Deep concern over submarine cost

Centre Alliance Senator Rex Patrick has revealed that the Coalition Government’s choice of the French submarine builder Naval Group to design and build Australia’s Future Submarines will cost taxpayers $30 billion more than the price offered by the unsuccessful bid of German submarine builder Thyssenkrupp Marine System (TKMS).

"$30 billion is a very large amount of money, and that price difference requires much greater transparency than has been forthcoming so far from the Coalition Government", said Rex. 

"The Royal Australian Navy’s Future Submarine Project has huge budgetary significance and should be subject to rigorous scrutiny."

On 29 February 2016 TKMS wrote to Defence Minister Marise Payne reaffirming an offer already made of "a fixed maximum cost of no-more than AU$20 billion for the project."

In April 2016 the Government rejected TKMS’s offer and instead chose the French submarine builder Naval Group (then DCNS) as designer and builder of Australia’s 12 Future Submarines. 

On 20 May 2018 the Defence Department gave evidence at Senate Estimates that the Future Submarine design and build cost will be $50 billion in constant dollars, and, additionally, sustainment costs will be in the order of $50 billion in constant dollars through to 2080. 

The Australian Strategic Policy Institute has calculated the Estimates figures used by Defence equate to a design and build cost of $79 billion and sustainment costs of $124 billion in out-turned dollars. 

"Although the Defence Minister refused in Senate Question Time yesterday to confirm TKMS's offer, correspondence that I have seen confirms that the German bid to design and build 12 submarines was very much lower than the $50 billion cost now to be paid by taxpayers”, said Rex. "The $30 billion price difference is quite startling and demands a comprehensive explanation."

TKMS first made their $20 billion offer to Prime Minister Abbott in 2014 and reaffirmed it at the end of the Competitive Evaluation Process when they had been fully briefed on Australia’s capability requirements. 

The German Government offered to allow an open book audit of TKMS’s price. 

The reasons for the Government’s decision to choose Naval Group with a $50 billion price tag (instead of TKMS with a $20 billion offer) remain secret. 

There has been media reporting that Australian Defence officials preferred French submarines for a range of technical reasons. It has also been speculated that Defence favoured Naval Group because there remains a long-term interest in the possible acquisition of nuclear powered submarines sometime in the future. 

"Whether rightly or wrongly, the Government secretly accepted a very large opportunity cost", said Rex. "That raises some very big questions.

"An extra $30 billion could have been committed to other Defence capabilities. It could be spent on civil infrastructure, health or education services, or further investment in science and technology. 

"So why did the Government choose Naval Group? And how was that decision arrived at given the very large cost difference between bids?

"That’s $30 billion worth of questions that must be answered."