Foreign ship builders are being told they do not need to partner with local companies to bid for projects under the Australian Government's $90 billion naval shipbuilding plan.

A Senate Inquiry has heard a Defence Force employee contacted international shipbuilding companies to assure them they would not be mandated to work with Australian Companies.

West Australian shipbuilder Austal and its South Australian partner ASC are lobbying to have a slice of the Navy's Future Frigates program, which will be based on a yet-to-be-selected international design.

The inquiry heard that Defence department chief Kym Gillis phoned the three international bidders vying for the $35 billion contract to build frigates and told them they need not work with local companies.

Austal chief executive David Singleton told the hearing that after the foreign ship builders — Britain's BAE Systems, Italy's Fincatieri and Spanish company Navantia — were told they did not need to work with local companies, communication immediately ceased.

The three international companies have been shortlisted to design, build and sustain nine new anti-submarine warfare frigates to replace Australia's existing Anzac frigate fleet.

Victorian Labor Senator Kim Carr, who yesterday grilled defence bosses in the inquiry, said it did not make sense that local shipbuilders were overlooked.

"We already have a shipbuilding capacity in this country. In Western Australia, Austal has been able to build ships for navies around the world," he said.

"If we can build ships for the American navy, why can't we build ships for our own navy?"

Senator Carr said the Australian Government has an outdated attitude when it came to Australian shipbuilding capacity.

"Thirty-five billion dollars being committed to the frigate program, surely should provide an opportunity for Australians to get right in the middle of this major defence contract," he said.

"We know that this Government, because of the tender documents that have been released, has a deep-seated prejudice against those companies [Austal and ASC].

"We now know that officials have spoken to the preferred tenders advising them to essentially stay away from those companies."

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WA disappointed with system

Austal chief executive David Singleton said they had told the Government there were "different ways" to run the tender process.

"I don't know why we're kind of at the position that we're at at the moment. I do feel that it's unsatisfactory for us and I think it's unsatisfactory … for where the Government wanted to get to," Mr Singelton said.

"In my heart, I feel that Minister Pyne will make the moves necessary to ensure that our local industry is developed and supported through this program."

Austal CEO David Singleton said the government must make sure some of the build was done in Australia. ( ABC News: Andrew O'Connor )

He said he believed there was no need to scrap the existing tender process, but added there could be a concurrent process to encourage the overseas bidders to submit proposals using local shipbuilders.

"I think it's possible to find a solution to this if people want to find that solution."

"What we can do, however, is look in parallel, I think, at alternative options for the build program that would include our industry more emphatically in this country.

"Maybe they would say, give us an option for a build that includes the local shipbuilders Austal and ASC, and that seems to me like a very sensible thing to do."

The WA Treasurer Ben Wyatt said it was disappointing the Federal Government is not putting local jobs first.

"It is somewhat dispiriting when you see the Federal Government not willing to go the extra mile to ensure that Australian and Western Australian jobs in particular are prioritised," Mr Wyatt said.

"We have proven capability of shipbuilding, a proven capability of maintenance for a Federal Government not to do the heavy lifting to ensure that people in Western Australia, and fair enough more broadly Australia, get these opportunities is just infuriating.

"This is the madness that we've got out of the Federal Government at the moment.

"If we're just going to denigrate our capability and not invest in it, then we'll simply go down the path of unskilling our own population."

The parliamentary inquiry into the future of Australia's naval shipbuilding industry is due to issue its report by the beginning of December.