Defence Department considered walking away from $50 billion French submarine deal

Defence secretly considered walking away from the $50 billion French submarine deal during protracted and at times bitter contract negotiations, and started drawing up contingency plans for the new fleet.

Key points:

  • Advisory group told Defence to consider alternatives
  • Extending the life of the Collins-class submarines was one suggestion
  • Future governments have the option to walk away from the current deal if it is delayed

The revelations are contained in a new report by the auditor-general that also confirms the program is running nine months late and that Defence is unable to show whether the $396 million spent so far has been “fully effective”. According to the report, the Federal Government’s handpicked advisory group told Defence in 2018 to “consider alternatives to the current plan”, when negotiations over a key contract appeared to be breaking down.

The Commonwealth and Naval Group, chosen to build Australia’s future submarines, were at loggerheads over the Strategic Partnering Agreement, which would provide a framework for the complex and costly project. Behind the scenes, the Naval Shipbuilding Advisory Board told Defence to start drawing up alternatives should the negotiations fail.

According to the auditors, Defence began examining whether it could extend the life of the existing Collins-class submarines and “the time this would allow to develop a new acquisition strategy for the Future Submarine if necessary”.

Concerns were so great that the board asked Defence to consider “whether program risks outweighed the benefits of proceeding” and questioned whether it was still in the national interest to go ahead with the project. The Strategic Partnering Agreement was eventually signed, with much fanfare, in early 2019 and notably, it gives future governments the ability to walk away from the project if it’s delayed or fails to deliver what it promised.

Already, two key milestones have been missed and work on the design phase is nine months behind schedule. In the report, Defence expressed a “deepening concern over a number of matters”, which in its view “were a risk to the Future Submarine Program”.

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