Naval Group: challenges and uncertainties related to the Dutch Orka programme

On July 24, the Hague District Court decision dismissing the appeal of Thyssenkrupp Marine Systems (TKMS) opened the way for negotiations on an agreement between the Dutch Ministry of Defence and the French company Naval Group. However, even though this seems to be a big success for the Naval Group, the real challenges are just beginning.

Negotiation phase and hidden costs: challenges of the Naval Group in Orka programme for the Kingdom of the Netherlands

Worldwide media have written that the contract is already set, but that is not entirely true. The key stage of negotiations between the Dutch and French parties is now beginning. The dismissal of the lawsuit by the Hague court gives both parties a free hand to discuss the final price and design. Now the Dutch will examine in detail what exactly the Naval Group is able to deliver for the previously declared amount. This is where the first difficulties may arise.

Attention should be paid to the fact that the Orka submarines to be supplied to the Netherlands are currently only on drawing boards. What has been presented in the offer may differ significantly from the final version to be built. The French may find it difficult to deliver the ordered units in a budget of EUR 2.5 billion for four vessels. Examples from the past, such as the Australian submarine program, show that such projects may result in a significant cost overrun.

Ordered by the Netherlands, the Orka-type submarines will have a new 8.2-metre-wide hull design, which is a structural challenge for the Naval Group. These ships, although smaller than the serially built for Marine Nationale atomic Barracud, are larger than Scorpène units. This requires additional investment in designing and testing new technologies, which could affect the total cost of the project. Apart from technical issues, the Naval Group will have to face the challenges of maintaining costs and meeting Dutch expectations, both technical and financial. Will the French succeed in building according to the schedule and budget? Time will tell.

The French face the challenge of building new submarines in a way that meets the expectations of the Dutch, both technically and financially. Some of the costs can be reduced by using technologies already developed for Scorpène and Barracuda units. However, the risk remains significant – if costs are not kept in check, the Naval Group may face serious problems that will affect relations with the Dutch government and the reputation of the company.

The decision to select Naval Group as a submarine supplier in the Dutch Orka program is only the beginning of a long road. The real challenges of negotiating, building and finalising the project are just ahead of them. Any delay or budget overrun may result in serious consequences, both financial and political. In the coming months, it will be revealed whether the Naval Group will meet the requirements of the Dutch and whether it will be able to maintain itself at a negotiated price, which some experts consider impossible.

Written by Mariusz Dasiewicz