Submarine deal faces scrutiny

The ANAO is considering a wide-ranging inquiry into the government’s acquisition of 12 new submarines.

The Shortfin Barracuda submarine.

The Australian National Audit Office is considering a wide-­ranging inquiry into the government’s acquisition of 12 new submarines in a move that could raise questions about the ability of Defence to deliver the subs on time and under budget.

The ANAO has flagged a possible review into the $50 billion contract as one of several defence audits it is considering this year.

The decision to buy 12 new subs from French contractor Naval Group was made in April 2016 but 2½ years later there has been little visible progress.

Up until late last year, the Defence Department and Naval Group were locked in negoti­ations about the “strategic partnering agreement’’, the document that resolves issues such as warranty arrangements and the division of intellectual property.

The government denied negotiations with the French had stalled and The Australian understands the agreement is due to be formally signed within a few weeks. It is not clear what, if any, concessions were offered to the French to coax them over the line.

The ANAO said any audit would examine Defence’s progress in meeting “the scheduled design milestones for the Future Submarine program’’.

“The deliverables under the program include the design and construction of 12 diesel-electric submarines and the development and acquisition of the submarines’ support systems for the Royal Australian Navy at a cost of over $50bn,’’ the agency said.

A spokesman for the ANAO said a final decision on whether to proceed with the audit had yet to be made.

Australian Strategic Policy Institute senior analyst Marcus Hellyer said his organisation had been arguing for some time that the audit office needed to look at the Future Submarine program.

He said, given the scale of the project, it should become ANAO’s top priority: “One thing we really need to establish is what is the baseline schedule? When there are no schedules, there are no delays occurring.’’

Mr Hellyer said the Defence Department had provided no clear timetable for delivering the project, including when the subs were due to hit so-called “IOC’’ or initial operating capability.

The IOC is the point at which a new capability can be used in the battlefield and is considered the most significant milestone in the life cycle of a new capability.

Mr Hellyer also encouraged the ANAO to investigate the particulars of the strategic partnering agreement to ensure the terms struck were favourable to the commonwealth.

The decision to go with Naval Group, or DCNS as it was known in 2016, surprised many analysts.

The company was offering a variant of its Shortfin Barracuda submarine that was to be built bespoke to Australia’s unique strategic needs, which require the RAN to cover vast distances.