to be recoverable.

Mr Clark said firms that qualified as suppliers should be prioritised for other Defence programs.

The government’s decision to buy nuclear-powered US or British boats that won’t enter construction until the end of the decade at the earliest has left the government’s defence industry agenda in disarray.

It has vowed to build the nuclear boats in Adelaide, but many defence experts say rising strategic threats mean some or all of them should be built overseas.

Defence Industry Minister Melissa Price said firms that had contracts with Naval Group and combat system supplier Lockheed Martin would not be abandoned.

“I want to assure those businesses that I have their backs,” she told The Australian.

“As has been flagged previously, Australian SMEs with contracts with Naval Group or Lockheed Martin will go through a contract termination process.

“There are also SMEs that did not have contracts … but were preparing their business to compete with other SMEs for opportunities in it. We must ensure that they are fully supported as they seek out those opportunities.”

Ms Price said an “SME support cell” had been created within Defence to help affected firms bid for other contracts. She said there was “no doubt immense” benefits would flow to Australia’s defence industry from the decision to acquire nuclear submarines.