Shipbuilding facing disaster: Xenophon

Independent senator Nick Xenophon fears the shipbuilding industry will face a "valley of death" without a steady flow of Defence contracts.

He has described as extraordinary a decision by the federal government to limit a $1.5 billion tender for two RAN ships, HMAS Supply and HMAS Sirius, between shipbuilders in Spain and South Korea while excluding Australian companies.

The local industry is on the edge of mass lay-offs, de-skilling and a loss of management skills.

"That potentially will be disastrous for the nation," Senator Xenophon told reporters in Canberra on Monday.

Defence Materiel Organisation chief Warren King told a Senate inquiry hearing that Success needed to be replaced by 2016, and that a considerable amount of money is being spent to keep it afloat.

It was Mr King's decision to advise the government to limit the tender.

No company had suggested to him the ships should be built in Australia and even a specialist shipbuilding country such as Norway was buying its supply ships from South Korea.

"If we buy offshore it comes on time," he told the hearing in Canberra.

"Asian shipyards haven't missed a delivery in years, and they talk about three weeks as a terrible error."

If it was a hybrid, where the ship was finished off in Australia, it would be a "bit late" and if totally built locally, it would just be late.

There also was the high cost of infrastructure that wouldn't be used again for about 30 years.

Mr King said the delay in seeking replacements was not a lack of planning, but budget pressures and Defence needing to prioritise.

Democratic Labour Party senator John Madigan said shipbuilding was strategic to Australia's national security.

He said while there were suggestions of Australia building the next generation of frigates, the government needed to make a decision to support the industry in the interim.

Defence Teaming Centre CEO Chris Burns agreed, saying there were no government contracts beyond the air warfare destroyer and landing helicopter dock programs.

"You can't go to the bank as a shipbuilder on a prospect, you need firm contracts," Mr Burns told reporters.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting