The design of Australia's $80 billion future submarine fleet has been hit with a nine-month delay with Defence forced to extend two major contract milestones.
The Australian National Audit Office has raised the alarm about the delay in an audit of the design of the attack-class submarines, the largest defence contract in Australia's history.
Australia's future submarine, the as-yet unbuilt Shortfin Barracuda.Credit: DCNS
The audit report also reveals that during negotiations over a key agreement with French company Naval Group in 2018, the federal government's hand-picked advisory group floated the idea of walking away from the contract with the French shipbuilder.
The Naval Shipbuilding Advisory Board told Defence that it should consider whether proceeding with the project was in the national interest "even if negotiations succeeded" with the Strategic Partnering Agreement.
In February last year, Naval Group asked for a 15-month extension in the design phase to minimise delays down the track during construction, pushing out the design completion date from July 2022 to September 2023.
Defence and Naval Group then settled on the nine-month extension.
Defence has so far spent $396 million on the design phase of the project, which makes up nearly half of the total cost of the project to date.
While Defence had established the arrangements necessary for the effective administration of the program to deliver the 12 new submarines, the audit raised concern about the nine-month delay.
The report says a three-year delay in the Future submarine program would create a capability gap for Australia’s critical submarine capability, with the Collins-class submarines needing upgrading before the French-built replacements are ready.
"Program success is dependent on the timely and cost-effective delivery of major design milestones," the audit said.
"The program is currently experiencing a nine-month delay in the design phase against Defence's pre-design contract estimates, and two major contracted milestones were extended."
"As a result, Defence cannot demonstrate that its expenditure of $396 million on design of the Future Submarine has been fully effective in achieving the program's two major design milestones to date."
Labor seized on the audit's release to claim the "delays and blowouts" were putting the critical project at risk.
"It is deeply concerning that this program is already experiencing a nine-month delay in the design phase and that Defence cannot demonstrate that its expenditure of nearly $400 million taxpayers money has been fully effective in achieving two major design milestones," Opposition defence spokesman Richard Marles said.
Marcus Hellyer, a senior analyst at the Australian Strategic Policy Institute, said Defence should publish a timetable of the ship build and be more transparent about the project.
“It’s not panic stations time… but it would be good to have more public information on what the master schedule is," he said.
Defence Minister Linda Reynolds said she welcomed the ANAO's findings that there was appropriate risk management strategies in place.
Defence Minister Linda Reynolds says the submarine design program is on track.Credit: Alex Ellinghausen
"Importantly, the ANAO also found that the beginning of construction activities in Australia, and the delivery of the Future Submarines, have not been delayed," she said.
"Defence has advised that the delays to the design milestones will be recovered by the next major milestone in January 2021."
The two mandated design milestones - the concept studies review and the systems requirements review - have both been pushed back.
To mitigate risks of cost blowouts, the audit noted that Defence has taken a number of measures including moving the fabrication of complex hull parts for the submarines to France.
Defence officials late last year revealed the "out-turn cost" - the actual cost of the build calculated at the end of the project - was now estimated to be at least $80 billion - compared to the previously quoted $50 billion.
The cost of maintaining the 12 French-designed submarines until 2080 is estimated to be an extra $145 billion when adjusted for inflation.