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Monday, 11 November 2002
Page: 6019

Senator Chris Evans asked the Minister for Defence, upon notice, on 28 August 2002:

With reference to the High Frequency Modernisation Project (noted on page 82 of the Portfolio Budget Statement):

(1) When was approval granted for this project.

(2) Can a description of all the major phases of the project be provided.

(3) (a) What was the original timeline for the completion of the project, including the dates for all major phases in the project; and (b) when was it due to be completed

(4) What was the original budget for this project.

(5) (a) What is the current schedule for the completion of this project, including the dates for all major phases in the project; and (b) when is the project now due to be completed.

(6) If there have been any delays associated with this project in relation to any of the phases, indicate the length of the delay and the reason for the delay.

(7) If there have been any delays associated with this project, has the department sought compensation for the delays or imposed penalties on the supplier.

(8) What is the current budget for this project.

(9) If the cost has increased from the original budget, what are the reasons for the cost increase.

(10) In relation to all contracts signed for this project, can the following information be provided: (a) when the contracts were signed; (b) the amount each contract is worth; (c) the nature of the activity covered by that contract; and (d) whether they have liquidated damages clauses.

(11) Given the scale of the project, why is it not listed on the Defence Materiel Organisation's website like a number of other projects.

Senator Hill (Minister for Defence) —The answer to the honourable senator's question is as follows:

Joint Project 2043 will modernise the high frequency radio communications systems used for the command and control of deployed Australian Defence Force assets. It will comprise a fixed high frequency radio network of four stations in the Riverina, Townsville, Darwin and North West Cape with centralised control being exercised from Canberra. The project will also upgrade selected Australian Defence Force aircraft, ships and vehicles to test the capability of the new system.

(1) Phases 1 and 2A of JP 2043 High Frequency Modernisation Project were approved in 1993. Phase 3A was approved in the context of the 1996/97 Budget.

(2) The High Frequency Modernisation Project is to replace aging Royal Australian Navy (RAN) and Royal Australian Air Force (RAAF) high frequency communications systems and provide enhanced capability using leading edge technology. The original project strategy provided for implementation in four phases:

· Phase 1 - A Network Definition Study to define the basic requirement and conduct an Invitation to Register Interest process, resulting in an initial short-listing of possible tenderers. Purchase of some land for a future high frequency site was also initiated in this phase.

· Phase 2A - Identification of the best value option for provision of a modernised high frequency communications system. This was achieved through parallel Project Definition Studies, undertaken by two companies selected as a result of a Request for Proposal to the short-listed companies selected in Phase 1. Some equipment and land required for the final system were also acquired under this phase.

· Phase 3A - The provision of the fixed network, its support for five years under a Network Operation and Support Contract, upgrading of an initial range of mobile platforms and provision of an Integrated Logistics System package for their support.

· Phase 3B (Never Approved) - Upgrading of other mobile platforms.

In October 1999, Defence revised the number and type of mobile platforms to be upgraded under Phase 3A and cancelled plans for the unapproved Phase 3B.

(3) (a) Phase 1 - commenced in August 1993 for completion in June 1994.

Phase 2A - commenced in December 1994 for completion in December 1996.

Phase 3A - the contract for this phase was signed on 31 December 1997 for completion at the end of 2004.

Phase 3A seeks to upgrade the fixed network in two stages:

(i) An initial network (called Core) to replace the existing networks by the end of 2001.

(ii) Enhancements to the Core network to provide improved capabilities by mid 2004 including the upgrade of selected platforms.

(b) The project was originally due to conclude at the end of 2004.

(4) The original budget for Phase 1 was $3.545m (April 1993 prices). This was increased to $6.970m (December 1996 prices) to fund land purchases. The original budget for Phase 2A was $6.565m (April 1993 prices) and for Phase 3A was $505.00m (December 1996 prices).

(5) (a) Phase 1 - this phase was completed on schedule in June 1994.

Phase 2A - this phase was completed on schedule in December 1996.

Phase 3A - Defence assesses that this phase will be completed in 2005. However, the contractor (Boeing) is still predicting delivery of the final fixed network and upgrades of platforms by the end of 2004.

(b) The project is now due to be completed in 2005.

(6) The delivery of the Core network under Phase 3A has experienced Defence and contractor originated delays and is scheduled for completion in the second half of 2003. Defence delays arose from a review of the operational requirement leading to changes to the technical specifications of the system. Time was taken at the start of the project to ensure that the final product delivered to the ADF could meet the evolving capability requirements.

Boeing is encountering delays due to difficulties with software engineering. Complex software is needed to manage the HF equipment as a single system spanning Australia and its surrounding areas. The software development problems arose because the contractor misjudged the development effort required and is experiencing configuration management problems.

(7) The Phase 3A supply contract has provisions to delay payments when critical milestones are not met. In addition, late delivery of the Core Network would trigger liquidated damages provisions. To date the critical milestone “not met” provisions have been applied twice. Payments were not resumed until Boeing demonstrated that the conditions of the critical milestone had been achieved. While this provision is not a formal penalty it is viewed as such by the supplier as it effects the company's cashflow.

This contract also contains provisions for liquidated damages to remunerate the Commonwealth for the cost of extending the operation and maintenance of the existing RAN and RAAF high frequency communications systems. These will be triggered if delivery of the Core network is more than three months after the contract date (i.e. triggered in February 2003). When triggered the liquidated damages applied are calculated from the contracted delivery date of November 2002.

Boeing's failure to achieve software development milestones resulted in Defence withholding payment. Boeing has recently met some of these milestones and Defence has released $11m of withheld payments. A further $2.5m is still being withheld against work not yet satisfactorily completed.

(8) Phases 1 and 2A were delivered for $2.725m (December 1993 prices) and $6.136m (December 1995 prices) respectively. The current budget for Phase 3A, is $595.116m (December 2002 prices).

(9) Phases 1 and 2A were delivered under budget. Increases for Phase 3A include increases due to expansion of the original scope to include extra capabilities - $14.350m (December 2002 prices)) and increase to compensate for economic conditions (inflation and exchange rate fluctuation - $75.766m (December 2002 prices)). These increases are made up as follows:

(i) on 13 February 1999, real cost increase of $11m (December 1992 prices) to add a High Frequency Direction Finding capability;

(ii) a $2.303m (December 1997 prices) real cost increase in July 1998 consisting of funds not expended in Phases 1 and 2A. This increase was offset by a real cost decrease in Phases 1 and 2A and the transfer of associated capability support tasks;

(iii) a $0.147m (December 1998 prices) real cost increase in February 1999 to Phase 3A consisting of travel funds not expended in Phases 1 and 2A but required on the basis that the associated work was to be undertaken under Phase 3A;

(iv) a $0.900m (December 2001 prices) real cost increase in May 2002 from Project APIN (Army Project in the North) to fund the procurement of new High Frequency radios on behalf of the Army in Darwin; and

(v) the other increases ($75.766m (December 2002 prices)) result from price increases to account for inflation and exchange rate fluctuations.

Despite the schedule delays, the project is proceeding on budget.

(10) (a) Phase 1 was conducted by the Defence Science and Technology Organisation. No contract was entered into. Phase 2A resulted in two contracts, one each with Telstra and Rockwell Australia Pty Ltd, being signed in May 1995. Under Phase 3A, a prime contract for supply of the network was signed with Boeing Australia Ltd on 31 December 1997. A five year maintenance and support contract for the fixed network was also signed with Boeing Australia Ltd on 31 December 1997.

(b) The Phase 2A contracts were for $2m each. The Phase 3A Prime Contract has a fixed price of $314m (in 1996 base date dollars). The Prime Contract also contains options for equipping mobile platforms which may be activated later in the project. The maintenance and support contract price is $72.480m (in 1996 base date dollars).

(c) The Phase 2A contracts were both for Project Definition Studies to identify the best value option for provision of a modernised high frequency communications system. The Phase 3A Primary contract is to replace the existing Naval Communications Stations Canberra, Darwin and Harold E Holt, the high frequency component of the Naval Communications Area Local Stations at Sydney, Fremantle and Cairns, and the RAAF Air Operations Communications System stations at Darwin, Perth, Sydney and Townsville. The new network comprises four geographically distributed pairs of transmitter and receiver stations with a local management facility integrated into either the receiver or transmitter site remotely controlled by a centralised network management facility in the Australian Capital Territory.

Compared with the current systems the modernised system will provide increased security and survivability, reduce the vulnerability to electronic attack and provide improved throughput and significant automation of high frequency communications. It will also reduce operating costs by combining the three staffed RAN and four staffed RAAF sites with one staffed and four unstaffed sites and by providing equipment that requires less operator intervention and is more reliable. The project will also equip selected mobile platforms.

The maintenance and support contract will provide five years of support to the fixed component of the high frequency communications system. The maintenance and support contract will commence after the acceptance of the Core System at which time the system will be used by the ADF as the primary HF system. Enhanced capability introduced during the five year period of the initial support contract will also be supported under the same contract.

(d) The contract for supply of the modernised high frequency communications system has liquidated damages provisions. (See answer to Question 7 above.)

(11) The website was removed to be upgraded and is presently being reviewed by Defence management to ensure the appropriateness of the information being provided for public dissemination.