Two key milestones have been missed. The concept studies review was meant to begin in September 2018 but was delayed to late November that year.

The systems requirements review was meant to be completed by March 2019 but the contract was varied to October 2019.

However, the review was finished just last month, the audit report says.

This has meant a third review, the preliminary design review, will miss its deadline of March 2020 and is now contracted to finish in January 2021.

"Defence cannot demonstrate that its expenditure of $396 million on design of the Future Submarine has been fully effective in achieving the program’s two major design milestones to date," the audit report says.

'Design maturity' blamed for delay

Defence told auditors the delays were necessary to allow for "design maturity" and minimise risk of issues during construction.

The audit reveals Naval Group had requested a 15-month delay in finalising the design work to September 2023, which Defence rejected in September, warning the government had "deepening concern over a number of matters in the partnership".


The missed milestones were just the latest delays. Auditors said the strategic partnering agreement between the commonwealth and Naval Group, which was meant to govern the project over decades, was signed 16 months later than planned, in February 2019.

Australian negotiators told the ANAO the delay was necessary to avoid "expediency" and damaging the program long term.

'Prepare a Plan B'

As negotiations dragged on in late 2018, the government's naval shipbuilding advisory board, which is made up of former senior US naval officials and industry executives, recommended that Defence begin work on a Plan B in the event talks collapsed.

Even if an agreement was reached, the board recommended the government consider if it was in the "national interest" to continue to partner with the French.

This prompted Defence officials to examine the additional service life of the Collins class submarines under a planned overhaul and the time this would allow to "develop a new acquisition strategy for the future submarine if necessary".

Amid complaints from local defence contractors that they are missing out on work under the government's $89 billion naval shipbuilding program, Defence officials told auditors there was "extreme risk" attached to the ability and willingness of Naval Group to transfer technology, saying there were different systems and industrial engineering methodologies between France and Australia.

Defence Minister Linda Reynolds said she welcomed the findings that there were appropriate risk management strategies in place to deliver the future submarines and the report's confirmation there had been no change to the 2032 delivery date of the first submarine to the navy for trials.


She said the program was highly complex and required a long term focus.

"Whilst the Future Submarine Program is still in the early design phase and there have been some delays, it is essential to get the design right," she said.

"Doing so will reduce costly changes and uncertainties while the Attack class submarines are built, and will reduce the need for larger construction contingencies.

"Defence has advised that the delays to the design milestones will be recovered by the next major milestone in January 2021."

Opposition defence spokesman Richard Marles said the audit was the latest example of the government's delays and blow-outs in the project.

"On all three measures of this program – on time of delivery, on the cost of the project, and on the amount of Australian content – the numbers are all going the wrong way," he said.

Centre Alliance senator Rex Patrick, who has pursued Defence over problems in the submarine project, said the audit was one of the most concerning he had seen.

"Defence's view that they can recover the schedule is naive at best," he said.

"The alarm bells are ringing. If the Minister is not hearing them, they need to be turned up."