Introduction
4.1
The committee has, since May 2021, published two Interim Reports which dealt with the acquisition of submarines to replace the Collins-class.
4.2
This chapter will provide a summary of those Interim Reports as well as a brief update.
First Interim Report – May 2021
4.3
The First Interim Report came to the following conclusions on the status of SEA 1000:
all was not well with the Future Submarine Program (FSP). There had 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 the April 2016 announcement, there had 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 a diesel-electric boat converted from an existing nuclear design with a pumpjet propulsor was a high-risk option;
the German boat builder, ThyssenKrupp Marine Systems (TKMS), had offered a fixed price of $20 billion for twelve submarines to be built in Australia, yet the decision was made to go with the Naval Group proposal at a cost of $50 billion evidently on strength of that pumpjet propulsor;
the reported decision to ask Saab/Kockums to consider providing a design for an improved 'Son of Collins' boat was quite extraordinary, given that the Swedish boat-builder was not invited to be part of the Competitive Evaluation Process (CEP) in 2016.
that such an outcome had even been considered was a poor indictment of the decision to go with the Naval Group's proposal; and
the renegotiated Strategic Partnership Agreement that included a local content requirement of at least 60 per cent had not and would not be presented for parliamentary scrutiny.
4.4
In the Interim Report, the committee made the following recommendations:
The Australian 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; and
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.
4.5
The Interim Report was a remarkably prescient document: the Naval Group agreement was in serious trouble, and even more so than the committee had realised.
Second Interim Report – February 2022
4.6
On 16 September 2021, Prime Minister Scott Morrison announced the Australia-United Kingdom-United States (AUKUS) agreement through which the Royal Australian Navy was to acquire a fleet of at least eight nuclear submarines partnership with the United Kingdom (UK) and the United States (US), and that the Attack-class would be cancelled.
4.7
Although in the first Interim Report the committee believed that the political cost of the cancelling the Attack-class would be too high, the Australian Government decided to make that decision and accept that risk.
4.8
This is an extraordinary development—one that significantly changes the strategic footing of the Australian Defence Force (ADF).
4.9
The Prime Minister's announcement raised many more questions than it answered. The announcement was nebulous and provided little information on costs, schedules, capability, sustainment and logistics. Given the importance of the project, and the expected significant cost, this is an unsatisfactory outcome in terms of accountability and transparency. It also creates a serious risk of Australia having limited or no submarine capability in the years prior to the delivery of the first nuclear powered submarine.
4.10
Moreover, the commentary on the proposed nuclear boats and their strategic ramifications has glossed over the abject failure of the government's decision-making processes regarding the Attack-class.
4.11
The contract with France's Naval Group has now been cancelled, much to the anger of the French Government. The re-calling of their Ambassador to Paris was an extraordinary development given the close historic ties between both countries. The net result is that five and a half years and $2.4 billion have now been squandered. Furthermore, the project's cancellation will cost between $140 million and $400 million. Mr Bernard Keane described it as: ‘the most staggering piece of project mismanagement in Australian history, in our most important portfolio.’
4.12
The Second Interim Report explored further the failed CEP, reviewed the practical difficulties associated with a country without a deep and established nuclear industry acquiring nuclear submarines and asked a series of questions about the proposed nuclear submarine acquisition.
4.13
The committee concluded that the process to acquire new submarines for the Australian Navy had become a shambles. As a result, there was a significant chance that Australia would be left with a capability gap between the retirement of the Collins-class, and the arrival of the new submarines fleet—be they nuclear or not.
Defence accountability
4.14
Both interim reports also expressed the committee’s frustration about the lack of provision of information by the Department of Defence and the Minister. The committee will not revisit that evidence or argument here, rather just reiterate the view that the Department’s performance is below standard.
4.15
The committee made three recommendations. As the Government and Department of Defence did not respond to the first interim report, the committee repeated its recommendation regarding the responsiveness of the Department to the Parliament’s information requests:
Recommendation 1
Noting bipartisan support for AUKUS and to ensure delivery of critical military capability, that the Government establish a bipartisan process to oversee the implementation of the AUKUS partnership and the delivery of the AUKUS objectives and military capability.
Recommendation 2
That the Department of Defence provide in a manner suitable for publication:
an explanation as to why the Department informed the Parliament that the cost of the Future Submarine Program was $50 billion out-turned when the Department of Finance already had put that figure significantly higher; and
an explanation for the claim that the original tender for the Attack-class was $20 billion—$25 billion range in 2016 dollars rather that the $50 billion that has since 2016 consistently been cited by both the Government and the Department.
Recommendation 3
With the aim of increasing its staff’s awareness of their democratic responsibilities:
the Department of Defence re-examine its induction and training programs and corporate culture regarding its role as a department answerable to the Australian people through the processes of the Australian Parliament; and
report back to the Parliament on the progress it making on those induction and training programs.
#BREAKING: 5.5 billion failures
4.16
One piece of information that has surfaced since the tabling of the Second Interim Report is the expected final cost of the cancelled Attack-class. At the Senate Foreign Affairs Defence & Trade Committee’s Estimates hearing of 1 April 2022, the Defence Department acknowledged that the final cost for the cancelled programme could be as high as $5.5 billion.
Senator WONG: Sure. But basically, we have a $5.5 billion budget provision, including about $3 billion spent to date and potential costs within that envelope. So taxpayers would be up for $5.5 billion on submarines that don't exist?
Mr Dalton: The final negotiated settlement will be within that price.
4.17
The committee cannot help but note that this amount of money could have bought four or perhaps even five state-of-the art off-the-shelf-conventional diesel-electric boats. For example:
Japan has recently commissioned the first of its new Taigei-class boats. With lithium-ion batteries, these boats can stay submerged longer and cost approximately US$690 million (approximately A$958 million);
the Korean Navy has over recent years introduced the Son Won-Il-class (Type 214) with Air Independent Propulsion with a unit cost of approximately US$330 million (approximately A$458 million) in 2017 dollars (approximately US$364 million (approximately A$505 million) in 2022 dollars); and
Germany’s TKMS has delivered the first of its Type 218SG Invincible-class boats also with Air Independent Propulsion to Singapore’s Navy at a unit cost of approximately €500 million (approximately A$746 million) in 2018 dollars (approximately €541 million or A$807 million in 2022 dollars).
Committee comment
4.18
The committee has provided substantive comment on the future submarine procurement through the two previously tabled interim reports.
4.19
Moreover, there has been little change to the status of the AUKUS nuclear submarine proposal since the tabling of the second interim report on 28 February 2022. Until the 18-month AUKUS review process is complete—due in March 2023—the committee can provide little further commentary on the submarine replacement project.
4.20
As such the committee unbelievably notes that, essentially up to $5.5 billion of not so carefully managed taxpayer dollars have been wasted with no discernible replacement anytime soon.