The tender of a combat system for the Collins Class submarines has been put on hold following the Australian Government's decision that a comprehensive arrangement with the US Navy on submarine issues is in Australia's best strategic interests.

The short-listed tenderers, US-based Raytheon and European-based STN Atlas, have been informed.

Minister for Defence Peter Reith said recent developments in the relationship between Australia and the US on submarine issues, together with the accumulated experience and emerging understanding of the operational potential of the Collins Class submarines, has made this decision most appropriate in our strategic circumstances.

"The Australian and US navies are entering into a Statement of Principles arrangement to achieve a shared goal of maximum cooperation and synergy on submarine matters," said Mr Reith.

With Australia committed to achieving the best possible long-term military capability for its six submarines, the arrangement with the US is said to enhance tactical growth and long-term interoperability of the Australian submarine force.

"As I said in my recent address to the ANZUS Conference, these arrangements will give Australia even better access to US military technology which gives us a vital edge in capability and operations. One of these vital and sensitive areas is in submarine technology," said Mr Reith.

"US Navy assistance with hull, mechanical and propeller technology has been critical in improving acoustic performance and overcoming significant shortcomings in the Collins Class," he added.

The combat system collects, processes and analyses data from its sensors, which in turn control its weapons, with the McIntosh-Prescott report of two years ago finding that the Collins' combat system was its most serious problem.

However, the recent Exercise Tandem Thrust highlighted the benefits of the Collins Class, with commander of the US Seventh Fleet, VADM James Metzger saying the diesel-powered submarine was ideal for working in littoral waters and very hard to detect.

Meanwhile, the selection process for the heavy weight torpedo has also been terminated, with a new arrangement also being developed by the Australian and US navies.

The benefits of this decision include greater access to US Navy tactical information, resupply in time of need and the provision of torpedo firing exercises with US submarines.

Atlas expresses disappointment

One of the tenderers for the Collins Class submarine combat system, STN Atlas, has expressed disappointment in the Australian Government's cancellation of its bid.

"It is understandable that a tenderer would be disappointed when a tender process is cancelled and the Government can understand STN Atlas expressing that disappointment," said Minister for Defence Peter Reith.

"However, the public should be aware that no contracts have been signed or entered into in any form with STN Atlas.

"It is not appropriate for the Government to comment directly on those claims but the public should be aware that this is only one side of the story."

Mr Reith said the Government is confident in its legal position in this matter.

By Michael Weaver