The biggest procurement in Australian history is beset by delays and cost blowouts, an audit of the $80 billion Future Submarine Program says.

The government in 2016 announced a plan to replace its ageing Collins class submarine fleet with 12 new “attack class” submarines, to be built by French company Naval Group.

Lockheed Martin Australia will integrate combat systems for the fleet under a $7 million contract and the Future Submarine fleet will cost an estimated $145 billion in upkeep over the next 60 years.

Defence has described the procurement as a “megaproject” by international standards and the most challenging acquisition program it has ever undertaken, and says the success of the program will depend on preparations during the design phase.

A report by the Australian National Audit Office released on Tuesday says cost estimates for the program have been revised from $50 million in 2016, to $80 million by November last year, and that there has been a nine month delay in the design process, which was scheduled to be finalised by July 2022.

Defence cannot demonstrate that its expenditure of $396 million on design of the Future Submarine has been fully effective in achieving the program’s two major design milestones to date – ANAO

Defence Group advised the government in February 2019 it wanted to push the design deadline back by 15 months to September 2023 but the government, which found a “lack of detailed information”, including 63 studies which hadn’t been done, renegotiated the extension.

Almost $400 million, or half the total expenditure, has so far been spent on design.

Key milestones missed

The report says Defence has been forced to extend two key design milestones – the concept studies review and the systems requirement review.

“The program is currently experiencing a nine-month delay in the design phase against Defence’s pre-design contract estimates, and two major contracted milestones were extended,”  the report says.

“As a result Defence cannot demonstrate that its expenditure of $396 million on design of the Future Submarine has been fully effective in achieving the program’s two major design milestones to date,” the audit says.

According to the current timeframe, the first future submarine is scheduled to enter service in 2034 and the old fleet will be withdrawn by 2036.

The report says a delay of more than three years would affect the nation’s naval capability, and the old Collins Class fleet would have to have its life extended. However, planning for this contingency is not advanced, the ANAO says, and “is yet to proceed through first gate approval”.

The audit also notes that early negotiations over the partnership with the French contractors were “challenging”, and that a Defence advisory group in 2018 recommended looking at “alternative options” and “new aquisition strategies”.  It also said the government needed to consider whether the strategic partnership was “in the national interest” before proceeding with the partnership. However, the contract was signed in 2019.

The report also said the decision to contract the building of the submarines to Naval Group, largely because of lack of expertise in the APS and ADF, rather than acquiring them via an off-the shelf platform, had exposed the government to an increased level of risk.

The submarines are being designed and constructed in South Australia but the report says manufacture of some parts will take place in France.

Claims of mishandling

The Opposition says the report shows the government has mishandled the project.

“It is deeply concerning that the ANAO report found that this critical program is already experiencing a nine-month delay in the design phase,”  Opposition defence spokesman Richard Marles said.

“This comes on top of recent revelations that the Future Submarines will cost around $80 billion to acquire and $145 billion to sustain, and that construction of the first Future Submarine has been pushed back a year.”

Defence says differences in commercial and engineering approaches between the department and Naval Group have affected progress on the project, but the timetable for construction and delivery of the submarines has not been affected.