John Hewson believes Scott Morrison has a chance to fix Australian submarine program

RAW DEAL: The French clearly have no intention of delivering what was originally promised. Picture: Shutterstock
RAW DEAL: The French clearly have no intention of delivering what was originally promised. Picture: Shutterstock

Scott Morrison has a unique opportunity to show some backbone, to stand up to the French and Defence in relation to one of the world's largest military contracts - to date, some $90 billion just in construction - to build and deliver 12 new submarines.

It's already clear that the French have no intention of delivering what was promised when awarded the contract in 2015-16 - the arrangements are open ended and festering.

The cost will most certainly blowout further, the submarines are unlikely to be delivered on time, with less than the promised Australian content and involvement, and risking a dangerous capability gap.

It was a surprise that the French were offered the contract, without a Plan B, against the lower cost and more suitable alternatives tendered by Japan and Germany.

Indeed, the contract was issued on the basis of only an early concept design for the Attack class submarine, with no binding commitments on cost, schedule and Australian industry content.

The decision has afforded the French a monopoly position, so much so in fact that they have been able to be secretive, even able to block access to documents (sought under freedom of information) that would reveal whether they were fulfilling their commitments under the contract.

It should be recalled that the deal wreaked of opportunistic politics.

Much was involved in chasing votes, especially in South Australia, with early assurances from the French bid and emphasised by government ministers that some 90 per cent of the work would be done in Australia.

However, the French president claimed virtually the opposite in what were his simultaneous statements to the French media.

Then-PM Malcolm Turnbull, flanked by Defence Minister Marise Payne and local cabinet colleague Christopher Pyne, claimed in electoral hyperbole: "This is a great day for our Navy, a great day for Australia's 21st century economy, a great day for the jobs of the future ... Australian built, Australian jobs, Australian steel, here right where we stand."

Opposition Defence spokesman Conroy claimed it as a "real victory for the people of Adelaide".

The decision highlights all the weaknesses of Defence's "unusual" tender processes, with minimal transparency and accountability, and its historically poor management of procurement contracts, with many examples of significant cost blowouts and delays.

Defence has always been effectively "ring-fenced" from adequate budgetary scrutiny and accountability.

Moreover, government oversight has been poor, leaving Defence with excessive independence.

Since negotiations started there have been three PMs, three deputy PMs, three treasurers, five Defence ministers, and four ministers for Defence industry - with nearly half having left Parliament.

Not surprisingly, the costs of the submarine project have already blown out, with notable delays, and Defence is holding out for just 60 per cent Australian content during the construction phase.

While the Morrison government will naturally be hesitant to terminate the French contract, it should, at the very least, develop and announce a Plan B to create true contestability, to put maximum competitive pressure on the French to deliver on time and on budget, including Australian industry content.

The design life of the present Collins class subs ends between 2026 and 2034, but it now seems likely that the first Attack class will not enter service until 2040 - a serious capability gap with important consequences for national security, trained personnel, recruitment and retention.

This suggests that it will be necessary to extend the life of about six Collins class subs.

An effective Plan B would be to commission a parallel (funded) competitive design by the Swedes, leading to the option of two fixed price offers for construction, with specified Australian industry content (say 60-plus per cent), achievable in about a year or so. Many have questioned why the Swedes were not invited to participate originally.

The cost of such a competitive design phase would be well less than 1 per cent of the acquisition budget - cheap insurance. This should accelerate delivery dates, reduce risk, and ensure construction in Australia.

Morrison is under mounting pressure to demonstrate leadership, integrity and accountability in public policy.

He has recently called for a Defence review.

Here is a chance to avoid what is shaping up to be an enormous problem.

The government should move to ensure competitive tension by keeping a world-recognised submarine designer in reserve and consultation for better future submarines.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.

This story Scott Morrison's chance to fix Australian submarine program first appeared on The Canberra Times.