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Defence Minister David Johnston says he wouldn't trust the government's own shipbuilding firm to "build a canoe", seriously denting hopes the next fleet of submarines will be made locally.
The extraordinary remark comes as the government weighs up whether the replacement for the Collins Class submarine will be built in Australia or outsourced overseas.
The Adelaide-based government shipbuilder ASC would be certain to play a role in any local work on the new submarines.
The firm is also central to the $8 billion project to build Australia's most powerful ever warship, the Air Warfare Destroyer, and is responsible for sustainment work on the Collins Class.
But in response to questions from the Opposition in the Senate on Tuesday afternoon, Senator Johnston took aim at ASC over its recent poor performance on the three Air Warfare Destroyer ships, which is deeply over budget and beset by delays.
"They're $350 million over budget on three Air Warfare Destroyer builds. I'm being conservative. It's probably more than $600 million, but because the data is so bad, I can't tell you.
"You wonder why I'm worried about ASC and wonder what they're delivering to the Australian taxpayer? You wonder why I wouldn't trust them to build a canoe?"
Senator Johnston has repeatedly said in the past that local shipbuilders including ASC would need to lift their game to win the new submarine work, but Tuesday's remarks go much further.
They came amid a stoush in Parliament over the projected cost of building the new submarines locally, which the ASC itself put during a Senate hearing last week at $18 billion to $24 billion for 12 boats – figures the government dismissed but which Labor seized on to back the case for building them in Australia.
The Australian Strategic Policy Institute however has found 12 new boats would cost about $36 billion – generally seen as the most thorough independent estimate.
A spokeswoman for ASC declined to comment and referred questions to the office of Finance Minister Mathias Cormann, who serves as the firm's shareholder on behalf of the federal government.
Labor swiftly leapt on Senator Johnston's remarks, demanding that he return to the Senate chamber and apologise to the workers of ASC, though Shadow Defence Minister Stephen Conroy stopped short of calling for the minister to resign.
The Opposition has been running a hard campaign against any proposal to build the next fleet of submarines overseas.
The government is understood to have been enthusiastic several months ago to pursue a deal with Japan for a version of its Soryu Class boat. But since then, it appears that concerns in Japan about sharing such sensitive technology, along with dogged counter-lobbying by Germany, France and Sweden, have thrown open the field.
Government MPs in South Australia are also understood to be feeling heat over the diversion of potential manufacturing jobs if the submarine work is sent abroad.
The European countries have all said that at least some of the building work could be done in Adelaide.
The Prime Minister's Office released a statement on Tuesday saying: "Whilst ASC has had challenges meeting the Government's cost and schedule expectations of the Air Warfare Destroyer program, we are working closely with ASC on a reform strategy to improve shipyard performance and productivity."
