Last month, the Australian National Audit Office (ANAO) released a scathing report into Australia’s $80 billion future submarines project – “the largest Defence procurement in Australia’s history” – which warned that the decision not to go with an off-the-shelf design has materially raised procurement risks:
The decision not to acquire a military‐off‐the-shelf submarine platform, and instead engage a ‘strategic partner’ to design and deliver the submarines with significant Australian industry input, has increased the risk of this acquisition.
It noted that the project is running nine months behind schedule and is experiencing cost pressures:
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. Defence expenditure on design represents some 47 per cent of all program expenditure to 30 September 2019.
ANAO also revealed that the Naval Shipbuilding Advisory Board, which was established in December 2016 to provide expert third party advice to government, advised the Defence Department to reconsider whether proceeding with the project was in the national interest:
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. This consideration was represented in the advice to Government seeking approval to enter the Strategic Partnering Agreement.
Today, the French company building the project has warned that Australian firms may not even receive half the value of the submarine’s contracts, with the Defence Department also considering terminating the deal:
The French company building Australia’s $80bn Future Submarines says local firms may not get half of the value of the subs’ contracts and warns that the capability of defence suppliers is falling short of expectations…
Amid growing angst over the project’s cost, [Naval Group Australia chief executive John Davis] said the 12 attack-class boats would be the world’s most expensive conventionally powered submarines…
“If Defence is doing its job and the program is in an intolerable state, it may choose to select an exit ramp,” he said.
Given the parties have now signed the strategic partnering agreement, it would be an extraordinary move if the government terminated the deal…
Centre Alliance senator Rex Patrick warned Naval Group not to abandon its commitments to local industry.
“It is unconscionable for Naval Group to now walk away from the position that won them the bid,” Senator Patrick said…
In response, The Australian’s Greg Sheridan has labelled the project a “national disgrace”:
Any exit ramp would be incredibly expensive in dollars — literally money for nothing — but even more expensive in time.
Australia is like the traveller in the Irish joke…
No one has been more critical of the subs acquisition process than me — it’s been a national disgrace for much more than a decade…
Much of the cost has nothing to do with French avarice but flows from our decision that the subs be built, or at least assembled, in South Australia. But we have had a series of elections which have established that as a national decision which is now settled.
All of which reminds me of the prescient testimony from defense expert Brian Toohey three years ago:
…everything is wrong about the Turnbull government’s decision to build 12 extremely large submarines in Adelaide.
…The government’s refusal to go with an off-the-shelf design will cost more billions, because the first of new submarines won’t be operational until after 2030 and the last until almost 2060.
This means the decrepit Collins class submarines will have to be kept going for more than 20 years beyond their planned 2025 retirement date – necessitating new capital spending and very high maintenance and operating costs that will soon pass $1 billion a year.
Last year, Senator Rex Patrick – a former submariner – seized on official figures obtained through the Senate committee process to claim that the cost of building and sustaining the 12 submarines may ultimately reach $200 billion over their life:
“Right now that project is approaching recklessness and that needs to be addressed by government,” Senator Patrick said.
Whatever the case, it is clear that the decision to build the submarines in Adelaide is shaping up as a giant budgetary milestone that only came about to pork barrel the seat of former Defence Minister Christopher Pyne by ‘creating’ 3,000 jobs.
And to think, the same Coalition Government chose to jettison 40,000 to 200,000 jobs in the car industry into the sea by refusing to pay a paltry $500 million in assistance.
The submarines debacle ranks as one of the worst examples of government waste and mismanagement on record.