March 25, 2015 / 5:55 AM / in 4 years

UPDATE 1-Australia kicks off $39 billion submarine tender

(Recasts with progress on tender, quotes, detail)

By Matt Siegel

ADELAIDE, Australia, March 25 (Reuters) - Australia has invited Germany, France and Japan to pitch for a contract to build its new submarine fleet, kicking off a contentious A$50 billion ($38.8 billion) project which has become a political football at home.

Signs of progress on the long-delayed project bode ill for Sweden despite a proposal from Australia’s opposition party to overturn the Nordic country’s earlier exclusion from the lucrative tender.

Speaking at a conference of Australian naval officials and politicians in Adelaide on Wednesday, Defence Minister Kevin Andrews said Germany, France and Japan had emerged as potential “international partners” for the project to replace Australia’s six ageing Collins-class vessels.

Andrews added that a “competitive evaluation” would take at least 10 months, after which the Defence Department would advise the government on preferred bidders.

An industry source in Australia said a letter had been prepared for bidders containing requirements including that a concept design be submitted within six months and details on how bidders would involve Australian industry in the programme.

Germany’s ThyssenKrupp Marine Systems (TKMS) and France’s state-controlled naval contractor DCNS have both expressed interest in the tender and said they would build in Australia.

“We’ve already got the draft contract. We’ve got the statement of work,” Philip Stanford, the chief executive of TKMS Australia told Reuters in an interview on the sidelines of the Future Submarine Summit.

“We’ve got all of the data descriptions which tell us what we need to do and they’ve sent us through classified channels the functional performance specifications ... It literally is happening as we speak.”

Harry Dunstall, chief of the Australian military’s Defence Materiel Organisation, told the conference that after the bidding contracts had been signed, there would be an eight-month period during which the companies would prepare their preliminary design proposal and present it to the government for consideration.

The two Japanese firms that until recently were considered the frontrunners for the project, Mitsubishi Heavy Industries and Kawasaki Heavy Industries, rebuffed an invitation to attend the Adelaide conference.

GEO-STRATEGIC IMPLICATIONS

After originally promising to build the fleet of up to 12 submarines in Australia, Prime Minister Tony Abbott backpedalled, signalling that cost and timely delivery were paramount.

Sources then said Japan was in the box seat to sell off-the-shelf submarines to Australia, marking what would be Tokyo’s re-entry into the global defence export market and strengthening ties between two of Washington’s strongest regional allies.

Abbott changed position again during an internal challenge to his leadership in February, promising something closer to an open tender to be completed by the year-end in an attempt to shore up political support.

Presenting a detailed, bipartisan approach to the project, Labor Party Leader Bill Shorten argued Sweden should be involved. The government excluded Sweden, which worked with Australia to build the Collins-class vessels, citing its lack of recent experience.

Under Shorten’s proposal, a 12-18 month process would begin with Australia inviting Germany, France, Japan and Sweden to make initial proposals, each receiving A$7 million from Australia for their involvement.

Australia would then select one to two submarine builders to provide full designs and fixed price contract bids. Those parties would receive an additional A$8 million each to provide the more detailed final tender bids.

One of Shorten’s proposed non-negotiable conditions was that the submarines be built and maintained in Australia.

Andrews called the Labor plan a “complete fantasy”.

“We have said there will be a significant Australian involvement and that is our position and we are getting on with the job,” he said.

Additional reporting by Tim Kelly in TOKYO; Writing by Jane Wardell and Lincoln Feast; Editing by Dean Yates

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