“$100 billion
babies: Defence reveals true cost of new submarines for taxpayers”
"Taxpayers will spend $100 billion to build and operate [Australia's future submarines], [Australian] Defence Department officials have revealed
for the first time as they also fended off warnings the naval
shipbuilding program was at risk of cost blowouts and delays.
While the $50 billion budget to build the
12 French-designed submarines in Adelaide has been known for several years,
Rear Admiral Greg Sammut told Senate estimates on [May 29, 2018] the same amount again
would be spent on sustaining the submarines throughout their operating life,
although he conceded the costs were yet to be finalised..."
COMMENT
How do you count the costs of a submarine program that may stretch to 2080?
A. In 2018 dollars or 2080 dollars or somewhere in between?
B. In Australian Dollars, or factor exchange rate changes in US dollars or, in 20 years time, in Yuan
C. Recall that we are not just talking Naval Group (was DCNS) or ASC costs in calculations. A
quarter or a third of the money will go to Lockheed Martin as Combat Systems Integrator.
D. What do you include? Inclusions are vital. Cost of:
- building new shipyard sheds, slips and other facilities
- costs of personnel in Australia's Defence Department, Navy, Army (for some Special Forces)
- cost of building 6 to 12 new submarines? As Australia's Defence Department or Navy try out
higher numbers (say 12, 10 then 8) before settling for 6 (see my 2014 article). Hence 6 Oberons
then 6 Collins submarines in the past.
- "sustainment"(?) does that mean regular maintenance and upgrade costs?
- training costs
- some operational costs, eg. special skills (eg. US Navy may be Off-the-Books).
E. Opportunity costs - for:
- jobs and regional development (outside Adelaide)
- money that could have been spent on sorely needed hospitals, schools, "green" energy and mass
transport
- other Airforce, Army and Naval programs (eg. highly developed, future AUVs).
Setting, recording and publishing huge budgets is more a public relations art form than an accounting science.
Pete
6 comments:
Pete
RE sustainment costs - I would point out that sustainment costs on subs is always high (or at least should be). A ship goes down, most crew have a good chance of survival. A sub goes down (& does not come up), your chances are not good unless you were tied up to the warf at the time (& even then its not garanteed). 12 subs were always going to cost a bucket load to keep operational.
As an aside I would be interested on your take on the Luerssen/Civmec-Forgacs joint venture so soon after the talks with Austel 'failed' (not that I expected Austel & Luerrsen to get along - Austel is too much like competition to Luerrsen).
Regards
I always thought the '12 submarines' would end up as 6. RAN had difficulty providing crew for 3 Collins 'in service' with one or two 'at sea'. These future subs will be even more complex.
Pipe Dreams .
Ship building, even submarine building is hardly a job for the future, it is not going to transform Australia into an economic super power. Does it make Australia more self reliant on defense? Will building those submarines transform Australia into a defense power house? On a program that stretches out that far, you can be assured on cost overruns. I wonder $1B Australian, how many jobs does that equate?
The US Pacific command is now the US Indo Pacific command. Still, the US is applying less than subtle pressure upon India to stop the purchase of S-400, even though Secretary Matthis has pleaded in front of Congress against the threats of US sanctions on India or Vietnam.
Diplomatically and politically I do not see India being too thrilled with those pressures. The US is not realistic with their demands given how Russian centric is India's defense today. Any migration is going to take several decades. And then there is the issue of money. Just look at Poland having a major indigestion with the Patriot's cost. Not every one has the luxury of oil money like Saudi or Qatar. India is rising but it is hardly a rich country today. The same applies to Vietnam. Indo Pacific does not get off on a good footing.
KQN
How long before these subs become obsolete ? By the time 2080 rolls around, no telling how far advancements have been made in sub hardware/software. This race for new sub purchases in the Indo-Pacific has reached epic keeping up with the Jones proportions. Owners of stock in these sub building companies are fixed for life.
Hi Pete,
Keep up the good work. I've noticed the comment section is getting a bit lighter recently, but the view counter remains very high.
Should the real price really go to almost F-35 development levels, it's really in Australia's best interests to get Canada and perhaps the US on board to buy some. Fits their needs exactly. (I know- the USA is all nuclear, but there is a good case for cheaper, quiet, long range diesel engine powered subs too).
Andrew
Along the same lines as this SubMatts article Popular Mechanics has published, June 5, 2018 https://www.popularmechanics.com/military/weapons/a21071503/pentagon-budget-audit-f-35-nuclear-weapons/
"Why the Pentagon Doesn't Know How Much Anything Costs, The F-35 cost a trillion dollars. Nobody really knows how much America's next nuke will cost. What's wrong?"
"...We Don’t Know What Things Cost - Suppose you're making a grocery list and want to estimate your food expenses.
You might list the cost of each item in a column and then add them up. But now imagine you are guessing at the prices of each item, taking into account fluctuating data like the cost of industrial supplies and the rate of monetary inflation.
Plus, the recipe you’re shopping for may change, and the ingredients may require some extra test batches in the kitchen. Now you're starting to shop like the Pentagon."
"...There’s even more room for error in the way people account for spent money.
There is something called “data normalization” that is supposed to make comparisons and estimates more consistent so that budget projections are comparing apples to apples.
“Cost data are adjusted in a process called normalization, stripping out the effect of certain external influences,” the report says..."
Basically the higher the weapon's system cost and longer the period of the program the easier it is to obscure massive cost overruns and missed deadlines.
Pete
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