Prime Minister Scott Morrison announced in September the government would be cancelling its $90 billion submarine contract with France in favour of a new deal with the US and UK.

But the government only agreed to engage in finalising a "pathway forward" with AUKUS allies, and gate-one approval - the scoping phase where the product is assessed - has not yet been granted.

The government has set aside $300 million for a nuclear-powered submarine taskforce to identify the best way to proceed over the next 18 months.

The head of the taskforce will then deliver advice to cabinet in early 2023.

Labor senator Penny Wong questioned why Australia would cancel Naval Group's contract when only agreeing to engage in discussions with AUKUS about the best path forward over the next 18 months.

"That is an interesting way to do it, isnt it?" Senator Wong said.

"You do a public announcement and you message that you are going to get nuclear submarines but actually you have not made any decisions other than to consult about it and to cancel a contract."

Senator Wong questioned whether the government was operating on "a wing and a prayer", hoping it can extend the life expectancy of the current Collins class submarines until a nuclear-powered submarine can be delivered.

"We are hoping we can extend the Collins without an assessment at this stage ... to enable the delivery of a yet unnamed nuclear-sub in record time, but we have not checked whether we can?"

Officials aim to have at least one nuclear-powered submarine in the water by 2040, and said the government was not looking at any other capability beyond the current Collins fleet and planned nuclear-powered boat deal.

But defence secretary Greg Moriarty remained silent when pressed by Senator Wong whether the prime minister's timeline to have an operational submarine by the end of the next decade was based on his advice.

Asked about the risk of a capability gap, Mr Moriarty said there was risk in all defence capabilities and procurements.

"The prime minister has said this is a high-risk program," he said.

Mr Moriarty also revealed he only notified Naval Group and Naval Group Australia the government would be cancelling the $90 billion contract the night before the prime minister's morning press conference.

"They were surprised and disappointed, understandably," Mr Moriarty said.

Mr Moriarty said there had been a number of discussions with French officials about the capabilities of the submarines in the Naval Group deal in the lead-up to the cancellation.

Almost 300 employees from Naval Group Australia and Lockheed Martin Australia that were directly affected by the announcement have applied for new jobs through a government portal.

Thirteen offers have been made and 11 have been accepted.

Discussions around further support through the program are being underpinned by the assumption that initial funding will need to cover at least the next six years.

Australian Associated Press