(AAP Image/Mick Tsikas)

Australia's fleet of nuclear submarines will be primarily built in the US or the United Kingdom, with the Morrison government agreeing to drop its requirement for local construction to just 40%, according to a briefing delivered by a senior government figure.

The now-binned contract for the Attack-class boats to be built by France's Naval Group required that 60% of the submarine be built in Australia in Adelaide -- a requirement that Naval Group struggled with throughout the five years of the contract and which played a crucial role in the government's decision to cancel the deal.

By dropping the local build level to 40%, the government is de facto recognising that its local build requirement is inconsistent with a project within acceptable cost or outcome parameters. As Crikey has flagged, trying to maintain local build with the new fleet simply kicked the local content problem with Naval Group down the road.