Naval Group negotiations to drag on as Collins Class submarines earmarked for $381 million upgrade

The Defence Minister has conceded compensation negotiations with a French company over the dumped future submarine project are likely to drag well into the next financial year.

In September, the Morrison government announced it had scrapped the $90 billion Attack-class program being run by Naval Group, in favour of nuclear powered submarines under the AUKUS partnership.

Defence officials had hoped to complete compensation talks before the end of the financial year.

But Minister Peter Dutton — who was at the Adelaide ASC site on Monday to announce an interim measure for the existing Collins Class fleet — said he did not believe that time frame was likely.

“It’ll be after the election, it’ll take some time,” he said.

Asked whether that would be before the end of the financial year, Mr Dutton said “likely not”.

“What happens in a commercial negotiation is if the other side knows that you’ve got a hard deadline then they’ll hold you over a barrel,” he said.

Last year, the federal government backed away from a $90 billion project for French-designed submarines.

In its stead, a deal for nuclear-powered submarines constructed under the AUKUS tripartite defence coalition was jointly announced by Australia, the US and the UK.

It was later revealed that the scuttling of the Naval deal could eventually cost taxpayers up to $5.5 billion — but Mr Dutton disputed that sum, saying that amount would “absolutely not” be needed for compensation.

“There is a massive contingency within that sum — some of that money is also being used elsewhere, within different programs,” he said.

Last year, the Chief of the Navy conceded the Defence Force’s six ageing Collins Class submarines may have to remain operational for another 30 years, as the nation waits for the nuclear-propelled replacements in the coming decades.

Mr Dutton announced the Collins fleet would undergo a $381 million revamp, ensuring a key on-board system would not become obsolete in the meantime.

The vessels’ optronics systems, which are crucial for stealthy navigation, will be the focus of the upgrade, with work to be carried out at the ASC Osborne site near Port Adelaide, the federal government said.

“It will give a much quicker read on what the submarine can see outside — it means the periscope doesn’t have to be exposed and provide that extra point of vulnerability for the submarine,” Mr Dutton said.

“It brings us really up to speed with the US and the UK.”

The election campaign commitment is expected to create 20 extra jobs at the Osborne site.

“We’ve got our eye on significant expansion here — we need to triple the size of [the Osborne site],” Mr Dutton said.

“By the end of this decade, there’ll be 15,000 Australians employed in the shipbuilding enterprise and 5,000 of those here in South Australia.”

But Mr Dutton would not be drawn on how much of the overall construction work would be carried out in Australia.

“That will influence the decision as to what quantity is to be built locally, what local content we can have.

“I hope that will be higher than 60 per cent.”

Independent senator Rex Patrick described the upgrade investment as “small consolation to Australian industry”, which, he said, lacked guarantees about its level of involvement in future construction.

“We won’t see any construction jobs related to submarines in South Australia – if we see them at all – until well into the next decade,” he said.

“The fact that we have very little experience in the nuclear domain means it’s much more efficient for the government to go overseas to do this work.”

Senator Patrick said Australia’s current strategic environment meant that the nation could not afford to wait decades for a rejuvenated fleet.

“[In] moving to nuclear submarines, the government jumped from the frying pan into the fire. We need to go down a much more conservative path — that is to build off-the-shelf submarines, in Adelaide, improved by Australian industry,” he said.

“We can do that for a fraction of the cost of the nuclear program and it means that we can have submarines available towards the latter part of this decade.”