Submarines for Australia made a detailed Submission to the Australian National Audit Office to inform its review of the SEA 1000 future submarine program.
The Submission states that the government decision to eliminate competition while no more than an early concept design of the Attack class submarines existed had gifted a valuable monopoly position to the French government owned company, Naval Group. Our understanding of the economics of monopoly power and industrial organisation suggests that this advantage held by Naval Group was likely to manifest itself in a number of areas, including:
- Price. We would expect Naval Group, as a profit maximising monopoly, to charge the highest possible price for designing and building the submarines
- Delivery. In order to reduce risk to themselves and increase revenue, Naval Group could be expected to work to an extended delivery schedule
- Technology. There is little incentive for Naval Group to seek to integrate their latest technologies on the Attack class because of increased risks
- Australian industry content. Because Naval Group is owned by the French government, they have a clear interest in maximising the benefits of the project to French industry rather than being overly concerned with local content in Australia
- Intellectual Property. Australia needs access to Naval Group IP in order to be able to upgrade the submarines, but Naval Group may see an incentive to minimise technology transfer so as to guarantee a high level of ongoing work for the French into the 2080s.
We consider that in the absence of competition, Defence will have little negotiating power in seeking to derive outcomes in these areas that are in Australia’s national interest. Indeed, we also suggest that some of these chickens are already coming home to roost.
In our Submission, Submarines for Australia puts forward a proposal to introduce competition into the process. At an estimated cost of around $50 million, the benefits of this would be much greater and the introduction of competition need not cause any delay in the program.