The Australian Government Works the New Submarine Deal

By Australian Defence Business Review

It would come as no surprise to those with commercial experience that the Future Submarine Program (FSP) team is working hard to ensure the cornerstone agreement for the program, the Strategic Partnership Arrangement (SPA), which describes the intricacies of the relationship between the various Government and commercial actors delivering the capability, is a fair, balanced and commercially sensible set of arrangements.

We should expect nothing less.

Defence Minister, Christopher Pyne’s decision this week to focus his attention on his French Government counterpart, Defense Services Minister Florence Parly, and not prime contractor Naval Group, sends a strong message about Commonwealth expectations for this multi-decade, multi-billion dollar program.

ADBR understands senior members of the FSP program team had several meetings with the senior executives from the contractor last weekend, as should be the case.  After all, the Head of the FSP, Rear Admiral Gregory Sammut, does not seek meetings with Minister Parly when he is in Paris.

The FSP is about a much broader Australian national security agenda, which requires alignment across policy and relationships far more so than technology and business process.

Over a number of decades Australia has refined its Defence acquisition arrangements with the US Government to the point where Foreign Military Sales (FMS) has become a trusted vehicle for national security co-operation with the ultimate guarantee of the US Government to underwrite risk.

US defence companies understand the rules and Government-imposed barriers to entry are high and strictly governed, occasionally to the Commonwealth’s frustration.  However, the trust on which they are built is a product of close and trusting personal relationships, often brokered between senior military officials who have fought together side-by-side on operations.

In a similar vein, the recent decision by the Commonwealth to partner with the British Government and prime contractor BAE Systems for the Future Frigate Program, SEA 5000, represents an open and transparent commitment to a much broader national security agenda and relationships which extend beyond trade and technology transfer.

The British Government has its own FMS arrangements with the US, but it has also adapted its own version for other strategic partnerships involving international defence exports, such as the Saudi-British Defence Co-operation Program.

Yet the basis of the Commonwealth partnership with the French Government is less mature and success in recent major defence programs has been patchy.  With mutual defence and national security interests in the Asia-Pacific region continuing to grow, there is a significant opportunity and compelling case for the French and Australian Governments to create the conditions for an enduring and powerful relationship which benefits economies, and common security interests.

The partnership, however, must be fundamentally characterised as one of mutual Defence and national security co-operation, which also happens to be good news for our respective defence industries.  It must involve win-win negotiations, with a balance of risk and reward, which will withstand more than three decades of geopolitical uncertainty.

The Commonwealth is the customer and is a sophisticated and knowledgeable counterparty.  If the FSP negotiating team needs to take time to get the commercial arrangements right for this $50 billion nation building program, we should be congratulating them (and Minister Pyne) for standing up for Australia, instead of criticising and sniping at them from the sidelines.

The Commonwealth expectations for the Future Submarine Program are extremely high, and rightly so.  Given the critical importance of the submarine fleet to our future Defence needs there must be an absolute guarantee which goes above and beyond commercial and other pecuniary interests that we will get the best regionally superior capability available, and nothing less.  The strategic landscape in the Asia-Pacific and beyond is rapidly changing requiring a partnership which is capable of flexing and adapting amidst the uncertainty and risk.

This will, of course, take time and the Commonwealth has indicated they are willing to wait.  We have the best, most experienced team of professionals on the case working tirelessly to get Australia the right outcome.

Meanwhile, the highly complex SEA 1000 Program continues to make steady progress in meeting its design milestones and building the foundations of the Australian industry capability necessary to build, integrate and test the submarines and its enablers.

Lay on top that the general election in 2019 and the possibility of new Government relationships and policy changes, the pressure is now mounting on the French to strike a deal.

This article was first published by our partner ADBR on September 30, 2018.