Australia Reconsiders $70B Deal for French Submarines

Media reports this week have claimed that Prime Minister Scott Morrison has commissioned a Defence Department review into potential alternatives to the Attack-class submarine. That’s prompted a flurry of speculation about whether the government is walking away from France’s Naval Group as its partner in the future submarine program, despite the sunk costs approaching US$1.5 billion, plus several hundred million more in penalty costs.

Would the government do that? It’s hard to imagine. Conservative governments in this country draw their credibility and mandate to rule from their reputation as good economic managers. Admitting that they had mismanaged the largest public sector project in the nation’s history would strike at the heart of that credibility.

Walking away would also destroy Defence’s credibility. Every significant government decision in this space beyond the initial decision to build the submarines in Adelaide has been based on Defence’s advice.

Defence recommended the submarines’ very demanding set of operational requirements on factors such as range and endurance. Defence recommended the three contenders for the competitive evaluation process, and Defence picked the French as the eventual winner. Defence requested and got the $70 billion budget for the Attack class. Defence rearranged its investment program and delayed other projects to free up cash for the submarines.

It’s hard to see Defence now recommending a different course of action, and for the government to adopt a different course against its recommendation would be a massive vote of no confidence.

Then there’s the hit that would come to relations with France and to Australia’s international credibility as a partner. We’ve already done that once to a strategic partner in the submarine saga in choosing the French after raising the hopes of the Japanese that they would win the contract.

You don’t decide to change course in a $70 billion program without good reason. So, what would prompt the government to do it? Many commentators have expressed a vast range of concerns about the program and the constant questioning is a public relations ulcer for the government. But the government itself and Defence have been resolute in their support for it.

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