Naval Group Will Send Bill to Australia for Costs Incurred in Cancelled Submarine Contract

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  • 06:46 AM, September 24, 2021
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Naval Group Will Send Bill to Australia for Costs Incurred in Cancelled Submarine Contract
French submarine @Marine Nationale

The French submarine manufacturer Naval Group will submit to Australia a "detailed and quantified proposal" of "costs already incurred and to come" after the termination of the contract for the construction of 12 submarines, its CEO Pierre Eric Pommellet told Le Figaro publication.

The total value of the contract, of which only the first phases have been concluded, amounted to A$50 billion (€31 billion) at the time of signing, or A$90 billion taking into account inflation over the duration of the programme and cost overruns.

Naval Group had warned of "consequences" of cancelling the contract on September 15, the day the contract was cancelled, "The analysis of the consequences of this sovereign Australian decision will be conducted with the Commonwealth of Australia in the coming days."

French Submarine Project at Risk for Years?

Australia is not known to have consulted with France seeking a nuclear submarine alternative before abruptly cancelling the conventional submarine deal given that France has considerable expertise in building and operating nuclear submarines.

"On the same day as the AUKUS announcement, the Australians wrote to France to say that they were satisfied with the submarine's achievable performance and with the progress of the program. In short: forward to launching the next phase of the contract," France's Armed Forces Ministry spokesman Herve Grandjean said on Twitter on Tuesday.

Naval Group top boss added, "in no case has Naval Group been asked to offer Barracuda-class nuclear attack submarines, the very latest generation of this type, to Australia."

Although first announced in 2016, a deal was signed between Australia and the French company in early 2019.

As early as September 2018, an independent oversight board led by a former U.S. Secretary of the Navy Donald Winter had advised Australia to look at alternatives, and questioned whether the project was in the national interest, Reuters reported citing a 2020 public report from the country's Auditor-General shows. It included contractual off-ramps in which Australia could pay to exit the project, and established "control gates" whereby Naval Group must meet criteria before progressing to the next phase. The defence department considered these "hold points" for assessing the project's risk.

Naval Group said in a statement to Reuters that it was aware of public discussion, but that official declarations were supportive of the submarine programme. It said Morrison was "very clear that the decision was not a result of difficulties with the Future Submarine Program or Naval Group.”

"Naval Group delivered on its commitments to the Commonwealth of Australia as acknowledged by the letter for termination 'for convenience' we received," the statement said.

Naval Group Will Send Bill to Australia for Costs Incurred in Cancelled Submarine Contract
Pierre Éric Pommellet, Chairman and CEO of Naval Group @Naval Group

In selecting the French bid then, the Australian government had commented that it met all the parameters of the procurement process which will ensure the Australian Navy’s dominance in contested waters around the continent. However, in cancelling the French deal, Australia’s PM Scott Morrison has not explained in what way the nuclear-powered submarines would be superior to their diesel-electric counterparts in delivering conventional weapons.

Why Did the Deal with Naval Group Collapse?

Australia’s Ministry of Defence recommended three contenders for the competitive evaluation process, and it picked French shipbuilder Naval Group as the eventual winner. The company won the Collins-class replacement program, also known as SEA1000, in 2016 with its Shortfin Barracuda Block 1A design. This conventionally powered diesel-electric submarine is based on a scaled-down version of the nuclear-powered Barracuda (Suffren) design that is now entering French Navy service.

The Australian media have long been reporting citing sources in the Defence Ministry that the deal with Naval Group to build a dozen submarines for the Navy was not making progress.

It is said to be due to a combination of reasons, including cost blowouts, missed delays and political. Since negotiations with France began, Australia has had three prime ministers, three deputy PMs, three failed treasurers, five defence ministers and four ministers for defence industry. Of the 15 individuals to have held these portfolios, seven have left the Parliament.

While the project was initially estimated to cost between $20-25 billion, it is now reportedly pegged at around $65 billion (AUS$90 billion). France, meanwhile, is said to be paying $10.2 billion for six Barracudas for its own Navy.

Even the idea of building a submarine powered by a diesel-electric engine was considered a fail.

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