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Australian $35 billion French submarine contract is already nine months late - report

SYDNEY (Reuters) - Australia’s A$50 billion ($35 billion) submarine order with French shipbuilder Naval Group is running nine months late and the defence department cannot show that A$396 million already spent on the contract was effective, according to an audit report.

The submarines are at the centre of Australia’s plan to expand its military and protect strategic and trade interests in the Asia-Pacific region. The first is due to be delivered in the early 2030s and the final vessel in the 2050s.

Australia’s opposition Labour said the delay just one year after the contact was signed was “deeply concerning”, but Defence Minister Linda Reynolds said the programme required a long-term focus.

Naval Group, then called DCNS, was named as preferred bidder for the 12-submarine contract in 2016 and signed a production contract in February last year following lengthy negotiations.

“The programme is currently experiencing a nine-month delay in the design phase against Defence’s pre-design contract estimates, said the report by the independent Australian National Audit Office (ANAO), referring to the Department of Defence.

At the same time, it said two major contracted milestones had been 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 programme’s two major design milestones to date,” the report added.

The milestones were a “Concept Studies Review”, the last part of a feasibility study, which was supposed to start in September 2018 before the final contract was signed, and a “Systems Requirements Review”, which was supposed to be finished by October 2019 but did not start until December that year.

The report said the delays may be “recoverable” by the next milestone in January 2021, and the start of construction had not been affected.

“It is deeply concerning that this programme is already experiencing a nine-month delay in the design phase,” said shadow defence minister Richard Males in an email on Wednesday.

“On all three measures of this programme – on time of delivery, on the cost of the project, and on the amount of Australian content – the numbers are all going the wrong way.”

However, Reynolds said the programme was still in its early design phase and it was essential to get the design right.

“Doing so will reduce costly changes and uncertainties while the Attack class submarines are built,” she said in a statement.

Reporting by Byron Kaye; editing by Richard Pullin