Chapter 2

Future Submarines Program: Up the Creek without a Canoe


The acquisition of the Attack-class submarines through the Future Submarine Program (FSP) has become increasingly problematic since the announcement was made in April 2016 that France’s Naval Group (then Direction des Constructions Navales Services (DCNS)) had won the bid to partner with Australia to build the future submarine force.
Even prior to that announcement, there had been a great deal of angst on how to proceed with the selection process for an international partner to produce the new boats. Behind closed-doors political discussions with the Japanese Government had produced an expectation by Australia and Japan alike that Japan would be the chosen partner for the project. However, that changed as the then Prime Minister, Mr Tony Abbott MP, came under pressure to consider a wider range of options. From this, the Competitive Evaluation Process (CEP) was born which eventually selected Naval Group as Australia's international partner for the project.
This chapter will review the timeline and the decision making process that brought us to this point. It will also then review the current status of the project and provide committee comment and recommendations.


On 26 April 2016, then Prime Minister Malcolm Turnbull announced DCNS would be the preferred international design partner for Australia's FSP. The successful design was Naval Group's Shortfin Barracuda Block 1A conventional submarine, which is based on the French Barracuda-class nuclear powered submarine design.1
On 30 September 2016, a contract worth in the order of $450–500 million was signed between the Australian Government and Naval Group for the 'design and mobilisation' of Australia's 12 Future Submarines.2 This includes the construction of Adelaide’s Osborne North submarine facility for this purpose.3 The Turnbull Government also announced Lockheed Martin, following a limited tender process, as the successful tenderer for the combat system integrator contract worth around $1.4 billion over the life of the project.4
The 2016 Defence White Paper (DWP) explained the decision to replace the Royal Australian Navy's (RAN) existing fleet of six Collins-class submarines with 12 future submarines, noting that approximately 'half of the world’s submarines will be operating in the Indo-Pacific region' by 2035.5 The decision to acquire 12 future submarines was developed as part of the white paper preparations under the Force Structure Review (FSR).6 An FSR process is typically conducted by the Department of Defence in the development of a new White Paper but is not a public document. However, the key elements of an FSR are integral to a new White Paper.7 These elements include an assessment of 'Defence's future capability needs' and the force structure needed 'to achieve Australia's defence objectives'.8
The Commonwealth government's Naval Shipbuilding Plan (the Plan) was released on 16 May 2017 (it was originally intended for release in 2016) and was expected to contain further details about the FSP.9 However, the Plan mostly confirmed details already released in the 2016 DWP; notably that the program will be a rolling acquisition rather than a continuous build program and the first submarine is likely to begin construction in 2022–23 and enter service in the early 2030s.10 The Commonwealth government promised to review the Plan and provide regular updates on its implementation, including through national security statements and naval shipbuilding updates to the Parliament.11
In December 2018, the Morrison Government announced that negotiations between the Commonwealth and Naval Group on the Strategic Partnership Agreement (SPA) had concluded, although the agreement had not been signed. This announcement coincided with the news that the Future Submarines would be called the Attack-class, with the first boat named HMAS Attack.12

The failed contenders

Given the difficulties currently being experienced with Naval Group, it is worth recounting why DCNS/Naval Group was selected ahead of the other contenders: Japan's Soryu-class boats; and the German company Thyssen-Krupp Marine Systems' (TKMS) Type 216 proposal.

Japan: the Soryu-class

The Japanese Soryu-class was the initial front-runner for the FSP, due to the apparently good relationship between Prime Ministers Shinzo Abe and Tony Abbott. It would not be unfair to refer to it as the 'Captain's Call' option.
On 9 February 2015, a party room challenge to Tony Abbott's leadership was reported to have resulted in the introduction of the Competitive Evaluation Process (CEP):
The announcement of the long-awaited 'competitive evaluation process' for Australia's $50 billion submarine project has done little to ease anxiety over the future of the country's naval construction industry.
The project was thrust to the centre of the national political debate after Prime Minister Tony Abbott was alleged to have promised South Australian Liberal Senator Sean Edwards the project would go to competitive tender in return for Edwards' vote in a leadership spill.
Abbott has since denied any change of policy occurred – other than he was stating the obvious, that government-owned ASC [Australian Submarine Corporation] would be able to bid for the project, probably as partner to the Japanese, the French and the Germans.
But what seems clear is that while initially Mr Abbott was wedded to a 'Made in Japan' approach, which would have had dire consequences for jobs in Australia, Japan's offer to enter a joint partnership with Adelaide-based ASC has given him a political lifeline.13
Following that, the Soryu-class option remained the favourite boat. An article from May 2015 noted:
Japan, with its brand new 4,000-ton Soryu-class stealth submarines all outfitted with a new lithium-ion battery propulsion system, appears to be the frontrunner, with the German company ThyssenKrupp AG (TKMS) the second choice, mostly due to its experience in submarine exports.14
Interestingly, the same article says: "France is not seen as a serious contender."15
After Mr Abbott’s removal as Prime Minister, the Japanese option became less of a favourite. Media reporting noted:
Once Abbott was ousted from power, Japan was merely one of three bidders and no longer received the political support it was accustomed to from the new Australian government under Malcolm Turnbull and had to revamp its strategy to win the bid. Japanese defence industry representatives were simply out-maneuvered by their French and German counterparts.16
The same article went on in some detail on why the Japanese bid failed. The article noted the following:
Picking DCNS over the Japanese proposal was politically more opportune for the then PM Malcolm Turnbull. With an election planned for 2 July 2016, the announcement that the 12 submarines in their entirety (save some specialised parts) will be built in Adelaide was seen as politically advantageous.
Japan, however, initially was reluctant to build the submarines in Australia, given Tokyo’s general reluctance to transfer sensitive military technology abroad. Although Japan softened its stance in the months prior to the announcement it was, apparently, unconvincing.
Japan's defense industry was not enthusiastic about selling Soryu-class submarines overseas. The two companies producing the boat had only the capacity to meet the domestic Japanese demand for submarines.
Due to the Japanese defence industries' inexperience in dealing with international clients, there was also a growing concern in Australia that this could lead to a work culture clash, which would make collaboration on the project unnecessarily difficult.
There were also apparently concerns by Australian Defence officials that any deal signed with Japan could be negated by the powerful Japanese bureaucracy, which allegedly was not enthusiastic for the deal and could undo it in the long run.
The United States had tacitly been supporting the Japanese bid, but then reneged on its opposition to the European contenders. There had, apparently, been opposition by the United States in terms of allowing its most advanced weapons systems to be installed on European-made submarines, but that opposition was dropped.
There was also an argument that the Naval Group boat would better meet Australia’s needs than the Japanese submarines, although it remains to be seen how difficult a swap from nuclear power to a conventional system will be.
Concerns were raised over the shorter patrol range of the Soryu-class sub in comparison to the current Collins-class and the Soryu’s lower transit speed, as well as the integration of a US combat system and weapons into the Japanese hull.
The Australian submariner community was, apparently, sceptical of the Soryu-class submarines throughout the bidding process as, on average, Japanese submarines are constructed to last for around 19 years, whereas the Australian government expects at least a 30-year active service life span. Furthermore, the Japanese boats also have much less accommodation space than Collins-class boats.17

Germany: TKMS and the Type-216

TKMS is a long-standing submarine manufacturer and has constructed 161 boats for 20 navies around the world including more than 50 built in customer countries that have also benefited from a philosophy of technology transfer.18
According to media reporting, the TKMS proposal was rejected mainly because of noise issues with the boat's design. Reporting in The Australian from 2016 indicates that their proposed submarine was 'too noisy' and at a particular frequency. However, this was met with some scepticism from the TKMS designers. Indeed:
The Germans were told that the 'critical issue' was that their submarine was too noisy.
Specifically they were told, with deliberate vagueness, that the boat would be too noisy at a particular frequency that was very important to the Royal Australian Navy [RAN]—an apparent reference to the submarine’s ability to collect close-to-shore intelligence without detection.
The Germans countered by asking what the frequency was and why it was not emphasised in the bidding process.
The Australians responded that this information was classified, but that they were not convinced TKMS understood the significance of this issue for Australia. They said the problems with stealth meant that the German proposal could never have delivered a regionally superior submarine for Australia.
The Germans persisted, asking 'where the excess noise was coming from —internal machinery, the propellers, the hull?'
Again the Australian officials declined to comment.
One German observer said: "The might of Germany’s military-industrial complex could easily solve a technical issue like this if only the Australians had been more forthcoming about the issue itself before we submitted the bid."19
While the Australian officials did, apparently, agree that TKMS had put forth an excellent plan for the local defence industry to sustain the boats, they also pointed to other issues:
The Australians told them [TKMS] the pre-concept design submitted to Defence at the end of November last year was 'not balanced' and design optimisation 'was not achieved'.
They said they had reservations about the safety of the proposed lithium ion batteries that were to be installed on both the German and the Japanese submarines…
The Australians also expressed scepticism about the ability of TKMS to upscale the size of both its Siemens motors and its submarine hulls to build a 4,000-plus tonne submarine—almost double the size of previous submarines built by the company.
[TKMS's] cost projections were overly optimistic, including their claim that there would be only a negligible premium for building all of the submarines in Australia.
Germany's bid claimed that the price of building eight submarines (not including the combat system) would be just less than $12 billion, while 12 submarines including the combat system would cost $20 billion.
Defence sources say the Australian delegation told the Germans in the Kiel debriefing that this cost estimate did not reflect the technical challenges and was 'well below expectations'.
TKMS had argued that building all 12 submarines in Australia would cost no more than building them all in Germany. This contrasted with internal [Australian] government estimates of about a 15 per cent premium on costs for an Australian build.20

Vive la France: Why the French boat won

Kym Bergmann, writing in June 2016 for the Australian Strategic Policy Institute (ASPI), produced a succinct summary on why the DCNS/Naval Group proposal was successful. In doing so, Mr Bergmann noted that:
…the CEP was more about selecting a long-term design partner able to help Australia develop sovereign capability than it was about a particular product. The combination of the expertise in DCNS itself, coupled with the French Navy, the highly influential and well-resourced Direction générale de l’armement (DGA), and the military research community is a formidable pool of talent.21
Mr Bergmann commented that the French enjoy a technology advantage over the German and Japanese designers is their familiarity with issues around propelling large submarines, having built boats with up to 14,000 tonnes displacement.
Further, while their German and Japanese counterparts continue to rely on conventional propellers France—together with the US and Britain—are moving or have moved to pumpjet or propulsor technology. Mr Bergmann explained:
…at higher speeds propellers are prone to cavitation—basically water boiling at the edges of the blades due to the enormous pressure being generated—which in turn makes a distinctive noise that enemy sonars are able to detect. While conventional submarines spend most of their time on station at slow speeds—where the acoustic performance of propellers and propulsors is similar—when they do need high speed it's typically at a moment of crisis. To be able to accelerate to maximum speed silently, while simultaneously turning and changing depth, is a great advantage for a big submarine if it is trying to escape in a hostile environment.
Because of the limitations of propeller technology for large submarines, we can likely conclude that the approach of DCNS in utilising their access to the most sensitive nuclear submarine technologies gave them a distinct advantage.22
More nebulously, there has been a suggestion that the French option also opened the door to the RAN to eventually acquire nuclear-powered submarines:
…while Germany and Japan are excellent builders of conventional submarines, France is a first-class builder of conventional and nuclear boats.
Several commentators, including Peter Jennings, have raised the possibility of Australia eventually moving to nuclear powered submarines and a consensus is slowly emerging that at the very least this possibility needs to be open to discussion. If that does come to pass, having DCNS as part of the team will make an eventual transition relatively easy.23
The move towards lithium-ion batteries was also an area of concern. Although lead-acid batteries are 'old-technology', they are still seen by many as the safer option when it comes to submarines:24
While Germany and Japan are planning to move to lithium ion batteries in their conventional submarines, France is leery of doing so. This suspicion of lithium ion storage is shared by the USN [United States Navy] and could have had an influence on the decision.25
Moreover, the initial decision to use lead-acid batteries doesn't necessarily mean that this will remain the case during the entire project. Mr Greg Sammut, General Manager, Submarines, at Senate Estimates explained:
We are using proven technology in these submarines to meet the capability requirements of Navy. I think that is what we must understand in the first instance. We are not making compromises to meeting capability requirements by simply choosing technologies. We are also being very mindful of the risks that attend the use of new technologies in something as complex as a submarine. So if we were to take the battery as an example, yes, the first future submarine will be delivered with a lead acid battery. We need to make that decision now because, if we don't make that now, the boat's design will not be completed and, if the boat's design isn't completed in sufficient time, we won't be able to commence building and to deliver the boat by the early 2030s.
What's important to understand is that, in choosing the battery technology that we've chosen, we are still meeting Navy's capability requirements when it comes to parameters such as dive endurance, range and so forth. We will continue, as we are currently doing now, to look at new battery technologies. Indeed, we have an established and funded science and technology program that is looking into a number of battery chemistries, including lithium-ion, but there are other promising technologies out there, such as nickel-zinc. When these are sufficiently mature and we agree they can be safely incorporated into the submarine to meet the seaworthiness requirements of Navy, which go to the safety of our crews at sea as well as meeting capability requirements or expanding the capability of the boat because of the advantages that new technology might bring, we will have the option to incorporate that, because, as I said earlier, we are building a submarine with margins to be able to incorporate new technology into the future.26
Australia has, according to Mr Bergmann, had a positive experience with French companies through the Collins-class submarines:
Major French companies such as Thales and Sagem are already on the Collins, supplying a number of critical hi-tech items such as the entire sonar suite and the ring laser inertial navigation systems. Those companies have met or exceeded all of their targets for industry development, technology transfer and, in the case of Thales, re-export of sonar technology to France and Britain.27
Finally, France was also very pro-active in promoting its bid with high-level engagement from both the French Government and industry. Reporting from March 2016 explained that:
France has sent it largest business delegation in nearly two decades to Australia, spruiking the economic benefits of its bid for the [US]$38 billion contract to build a fleet of 12 stealth submarines for Australia.
Executives from French corporate giants Airbus, BNP Paribas, Thales and dozens more arrive in Canberra on Tuesday for meetings with top Australian government and business figures.
The French visit, which includes top officials from state-controlled naval contractor DCNS, is part of a process of growing strategic and economic ties with Australia, said French ambassador Christophe Lecourtier, and not limited to submarines.
"We're not just offering a submarine design, but also a broader alliance between our business communities, between our governments, to face some of the most tricky challenges of this century."28

Issues with the French boat

The Pumpjet

The French boat would appear to have been chosen primarily on its pumpjet propulsion system which is reputedly quieter than the conventional propellers that drive their Japanese and German counterparts.
The pumpjet, however, has a larger power requirement at low speed than conventional propellers and the Attack-class will be one of the few diesel-electric powered boats that use this propulsion system. The use of pumpjets on diesel-electric boats has been limited: the Russian Navy has one Kilo-class submarine in their Baltic fleet that is fitted with a pumpjet;29 and the French also fitted a pumpjet to an Agosta-class submarine30, though it is understood to have been part of a test program that was later removed. This has raised questions on their efficiency and suitability for the Attack-class design.
Trendlock Consulting published a detailed analytical paper specifically about the pumpjet for the Attack-class:
Much has been made of the significance of the pumpjet in the DCNS (now Naval Group) bid for the submarine, to the extent that it has been claimed that the pumpjet rendered propellers obsolete, and features extremely prominently in the all the marketing and literature. It seems to be accepted knowledge that the proposal from Naval Group (formerly DCNS) was selected because of its acoustic superiority with the pumpjet apparently comprising the jewel in the crown.31
Trendlock's analysis concluded:
…it is extremely unlikely that at some very low speeds, where conventional propellers experience no cavitation and enjoy steady, smooth flows over the blades, that a pumpjet could actually have a lower acoustic signature, even in terms of radiated noise. Flow separation demands that two or three times as much energy is wasted by a pumpjet creating and destroying these unsteady vortexes than a propeller would require to create equal thrust. Consequently, the claim that pumpjets are generally acoustically superior should be treated with some caution. This claim has strong grounds wherever a conventional propeller might experience cavitation, such as at higher speeds. But at some very low speeds it is unlikely to be true.
Overall, it seems unlikely that the full range of consequences of pumpjet choice have been fully comprehended by the Australian government. The scale of the probable impact on range and endurance is quite probably so substantial that it is difficult to see how such a performance penalty is consistent with the government’s stated aim of acquiring a regionally superior submarine.32
Other analysts also raised questions on the effectiveness and suitability for a pumpjet on a diesel-electric submarine.33
Defence responded to these concerns on 7 September 2018 through a six page response to a Question on Notice. They stated:
Pumpjets were not common on small diesel–electric submarines as they were heavier than conventional propellers and therefore not compatible with the weight balance of these smaller vessels. However, as the size of the submarine increases, a pumpjet can be accommodated, bringing its attendant advantages over conventional propellers….
The predicted performance of a submarine pumpjet needs to be assessed with regard for the hydrodynamic performance of the submerged submarine, having considered how the design of the pumpjet has been matched to the hull design to optimise the overall performance of the submarine for its intended roles…
Notably many of these characteristics are classified and must remain so to protect all of the benefits that Australia will leverage to promote the regional superiority of the Future Submarine…
Australia’s geostrategic circumstances continue to require a larger conventional submarine than those currently produced for export to other parts of the world. The design of the Future Submarine is progressing to plan, and its size remains appropriate to the inclusion of a pumpjet that can be designed to optimise the performance of the submarine for its intended roles…
Its size remains appropriate to the inclusion of a pumpjet that can be designed to optimise the performance of the submarine for its intended roles.34
Moreover, as noted in the 2018 committee report, Naval Group and Defence officials further dismissed concerns about the pumpjet. Naval Group's Chairman Hervé Guillou stated that pumpjet propulsion means the submarine can 'move more quietly than those with obsolete propeller technology'.35 Similarly, the Head of the FSP, Rear Admiral Greg Sammut commented that pumpjet propulsion 'can be efficient across the entire speed range, taking account of submarine's size, the speed required and stealth'.36

FSP as a 'high-risk' project

The Australian National Audit Office (ANAO) noted that the design and construction of the Future Submarine fleet represents the largest Defence procurement in Australia's history. Defence has described it as a 'megaproject' by all international standards and the most challenging acquisition program it has undertaken, the success of which will be driven by preparations during the design phase. 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, according to ANAO, increased the risk of this acquisition.37
The ANAO report also noted that Defence, too, has concluded that the overall assessment of risk for the FSP is 'high'.38
The Attack-class will effectively be a new design, and not simply a re-engined boat:
Gerard Autret, chief naval architect of the Shortfin Barracuda, emphasised that the Future Submarine would not be a conversion of the
nuclear-powered Barracuda, but a new design using the Barracuda as its design reference….
'One submarine is not converted to another. Rather, a design reference is selected and an iteration of a new design is developed to meet the requirement with interpolation of known data and the re-use of proven technologies,' Autret said.39
At Senate Estimates on 24 March 2021, Vice-Admiral William Hilarides, Naval Shipbuilding Expert Advisory Panel Member, acknowledged that:
All new shipbuilding programs, particularly the lead ship when you are doing design and then construction—everyone that I have ever been associated with in the US, in UK, in Australia—have had very high risks to be managed, yes.40

Australian industry and content

The commercial relationship between Defence and Naval Group commenced with the FSP Design and Mobilisation Contract which was signed on 30 September 2016. The overarching arrangements with Naval Group in relation to the FSP were subsequently set out in the Future Submarine Strategic Partnering Agreement (SPA) signed by Defence and Naval Group on 11 February 2019.41
Defence identified 12 specific goals that the rights, remedies and incentives in the SPA aim to achieve.42
Goal 10 of that agreement states:
The contractual framework promotes the establishment of a sustainable industry base in Australia with maximum opportunities for involvement in the delivery and sustainment of the Attack-class fleet without unduly compromising cost, capability or schedule.43
ANAO analysis of the Strategic Partnering Agreement provisions states that:
Naval Group is required to:
deliver an Australian Industry Program and to prepare an Australian Industry Capability strategy and Australian industry capability plans for each stage of the Future Submarine Program detailing plans, procedures, responsibilities and timeframes for the development of Australian industry; and
utilise Australian industry, and develop an Australian industry base; and establish and maintain a sustainable supply chain.44
On Thursday 13 February 2020, The Australian reported the following story based on comments by the Chief Executive Officer of Naval Group Australia, Mr John Davis:
Mr Davis was unable to say whether the boats' Australian industry content would reach 50 per cent. He said the company, which is set to begin construction in 2022, was encountering "specific challenges" regarding Australian industry that were "new to Naval Group".
"We didn’t know the Australian market before we joined the program," he said. "Now we have a much deeper insight, and we recognise there is a lot more work to be done than we anticipated."
Rather than maximising Australian content in the finished submarines, the first of which is scheduled for delivery in 2032, Mr Davis said the contractor was obliged to develop the capabilities of the local industry.
"I don’t have the ability to prophesise on (content)," Mr Davis said. "What I will say is we have a commitment to Australian industry capability, and we will deliver on that."45
Also on Friday 14 February 2020, the ABC published an article detailing responses to Mr Davis' comments.46 Defence Minister Reynolds is quoted as being 'disappointed', and the article notes the original commitment in 2016 by Naval Group Australia (then DCNS) to 90 per cent of construction in Australia,47compared with a figure of 'well above 60' given by former Defence Minister, Mr Christopher Pyne, in 2018:
Senate Estimates has also heard the submarine replacement project does not include a set percentage for the amount of Australian content that would be included.48
Mr Pyne last year declared the percentage of 'Australian content' in the submarine deal would be well above 60 per cent.
But Defence's submarines general manager, Stephen Johnson, told the Senate it was too early to set a percentage.
"It's a sequential event so it's a flawed strategy to set a per cent before you have enough information," he said.
Mr Johnson said a percentage had never been put on the table in discussions with the Naval Group.49
In response to Mr Davis' original remarks, a Joint Statement by the Department of Defence and Naval Group on the amount of Australian industry content in the Attack-class submarine program was published on 13 February 2020.50
On Thursday 20 February 2020, the Adelaide Advertiser reported the Chief of Navy, Vice-Admiral Michael Noonan, stating that while the Navy was committed to 'striving' to have the greatest possible amount of local content, a percentage target was not helpful.
In August 2020, six months after the commitment by Naval Group was given, there had still been no formal agreement for that figure.
On 24 February 2021, the ABC reported that Defence Minister Linda Reynolds has expressed 'frustration' and 'disappointment' with Naval Group over its handling of the FSP. A year after Naval Group pledged to spend 60 per cent of the contract value on local suppliers, the Naval Group had yet to enshrine that figure in a formal agreement with the Australian Government.51
On 17 March 2021, the Australian Financial Review (AFR) reported that deal between Defence and Naval Group had been completed, but that the details were to be kept secret.52
An agreement obliging French submarine builder Naval Group to spend 60 per cent of its funding with local suppliers will be kept secret, angering the defence industry that would like to track progress against the company’s promises.53
At Senate Estimates on 24 March 2021, Defence officials testified that there had been no specific commitment in the original SPA and that the re-negotiated SPA now has a commitment is to get to a minimum of 60 per cent by the end of the 12 boats.54 The first boat may have less than 60 per cent, with a steady increase in the remaining boats so that, at the end of the project in the 2040s or 2050s, there will be a total of 60 per cent local industry content.55
Moreover, it was also revealed that the Minister hadn't seen the SPA revisions:
Senator WONG: Mr Pommellet, was there an intention that there be a joint announcement between the minister and him?
Mr Sammut: No.
Mr Moriarty: Not to my knowledge.
Senator WONG: Senator Payne, have you seen the updated contract?
Senator Payne: I haven't seen the contract itself.
Senator WONG: Have you seen the new clauses?
Senator Payne: No.
Senator WONG: Has the minister seen the new clauses?
Senator Payne: I've taken advice from the department on the clauses and I was in consultations with the secretary over the weekend on it.
Senator WONG: Has the minister—not the acting minister but the minister—seen the new clauses?
Mr Sammut: Not to my knowledge, no. We haven't sent the clauses to the minister for approval.56

So it goes…

In late November 2020, Mr Jean-Michel Billig, executive director of the FSP, left the position after three years. The AFR reported that his departure came after several years of tension with the Defence Department—Mr Billig had reportedly 'clashed' with Australian officials. The AFR also reported that at one point during the negotiating of the Strategic Partnering Agreement the Australian Government had wanted Mr Billig removed.57
The AFR had earlier reported that Prime Minister Scott Morrison was also exasperated over the FSP’s status, with tensions rising between the Department of Defence and the Naval Group. The catalyst for the government’s frustration was the next phase of the contract, which involves carrying out detailed design of the future submarine. While the Department of Defence had anticipated this stage would cost about $2.5 billion to $3 billion, it is understood Naval Group's costing is about 50 per cent higher, 'shocking' the government.58
In response, the AFR reported that:
While the government has been frustrated over delays completing Naval Group’s promise to spend 60 per of its contract value with local suppliers, the two parties had also been unable to reach agreement over the detailed design phase of the contract which is worth between $2 billion and $3 billion.
One source said an in-principle agreement has been reached, with a view to signing the contract by April 1, after Naval Group instructed its departments to pare back spending.
One area cut is training. About 150 welders from Australia had been expected to go to France to learn the specialist welding techniques required for the hull to withstand the stresses of underwater pressure, but this has been cut right back.
Some of this hands-on training will now be taught using a simulator, with just supervisors travelling to France. This could add to construction costs and delays because welders would need to redo work not up to scratch.59
The AFR also reported that the Department of Defence considered entering talks with Swedish defence company Saab, which owns the Collins-class submarines designer, Kockums, about doing an evolved design known as ‘Son of Collins’ as a contingency plan.60
On 27 April 2021, the AFR further reported that:
The Defence Department is refusing to sign new contracts with French shipbuilder Naval Group over the troubled future submarine project, as Prime Minister Scott Morrison and Defence Minister Peter Dutton stamp their authority by demanding all major strategic decisions be routed through their offices.
Sources have told The Australian Financial Review the Morrison government is refusing to pay Naval Group’s profit margin on the project and is covering just the company’s costs, forcing the shipbuilder to shed contractors and threatening to see work grind to a halt…
While the government and Naval Group finally secured an agreement last month for the company to spend at least 60 per cent of the total contract value on local suppliers, the two sides remained deadlocked over the next stage of the project, the detailed design.61

Committee comment

Overall comment

It seems abundantly clear that all is not well with the FSP. There has been little good news since the April 2016 announcement that DCNS (now Naval Group) had been selected as the international partner to design and build the nation’s new fleet of submarines. Since then, here has been nothing but delays, cost blow-outs, changes of personnel driven by dissatisfaction with the program’s outcomes, secret agreements on local industry content way below the level initially promised, and a strained relationship between Defence and Naval Group.

The decision to go with Naval Group

In reviewing the reasons why the French proposal was chosen, and the others not, there seems to be some credible reasons why the Japanese boat was not chosen. Its anticipated 19 year lifespan compared to the 30 required by the RAN and the lack of experience Japan has in exporting its military technology worked against the Japanese proposal.62 Indeed, the Senate Economics Reference Committee recommended in 2014 against any Military-Off-The-Shelf (MOTS) option for the FSP, including the Japanese Soryu-class boats.63
The rejection of the German option appears less obvious. A long-standing and experienced builder and exporter of quality submarines,64 TKMS offered an apparently good package including a fixed-price of no more than $20 billion.65 Moreover, two highly regarded and capable defence forces—that of Israel66 and Singapore67—are TKMS customers.
As discussed above, media reports indicated that the TKMS proposal was rejected mainly because of the perceived risk of a new scaled-up design, and because of perceived noise issues. Given that the now accepted French proposal is a re-work of an existing nuclear design—essentially a new class of boat with all the inherent risks—and that Australian Defence did not, apparently, inform TKMS of the sensitive noise frequency and its importance during the CEP, TKMS may well feel justified in their disappointment.
Das Boot, however, has sailed. Naval Group won the bid and there is, apparently, no appetite within the government to revisit the previously offered proposals.68
It has not gone unnoticed in other quarters as to how much the FSP has stumbled. One German analyst wrote as early as September 2019 that:
Those who have contacts within the Japanese and German CEP competitors in industry and the public sector are not unaware that the shock of defeat experienced in April 2016 has long since gone and slowly been replaced with a quiet relief that they failed to win the Attack-class tender.69
For the government to have considered or be considering asking Saab/Kockums to provide a design an improved 'Son of Collins' boat has the smell of desperation about it. This is quite extraordinary, given that the Swedish boat-builder was not invited to be part of the CEP in 2016.70 One must ask: having been excluded initially, is Saab/Kockums suddenly expected to be the project's saviour? That such an outcome was even being considered is a poor indictment of the decision to go with the Naval Group's proposal.

Recommendation 1

The Commonwealth Government and the Department of Defence report to the Parliament on what discussions were or are being undertaken with Saab/Kockums, or any other alternative submarine builder, about the provision of a Collins-class derivative boat, or any other design, as part of a 'Plan B' should the Naval Group agreement be cancelled.

Local industry content

With much fanfare it was announced in April 2016 that Australian industry content for the FSP was to be at 90 per cent. Indeed, this was one of the great selling points for the decision to go with the French boat.
But, as has been shown, by early 2020 Naval Group and the Defence Department were speaking of 50–60 per cent local industry involvement. The SPA didn't include a specific target and the 60 per cent was only included in 2021 after the SPA had had new clauses inserted into it. 60 per cent is not 90 per cent and local industry also have a right to feel justified in their disappointment.
Moreover, that agreement is now being kept secret on the grounds of commercial-in-confidence. This is unsatisfactory. Given the amount of taxpayer money being spent—tens of billions of dollars—an agreement of this nature should be available for parliamentary scrutiny and the committee requests this document be made available to it.

Recommendation 2

That the Department of Defence provide the Senate Economics References Committee, on a confidential basis, an un-redacted version of the renegotiated Strategic Partnership Agreement with Naval Group for scrutiny.

Final comment

Defence continue to insist that despite a few teething troubles and relatively short-term slippages, the project remains on track and on budget at $50 billion in 2016 constant dollars—not out-turned.71 If this is true, the project is looking something like Bismarck’s observation on laws and sausages—a good result in the end but it's perhaps best that one not look too closely at how they’re being produced.
But it is the committee’s job to examine those 12 sausages and to look closely at how they are being produced. What we are seeing is unappetising and the committee is yet to be persuaded that the results will be good.
The committee notes the importance of the pumpjet propulsion system's performance in the final decision to go with Naval Group but also notes that the stated price for the Naval Group proposal is $50 billion in constant 2016 dollars. Given that TKMS's credible proposal was $20 billion, is Australia paying a $30 billion premium for that pumpjet propulsion system?
Moreover, the fact that after 5 years and $1.7 billion of expenditure, a 'Plan B' with a possible boat from a Swedish supplier is seriously under consideration is an alarm bell that shows the project has run into serious problems. However, the committee finds it difficult to believe that the Naval Group commitment will be cancelled as the political cost for the government will be too high.72 For better or worse, Australia is now committed to the Attack-class boats.
Given that, and the problems currently being exhibited by the project, it is now more important than ever for the Parliament to scrutinise this expensive and risky endeavour. To understand how the project is proceeding, the committee needs to be accurately informed by Defence on the project's status. However, the committee is not convinced that it's getting sufficient information through which to make informed judgements. Transparency and accountability on this project is at a premium and repeated requests for information from Defence are going unheeded. The following chapter will discuss the Defence Department’s transparency and accountability.

 |  Contents  |