Future Subs. Where to (contractually) from here?

Unless you are actually in a sub, and running silent, you would have heard about the Commonwealth announcing they will not be pursuing the Future Sub (SEA1000) program with Naval Group.

Now, whilst I have no idea of the actual contracts in place or their contents, I can make a few guesses. It is also important to note that Subcontractors (to Naval Group) caught up in this have some potential rights too.

1. The Naval Group Contracts with the Commonwealth

Typically, this type of engagement would be done via two or three separate ASDEFCON contracts, being a Design Contract, a Build Contract (sometimes combined) and a Sustainment or Through Life Support (TLS) Contract.

This is critical when you consider possible damages payable by the Commonwealth or Naval Group themselves (probably unlikely) or a negotiated settlement (most likely).

The Commonwealth has certain rights under an ASDEFCON contract could potentially come into play here and which the Commonwealth / CASG would certainly argue applied.

These include the rights to suspend a payment or payments where a Stop Payment Milestone is not met.

More importantly the Commonwealth has the right under the contract to issue a direction to rectify a failure to deliver the Supplies as was agreed. The agreed dates and milestones are normally found in the ASDEFCON Delivery Schedule.?

If the Supplier does not comply with a direction (to rectify) the Commonwealth has the right to recover compensation or damages, or to terminate the contract for Contractor Default (as has possibly been done here).

If in the unlikely event this dispute was litigated and it was found to be a valid exercise of the right to terminate, Naval Group would still be able to recover ‘Sunk Costs’ but would not be awarded damages for breach.

Of course, Naval Group also has contractual rights and could argue that they were delivering according to any agreed (and from what I have read varied) Delivery Schedule. If (as I said above) in the unlikely situation this was litigated, and the Commonwealth was found to have been in breach (by wrongful termination) Naval group could claim substantial damages.

?2. Naval Group Subcontractors

But where does this leave the poor Subcontractors caught up in this affair?

Naval Group has publicly stated that they have signed up many tens of millions of dollars of Subcontracts for the SEA1000 program. Indeed some of the Naval Group Subcontractors have announced that they too in turn have signed subcontracts.

The answer is it depends. The Subcontractors would probably be able to claim damages in the event (when) their Subcontracts were terminated, especially if they have outlaid money or made investments with a view to supplying. They should immediately (and I suspect most will be) looking at their contracts and engaging expert help both to quantify their losses or potential losses, and to look at their contractual and legal position.

Once again I suspect litigation is not on the cards in these cases and most will be settled I would imagine amicably, as the reality is people will want to work together again when the dust settles.

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