Airservices forced to defend tender process for $1bn OneSKY

Airservices has been forced to defend its selection of Thales as the preferred vendor for its billion-dollar OneSKY system overhaul with Defence, despite not having signed a contract more than two years on and as costs already climb.

The civil-military air traffic management system (CMATS) project commenced in 2010. At the time, both agencies thought the system would reach final operational capability in 2017-18.

Airservices selected Thales in March 2015, and was expected to formalise an arrangement that same year.

But more than two years after the decision was made, Airservices is still yet to sign a contract, and isn't confident it will do so before the end of 2017.

It has also revealed the project is likely to blow way past its initial cost estimates, and has been forced to defend itself against suggestions of a potential conflict of interest.

"Once-in-a-generation"

When it eventually goes live, the OneSKY system will facilitate air traffic control for 11 percent of the world's civil and military aircraft.

It will merge the separate Defence and Airservices air traffic systems into the "world's most advanced air traffic control system", according to Airservices.

But it's for this reason - and the many layers of complexity the project involves - that the agency is still yet to sign a contract with tentatively chosen supplier Thales.

"Air traffic control systems are not an off-the-shelf product. Each system must cater for a nation's differing airspace coverage requirements, differing number of interfaces, the number of facilities and the specific requirements of the local aviation industry," air chief marshal Sir Angus Houston told a recent senate committee hearing into the project.

"These differences create complexities that mean that all air traffic control systems need to be configured and tailored to address not only the complexities but also the peculiarities of the actual area to be covered. Every system is unique."

The procurement process was, as a result, "inherently constrained and complex from both an operational and a commercial perspective," Houston said.

Earlier this year the Australian National Audit Office (ANAO) revealed the process had involved the testing of nine bids over five phases against a set of 2609 specification requirements.

Much of the delay to signing the contract - which Airservices is hoping will occur by the end of the year but is by no means confident - has been to ensure Airservices will be commercially protected under any arrangement, Houston said.

The agency is planning to provide a final business case to its board "hopefully" towards the end of this year and finally get the contract signed and project underway.

"We have learned [from] issues in the US and elsewhere and have gone back and said that we want to make sure that the specifications, design and criteria that are in the process actually line up with Defence's and our absolute expectations," Airservices board member David Marchant told the committee.

"That was one of the failings in the US; it blew out by billions of dollars because what was promised and what they got weren't in alignment. So we've stopped going to contract until we get the definition and design absolutely right, and it is absolutely in agreement with Defence and ourselves."

The agency has already spent $75 million with Thales on advance work orders ahead of a formal contract signing.

This week Airservices revealed it is expecting to spend $652 million on the CMATS over the next five years.

The project was originally intended to have a 50:50 cost split with Defence, but this has not been settled because the agencies have not been able to align their business cases or approvals processes.

The cost split will be reviewed once the final contract price has been agreed.

Defence received second pass approval for $906 million for the project in December 2014.

Houston revealed at the committee hearing that Defence has gone back to the national security committee of cabinet for final approval and "I think some form of cost increase", meaning the project at completion will far exceed the $1 billion mark.

Airservices' initial estimate for the OneSKY overhaul back in 2011 was $727.6 million.

Conflict of interest

Airservices has also been forced to defend itself against a potential conflict of interest in the procurement process for the Thales system.

The contractor engaged as lead negotiator on the Thales deal, Harry Bradford, was hired through the not-for-profit International Centre for Complex Project Management (ICCPM). He was paid $1 million for his services.

At various points in time Bradford also sat on the board of the ICCPM - as did Thales managing director Chris Jenkins.

"I mean, who in their right mind thought that this could look kosher? For a business that has no competition in the marketplace, you turn over a good dollar for the Australian taxpayer. Well, you used to turn over a very good dollar for the taxpayer; I'm not so sure now," Labor senator Glenn Sterle said.

Marchant argued the board was voluntary and non-remunerated, and no employer-employee relationship between Bradford and Jenkins existed.

"That same board of ICCPM actually had other bidders' CEOs on it as well. It's an industry association, plus defence personnel et cetera, including defence from other countries," he said.

"I want to emphasise— and I've gone through this very thoroughly in the background in Bradford's case—he has never been an employee or contractor of Thales. In fact, he had been of a competitor."

Marchant also noted that the market for skillsets in complex technology and defence projects was, both locally and globally, "very limited".

"The reality is that no organisation such as Airservices has within its staff that sort of detailed skill set for complex technology negotiations."

Why they picked Thales

Marchant revealed there had been "significant disparities" between bidding parties in proposed designs, whether they had proven products or would need to build from scratch, and consequently the resulting bids put forward for the work.

"There are more than a thousand interfaces, and the language of those interfaces is quite different between various parts of Defence and various parts of Airservices, and this thing has to interpret and interface with about a thousand different frameworks, let alone the international ones etc," he said.

"In one case, a bidder had a program that does that to a large degree, including trajectory, but the interfaces are enormous here compared to the locations they've actually used."

He said Thales - the provider of Airservices' existing TAAATS system - had an edge over other bidders because it had a "demonstrated product" that was in use elsewhere.

The ANAO report from April acknowledged Thales had come through the evaluation process as the lowest-risk option that could best comply with the agencies' requirements, but had also been the second most expensive bid.

"The amount of effort (in terms of cost and schedule) to bring the Thales solution to an ‘acceptable baseline’ was assessed to be ‘minimal’ compared with ‘very significant’ for the other two tenders," the ANAO said at the time.