$80bn future submarine program runs aground, again

It is the largest defence acquisition project in the history of the nation, but the apparently $50 billion project to replace the ageing Collins Class submarines with 12 regionally-superior submarines is in deep water. 

Concerns about cost, capability and delivery time frame are again making headlines following the release of a troubling report from the Australian National Audit Office (ANAO) titled Future Submarine – Transition to design, building on the fallout from a fiery exchange at Senate estimates in late-2019. 

Future Submarine Program manager Rear Admiral Greg Sammut explained to the Senate estimates hearing that the 'out-turned' cost of Australia's future fleet of submarines was estimated to be around $80 billion – a figure frequently cited but subsequently rubbished by former defence minister Christopher Pyne and other Defence officials. 

Further compounding the costs associated with the acquisition is the continuing concerns about the capability of the proposed vessels, with many expressing, often vocally, concerns about the obsolescence of lead-acid batteries and the conventional power plant expected to power the vessels out to the 2080s. 

When then prime minister Malcolm Turnbull announced the DCNS, now Naval Group, conventionally-powered Shortfin Barracuda, now the Attack Class, as the successful design for the hotly contested SEA 1000 Future Submarine program in April 2016, it seemed as if the disastrous procurement of the Collins Class would be put aside.

Now, the ANAO presents a different, yet concerning picture of Australia's largest defence project and while it isn't all bad news for the Attack Class program, pointed questions still need to be asked about the tactical and strategic viability and value-for-money of the conventionally-powered submarines into the future. 

Don't be too harsh, Defence got some things right

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Before rushing to judgement, it is critical to identify that the ANAO does recognise that Defence effectively designed the competitive evaluation process for the selection of the future submarine partner – further to this, the ANAO report accepts that "Defence designed a fit-for-purpose process to evaluate and select an international partner for Australia’s Future Submarine program".

As is well documented, ANAO analysis concluded:

"Defence determined that the Future Submarine would be designed and built by a proven submarine designer with recent experience in designing and building diesel-electric submarines. Defence analysis concluded that Direction de Constructions Navales Services (DCNS) of France (now Naval Group), ThyssenKrupp Marine Systems GmbH (TKMS) of Germany and the government of Japan were the only viable potential international partners to meet this requirement, and which could proceed to the competitive evaluation process."

Of note is that Defence actively considered engaging ship builders in the US and UK, respectively – however the prospective partners were unable to participate as a result of their own respective submarine build programs. 

The ANAO also states that Defence designed an effective and 'fit-for-purpose' framework for evaluating the competing designs and the capacity of the respective partners to support the Commonwealth on the Future Submarine program. 

This CEP framework focused on five key criteria that would inform Defence's decision as to the successful partner, which ANAO considered covering "a broad and appropriate range of issues" including: 

• Capability; 
• Cost;
• Delivery schedule; 
• Program implementation (including sustainment and Australian industry involvement); and
• Risk. 

As part of this, ANAO recognises that "Defence effectively implemented the competitive evaluation process to select an international partner for the Future Submarine program".

Building on this, ANAO revealed that the entire CEP process and the final conclusion in selecting DCNS was reviewed by a third party to ensure the integrity of the process – this review was conducted by two former senior US submarine program managers, who also served as chief engineers in the US Navy.

This review concluded, "The work of the competitive evaluation process is competent, diligent, expert and consistent. It is sufficiently disciplined to withstand scrutiny and is well documented. The competitive evaluation process to identify the right international partner will be successful in finding the right answer."

But! There were some mistakes

Despite Defence achieving some success throughout the CEP process, there were some blunders throughout the CEP – namely: "The competitive evaluation process was not aimed at eliciting and assessing a full design for the Future Submarine, or identifying firm cost and schedule data. These processes will be 
undertaken with the successful international partner subsequent to the competitive evaluation."

One thing this does reveal, albeit without specifically stating it, is that the time frame for capability definition through to the CEP phase is too slow, results in a rush to 'cut steel' once the probity phase of the program is complete – this also exposes the entire project to risk beyond the standard risk management profile for similarly sized programs. 

This is reinforced by Centre Alliance senator Rex Patrick who told Defence Connect, "Defence started this project years late. When it did start there was significant delay in negotiating the strategic partnering agreement with Naval Group. They then re-scheduled critical milestone dates in the contract and have not met them.

"I support the ANAO's view that the project risk is high to extreme. Historically, Defence projects that have become projects of concern have done so because Defence had not fully appreciated the risk or had approached it too optimistically. Defence has not met its obligations to mitigate that clear risk. They need to have a fall back plan.

"The fact that the plan for the key issue of detailed design work being done in Australia hasn’t been delivered is a major concern. There was a commitment from government to have the design work transitioned to Australia. This commitment must be met."

Another bump in the road – cost increases and delayed construction

As part of the Senate estimates hearing, RADM Sammut revealed that the total cost for the turned out vessels was now estimated to be $145 billion, bringing the total SEA 1000 program cost to around $225 billion by the time of the vessel's planned retirement some time in the 2080s.

"It is only an estimate of the sustainment of the fleet, we are designing the sub today," RADM Sammut explained at the time.  

This cost explosion is further exacerbated by an apparent 'slip' in the planned commencement date for construction of the lead boat, HMAS Attack, which was widely publicised as 2022-23 and has now subsequently been pushed back to the 2024 time frame – further exposing Australia's ageing Collins Class vessels to potential adversary over match. 

RADM Sammut was quick to explain this away, like a skilled operator, informing Senate estimates that the slated time frame was referencing the standing up of construction personnel, tools, infrastructure, processes and equipment to commence the construction of HMAS Attack's pressure hull in 2024. 

These bombshells come following a revelation earlier in the year that the cancellation fees associated with the SEA 1000 program amounted to $404 million – which seems like a steal when measured against the ballooning costs associated with the program. 

Additionally, it has been revealed that while the design phase was behind schedule, to the tune of nine months, ANAO stated:

"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. As a result, Defence cannot demonstrate that its expenditure of A$396 million on design of the Future Submarine has been fully effective in achieving the program’s two major design milestones to date. Defence expenditure on design represents some 47 per cent of all program expenditure to 30 September 2019."

Additionally, ANAO states, rather concerningly: "Defence’s overall assessment of risk for the Future Submarine Program is ‘high’ and Defence has adopted relevant risk mitigation strategies, including the long-term partnership with Naval Group. This key relationship is at a relatively early stage and the parties’ active management of both specific issues and the partnership is essential for effective risk management and program success."

This was reinforced by opposition defence spokesman Richard Marles, who stated in The Australian that "on all three measures of this program — on time of delivery, on the cost of the project, and on the amount of the Australian content — the numbers are all going the wrong way".

The time for plug and play construction? 

To contrast the costs associated with Australia's future Attack Class submarines of between $4.2 and $6 billion per unit (including infrastructure development, research and development costs).

This is compared with the unit cost of the French Barracudas of approximately US$1.4 billion ($2 billion) per unit (based on 2013 prices), which raises questions about the validity and cost-benefit analysis conducted on doubling down with early-20th century technology. 

Contemporary submarine construction, like contemporary naval and civilian shipbuilding, is done predominantly in a modular, 'block build' fashion, enabling an easier integration for technology development and enhancements throughout the build phase – what this means is a stark difference between the broader capabilities and technology in vessels over the life of the build phase. 

The long lead-time prior to the commencement of the construction process provides a number of additional opportunities, particularly for Australia's Attack Class submarines.

In particular, to avoid the costly and time consuming redesign and conversion phase, purchase the standard Barracuda Class design and make the necessary modifications to incorporate the US-designed weapons systems and combat systems without reinventing the wheel. 

Doing so builds on the technological and industrial lessons learned by Naval Group throughout the same process getting Suffren to the launch stage – it wouldn't serve to hinder the build process for Australian industry but could conceivably serve to reduce risk for Australia as a result of minimal complex design changes.

Alternatively, Australia could engage Naval Group to build the initial vessel or first block, while embedding Australian industry in Cherbourg, while giving the local industry the time to stand up the necessary capability to support and block build all but the reactor module insertion.

Additionally, it would provide the opportunity for Australian industry to bring the phase forward by using Australian workers to build the full submarines while drawing on French nuclear propulsion expertise to serve as "technology insert" experts to install the nuclear reactors for the Australian submarines. 

The long lead-time for this development would also provide an opportunity for Australia to embed both civilian and military nuclear experts and submariners in the nuclear industries and nuclear-powered submarine fleets of key allies, including France, the US and UK, to develop the expertise and skills required to safely, efficiently and effectively operate nuclear-powered submarines. 

This stubborn insistence on consistently reinventing the wheel and calling it progress will serve to challenge the long-term capability of Australia's submarine fleet while also cementing a 20th century focused industrial capacity.

However, it doesn't have to be this way, as Australia's recently initiated design clarification process, long lead-time for construction and international partnerships provide the opportunity to reset the paradigm.

Questions to be asked

As an island nation, Australia is defined by its relationship and access to the ocean, with strategic sea-lines-of-communication supporting over 90 per cent of global trade, a result of the cost effective and reliable nature of sea transport.

Indo-Pacific Asia is at the epicentre of the global maritime trade, with about US$5 trillion worth of trade flowing through the South China Sea and the strategic waterways and choke points of south-east Asia annually.

While the Indian Ocean and its critical global sea-lines-of-communication are responsible for more than 80 per cent of the world's seaborne trade in critical energy supplies, namely oil and natural gas, which serve as the lifeblood of any advanced economy.

Submarines are critical to the nation's ability to protect these strategically vital waterways and key naval assets, as well as providing a viable tactical and strategic deterrent and ensure the nation's enduring national and economic security – recognising this, the previously posed questions will serve as conversation starting points.

However, given the geographic area of responsibility Australia will become increasingly responsible for and dependent on, is the RAN and the recapitalisation and conventionally-focused modernisation program for Australia's submarine fleet enough for Australia to maintain its qualitative and quantitative lead over regional peers?

Traditionally, Australia has focused on a platform-for-platform acquisition program – focused on replacing, modernising or upgrading key capabilities on a like-for-like basis without a guiding policy, doctrine or strategy, limiting the overall effectiveness, survivability and capability of the RAN.

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