Minister offers better insight into project but submarine budget is too low

Submarine deployment below Defence ambition for at least 10 years

The Ministry of Defence correctly informed parliament at the end of 2019 into the overall procurement, deployment and maintenance of replacement submarines. The Court of Audit concludes from its investigation, however, that the budget reserved for the project is too low. Furthermore, in the next 10 years the Netherlands will not be able to meet its own deployment ambition: only 2, at most, of the current 4 Walrus class submarines will be deployable simultaneously.

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The investigation found that the Ministry of Defence had reserved an additional €1.14 billion for this major project in recent years. The Court of Audit calculated that the budget necessary for the life of the submarines should be at least €730 million higher. With a view to the ongoing procurement procedure, the minister has declared that the total projected expenditure to procure and deploy the new submarines is commercially sensitive. The Court of Audit is therefore informing the House of Representatives of certain aspects of the project in a confidential annexe.

No off-the-peg submarines

The Court of Audit published its Sights set on the replacement of submarines report on 12 October 2020. The investigation was carried out after the minister had informed parliament by policy letter in December 2019 of the decisions she intended making. The preferred class of submarine combines various designs from several shipyards, not one of which has proved itself yet in service. The Netherlands will therefore probably be unable to procure 4 new submarines ‘off the peg’ to replace its 4 Walrus class submarines dating from the 1990s. A better design that could carry out all the required tasks with just 3 submarines is ruled out by higher costs, according to the minister. The Ministry of Defence will not select the final design until later.

The ministry has been working on this project since 2016 and expects to receive the first new submarine in 2028. In 2016, the minister had thought it would be taken into service in 2025. The current submarines are undergoing a life extension programme that reduced their deployability in 2016, 2018 and 2019. In those years the Netherlands was unable to meet its own ambition of having 2 deployable submarines, never mind the NATO goal of 3. It will not be able to do so in the coming 10 years either.

Financial risks

The Court of Audit concludes in its report that the minister has increased the House’s understanding of the necessary budget, including the deployment costs. Since 2016, the ministry’s overall budget has nearly tripled, partly because operating costs have been mapped out for 30 years. The Court of Audit also warns of risks. The cost of transitioning from the Walrus class to a new class of submarine, for instance, has not yet been calculated and not all weaponry costs have been recognised. Experience in countries such as Canada and Australia, moreover, suggests that the deployment of modern submarines is more expensive than that of older generations. It is not clear whether international cooperation reduces or increases costs. The project makes no allowance for unforeseen risks.

Parliamentary scrutiny

The House of Representatives would be better informed, according to the Court of Audit, if it made clear agreements with the Minister of Defence regarding the information that must in any event be contained in periodic reports on the submarine project.

Response of the state secretary and the Court of Audit’s afterword

The State Secretary for Defence responded to our findings and commented that some figures in the investigation could only be shared in confidence. She thought it was not necessary to increase the budget by €730 million and referred to the relatively strict risk controls in place for this investment project.

The Court of Audit thinks projections and budgets should agree with each other. In its afterword, the Court writes of its surprise that the Minister and State Secretary for Defence do not share the same opinion. Parliament should have an understanding of all projected costs, according to the Court.