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Rural and Regional Affairs and Transport Legislation Committee
18/08/2015
Performance of Airservices Australia

HARFIELD, Mr Jason, Acting Chief Executive Officer, Airservices Australia

HOOD, Mr Greg, Executive General Manager ACT, Airservices Australia

LOGAN, Mr Paul, Acting Chief Financial Officer, Airservices Australia

Committee met at 17 :00

CHAIR ( Senator Heffernan ): I declare open this public hearing of the Senate Rural and Regional Affairs and Transport Legislation Committee. The committee is inquiring into the operations of Airservices Australia under standing order 25(2)(a). I welcome you all here today. This is a public hearing and a Hansard transcript of the proceedings is being made. Before the committee starts taking evidence, I remind all witnesses that in giving evidence to a committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to the committee.

The committee prefers all evidence to be given in public, but under the Senate's resolutions witnesses do have the right to request to be heard in a private session. Please make any such requests to the committee and that will be considered. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may, of course, be made at any other time.

I remind senators that the Senate has resolved that an officer of the department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about how and when policies were adopted. Officers are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis of the claim.

Finally, on behalf the committee, I would like to thank all those who made themselves available here today for their cooperation in this inquiry. I welcome the young Mr Jason Harfield, acting Chief Executive Officer of Airservices Australia, together with members of his team. Would you like to make a brief opening statement?

Mr Harfield : I will make a very brief opening statement. Good afternoon and thank you for the opportunity to appear and make some very brief opening comments. As you would be aware, there has been a recent change in leadership at Airservices. I would like to acknowledge the work of Ms Margaret Staib as the outgoing chief executive. Margaret has had a distinguished career in public service and I am certain that the nation will continue to benefit from her experience, tenacity and skills. As a result of Margaret's resignation this month, the board of Airservices has appointed me as the interim chief executive officer.

I thought it pertinent to take this opportunity to briefly apprise you of my background. I have over 25 years experience in aviation and the air traffic management industry. I have been a core member of Airservices' executive leadership team since 2005. My Airservices senior executive roles have included being the head of safety, running the air traffic operation for nearly six years and also, recently, leading and running the OneSKY Australia program. Prior to this, I was Australia's head air traffic controller and air space regulator.

Airservices is and always is at the forefront of change and innovation. We face significant hurdles now and into the future, being a key player in an industry that grapples with growth and changing economic realities. It is against this backdrop, with its scale and complexity, that we maintain the confidence of the public and you, its representatives, as we do our daily work of keeping the skies operating safely. I would note at this point that Airservices has not always effectively articulated our management of issues raised by the Senate. There is no doubt that there have been times when communication has not been as clear as it could be. This has led to further concerns and, indeed, a perception of an erosion of confidence. I assure you that I will work hard to correct this.

In the lead-up to this particular hearing I wrote to the committee providing further detail on the terminal control unit integration project. I did this to provide critical context that allows for a fulsome and accurate discussion about Airservices and its role as a service provider within the government policy framework. This issue, like many of the issues we face, is highly complex. I would like to advise the committee that we will be taking every precaution possible to ensure that you are provided with all the facts on every issue of concern. We will engage fulsomely and transparently as often as possible. Once more, I thank you for allowing me to make these opening comments, and my colleagues will be pleased to answer your questions.

Senator BULLOCK: I have a couple of questions, and bear with me, because my lack of knowledge is fairly deep, and I am just taking little baby steps to try to understand a few issues. Firstly I would like to ask what arrangements you have in place to guard against the perception of conflict of interest in your dealings with business.

Mr Harfield : In a general sense—and I will speak more specifically about the OneSKY Australia program, which is one of the important initiatives that we have underway—not only do we have probity plans associated with the various transactions that would manage against conflicts of interest perceived, real, or otherwise, as well as ensuring the integrity of the tender evaluation process,. but also we have a range of controls that form conflict-of-interest registers that are reviewed on a regular basis and are audited as well as overseen by the independent probity advisers.

Senator BULLOCK: So you are happy with the efficacy of those arrangements?

Mr Harfield : Yes.

CHAIR: He obviously has a drop-dead question coming!

Senator BULLOCK: I am just going to go in quietly, Chair! I just want to ask some questions about the International Centre for Complex Project Management. I have looked at their website and it says:

In order to advance complex project management knowledge and practices, ICCPM has established a global network of corporate, government and institutional partners.

And they list eight of their partners, and you are one. Could you tell me the nature of that partnership arrangement with ICCPM?

Mr Harfield : Absolutely. As you mentioned, it was an international community of excellence, as I will call it, formed around complex project management. As some of the senators would no doubt be aware, 70 per cent of complex programs, particularly in the defence industry, fail in some way, shape or form. It was recognised by not only the Australian government but also the UK government and the Canadian government that something had to be done in this space. So, a community of excellence was formed by the industry partners. This community of excellence is all about complex program management. We contracted with ICCPM and became a partner of ICCPM, similar to the Defence Materiel Organisation, because what we have embarked on with the OneSKY Australia program is what will be, once implemented, the world's most integrated and modern air traffic management system in the world.

CHAIR: I will just pause you there. How was the International Centre for Complex Project Management chosen to be the project lead manager?

Mr Harfield : It is not the project lead manager. We contract various services from the International Centre for Complex Project Management.

CHAIR: For the OneSKY project?

Mr Harfield : Yes, and even with the OneSKY project we contract various services from there, because their knowledge and understanding of complex program management is—they are the experts.

CHAIR: Where does ICCPM fit in, then?

Mr Harfield : In other words, Airservices is the lead entity in running the OneSKY Australia program, and we are doing so on behalf of the Department of Defence. This program, as I mentioned before, is world leading and is quite complex and is not our usual run-of-the-mill business. This is a once-in-a-generation activity.

CHAIR: The OneSKY one?

Mr Harfield : Yes, the OneSKY project, because what we are actually doing is replacing the entire air traffic management system, not only the civil one but also the military one across Australia. It is a system that will run 11 per cent of the earth's surface—

Senator STERLE: We understand all that; we just want to get through to the questions, and we do not have a lot of time, so perhaps we could get directly to the answers, please.

Mr Harfield : Understood. As a result of that—this is not our normal capability. We do this once in a generation, and because we are doing this on behalf of the Commonwealth we have gone out to market and through normal procurement processes to obtain the capability and skills, primarily through the International Centre for Complex Project Management, and it is also done with the agreement of the Department of Defence.

CHAIR: But how did the International Centre for Complex Project Management come to light and get the job?

Mr Harfield : We got them through our procurement processes in 2012, to bring them on to establish the request for tender for the OneSKY program.

Senator BULLOCK: I just want to work through this. Looking at ICCPM, I have here their June 2014 newsletter, where they farewell their old chief executive and appoint Deborah Hein as the chief executive, and they note:

The work that Stephen and his various teams including Grant Boore, Jo Spencer, Christine Levers, Brett Ackroyd, Steve Hein, …

So, Steve Hein was an employee of ICCPM?

Mr Harfield : At one stage he was, and then we ended up selecting him for a role within Airservices through a competitive selection exercise.

CHAIR: And then what happened to Mrs Hein?

Mr Harfield : Mrs Hein is now the chief executive of the International Centre for Complex Project Management.

Senator BULLOCK: I will get there, Chair. I just wondered what role Mr Hein, as executive general manager of future service delivery, played in the contractual arrangements with his wife.

Mr Harfield : He was acting in my role as the executive general manager of future service delivery while I was away in the United States. What he did there was sign off an approval that went to the chief executive to sign off the contractual arrangements and payments for services rendered.

Senator BULLOCK: By ICCPM?

Mr Harfield : By ICCPM.

Senator BULLOCK: What involvement did ICCPM have in getting the ultimate contractor, Thales?

Mr Harfield : They provided various services in assisting us. Regarding the fact that Thales has ended up with the contract, through the tender evaluation process they had no involvement except for some support involvement during the tender, but they were not part of the tender evaluation board, the tender evaluation assessment and the ultimate approvals of the tender evaluation.

Senator BULLOCK: Because you would be in charge of the ultimate approvals.

Mr Harfield : Correct.

Senator BULLOCK: But along the way they had input into that.

Mr Harfield : They provided assistance and expertise and subject-matter expertise during the tender evaluation.

Senator BULLOCK: Are you familiar with Mr Chris Jenkins?

Mr Harfield : Yes, I am.

Senator BULLOCK: What is his role?

Mr Harfield : Chris Jenkins is the managing director of Thales Australia. He is also the chairman of the ICCPM board.

Senator BULLOCK: You see, this is where it gets me.

CHAIR: It is a bit messy.

Senator BULLOCK: We have a chap who used to work for ICCPM who now works for Airservices Australia and who plays a role in giving ICCPM the work, where they are involved in the appointment of Thales, and the chairman of ICCPM, which was asked to assist in this work, is the managing director of Thales. It looks like a vast web of very close interconnections, and I wonder how your arrangements for guarding against the perception of conflict of interest were working in this case, where a man recommends that a job goes to his wife, who is part of the process of recommending that the contract goes to the chairman of that company—worth how much?

Mr Harfield : First of all, the assertion that the gentleman recommended his wife for a job is not correct. That is not what actually occurred in that—

CHAIR: She got the job.

Mr Harfield : She was providing services on behalf of ICCPM. They put their invoice in and Steve Hein, acting in my role, signed off the authorisation to go up to the chief executive, who actually approved the payments.

CHAIR: Who else put a price in as a competitive tender?

Mr Harfield : With regard to the tender, I would just like to point out that the board of ICCPM also includes executives from entities that were unsuccessful in the tender evaluation. In other words, for people like Lockheed Martin and Raytheon, who were unsuccessful tenderers—

CHAIR: Would you say it was a little incestuous?

Mr Harfield : It is a small community. The defence industry and the ATM supplier industry are actually quite small. As I said, there is a centre of excellence, the International Centre of Complex Program Management. I would like to point out that we have very stringent probity protocols and procedures, and one of the reasons that we—

Senator BULLOCK: Where can we see how those very stringent measures for probity were applied to this case and the whole interrelated process in this small community ticked off as not being just a web of mates?

Mr Harfield : As I said, we have stringent protocols which are all overseen by an independent probity adviser, which is Ashurst Australia.

CHAIR: Sorry; who?

Mr Harfield : Ashurst Australia. One of the reasons that we put the protocols in place—

Senator BULLOCK: Did they investigate and report on this matter?

Mr Harfield : Absolutely.

Senator BULLOCK: Can we see that report?

Mr Harfield : Ashurst Australia have supplied me with their role in oversighting the protocols and procedures, and I am happy to table that for the committee.

Senator BULLOCK: Relevant to this matter and not generally?

Mr Harfield : Absolutely relevant to this matter.

Senator XENOPHON: Mr Harfield, what is that document?

Mr Harfield : That document is provided by Ashurst on what their role is and what they have been oversighting from a probity—

Senator XENOPHON: If you do not mind—it is directly supplementary to Senator Bullock's line of question—can you provide us, immediately if possible, with a copy of the procedures and probity protocols and rules? Is that produced in writing?

Mr Harfield : Yes. We have a probity plan that is associated with the program that would have all of that in there, and I would be able to provide that to you.

Senator XENOPHON: Do you have that handy?

Mr Harfield : I do not have that on me, but—

Senator XENOPHON: Can you ask someone to email it to the committee?

Mr Harfield : Yes.

Senator XENOPHON: So is that right—you will be emailing it to us now?

Mr Harfield : I will get it forwarded to us and we will email it to the committee.

Senator XENOPHON: Were Ashurst the probity auditor or the probity adviser?

Mr Harfield : They were the independent probity adviser for this program.

Senator XENOPHON: So they were the adviser but not the auditor. Did you have a probity auditor in this?

Mr Harfield : Yes. They have conducted the audit but we have also had our internal audits do probity.

Senator XENOPHON: Can we have the correspondence? Obviously the adviser or the auditor can only rely on the information that they received. It would be useful to know what information they had on which to base their opinion before they gave you the tick of approval.

Mr Harfield : Absolutely.

CHAIR: How did Ashurst get the job? What was the process that gave them the job and not billy blogs?

Mr Harfield : Ashurst came through because of their skills and through a normal recruitment process.

CHAIR: Was there a list of people to choose from when you picked them, or did you think, 'They'll do'?

Mr Harfield : There would have been a choice of firms to choose from and we took their experience in that matter.

CHAIR: Could we have that list?

Mr Harfield : Yes, we can provide that. I do not have that on me right now but we can provide that list.

Senator GALLACHER: Mr Harfield, I have been advised that Airservices Australia has a quarterly governance and audit risk committee meeting with an independent body.

Mr Harfield : I am not exactly sure what you are talking about.

Senator GALLACHER: Is there a quarterly audit and governance risk assessment committee meeting including an outside firm?

Mr Harfield : The only one to my knowledge is the board audit committee that occurs on a quarterly basis.

Senator GALLACHER: So there is a quarterly meeting with an independent person on that body?

Mr Harfield : Our financial auditors sit in on that.

Senator GALLACHER: So you are telling us that all of this process went through that process?

Mr Harfield : This is the tender evaluation process, and the tender evaluation plan for the OneSKY program did not go to the audit committee; however, the probity plan and the authorisation for it went to the Airservices board.

Senator GALLACHER: So the audit committee which meets quarterly with independent guidance—my word; not your work—or independent involvement did not consider this?

Mr Harfield : No; because the full board did. The audit committee is a subcommittee of the Airservices board. It went to the full board.

Senator GALLACHER: That is fine. So the only thing missing in the decision was the independent?

Mr Harfield : No, because the board would have received the sign-off from the independent adviser Ashurst, which was employed—

Senator GALLACHER: So you did not use your existing structure, including an independent voice on your audit committee; you used a separate structure?

Mr Harfield : No, because the independent voice on the audit committee is about our financial statements and a financial thing, where we have brought in somebody specific around probity protocols.

Senator GALLACHER: So this is not about money—

Mr Harfield : This is about contractual arrangements and a tender evaluation process.

CHAIR: But not spending $30,000 down at the Ottoman?

Mr Harfield : No, we are not.

CHAIR: No—but they do not look at that either?

Mr Harfield : Our audit committee would.

CHAIR: What did they say when they saw the bill?

Mr Harfield : I am not sure what bill you are talking about.

CHAIR: The $30,000 that Mr Russell spent down at the Ottoman.

Mr Harfield : That is a few years ago.

CHAIR: That does not matter.

Mr Harfield : It was over a period of three years.

CHAIR: Do you think an independent person standing at the back of the room would think there is something a bit dodgy about all this? What is the relationship between Mr Hein and Mrs Hein swapping roles?

Mr Harfield : They did not swap roles.

CHAIR: They are on each side of the, shall I say, negotiations.

Mr Harfield : No, they are not.

CHAIR: I have some detailed questions. Back to you, Senator Bullock.

Senator BULLOCK: This involves a lot of money. Can you put a figure on the whole-of-life cost of the OneSKY program?

Mr Harfield : Currently, publicly, because we are still in negotiations, we have stated that the acquisition costs will be around $600 million. If you are looking at the life of the system over about 25 years, it would cost around $40 million a year in support costs. You are looking at around $1.5 million over 25 years.

Senator BULLOCK: I am only halfway through reading the Ashurst report, so I might come back on that.

CHAIR: I will ask a couple of questions. Were development costs of the civil and military air traffic management system, CMATM, initially outlined in the tendering process or was it expected that a vendor already would have a combined civil and military air traffic management system to implement?

Mr Harfield : The request for tender that went out on the OneSKY program was primarily looking at existing capability to be able to install with limited development. We put out a request for information into the market back in 2010 and we got the feedback and build the request for tender based on the information that was returned from market.

CHAIR: Eventually you chose the Thales Group?

Mr Harfield : We went through a tender evaluation process that had initially six tenders. We went through that particular process and, at the end, Thales Australia—

CHAIR: Did they have a system that they could show you or were they going to develop the system?

Mr Harfield : They had a system that they could show us.

Senator BULLOCK: This is what Ashurst's key activities were. It does not tell me anything about what they found in terms of the appropriateness of arrangements between the various parties. There is nothing.

Mr Harfield : You asked me about the procedures and protocols in place. You did not ask me what the outcome was, and that is what I said—

Senator BULLOCK: No—I asked: has Ashurst reviewed this and what did they find?

Mr Harfield : Ashurst have conducted a review of our conflict of interest registers to make sure they are all up to date and in line with our procedures and protocols. I will have to take advice on providing that information, but I will take that on notice.

Senator XENOPHON: Can you tell us what the conflict of interest register found? Were there findings with respect to the conflict of interest register?

Mr Harfield : There were no findings on conflict of interest. It was found that all perceived real or declared conflicts of interest were registered appropriately.

Senator BULLOCK: I do not see that as being adequate, really. The fact that people declare that they are up to their eyeballs in it does not say there is not a conflict of interest; it only says they declared it.

Mr Harfield : So what we have to do is manage the risk and put in mitigating strategies appropriately, depending on the level of the conflict of interest. Otherwise you cannot get people to work on—

Senator BULLOCK: Have the mitigating strategies you put in place worked in this instance?

Mr Harfield : Absolutely, otherwise we would have to make changes accordingly, because we have to have this review. It is important to understand the context of how robust we have been around this particular issue. I am not sure if you can remember, but, when we bought the equipment back in the early 1990s, there were two failed attempts because the request for tender or the tendering process was flawed from a process point of view. As a result, the Hughes Thomson case meant that the predecessor of the Civil Aviation Authority entered into case law and how not to do a procurement in Australia. And as a result of that, we were very careful this time around to make sure that the processes and protocols around probity were enshrined, checked and we made sure that the process was flawless on the basis that what we are doing is putting in the nation's air traffic management system. We could not have it stalled because we have end-of-life issues with both the civil and the military air traffic management systems.

Senator BULLOCK: I must say from my point of view that if you think this procedure demonstrates your concern as to avoiding the appearance of conflict of interest, you occupy a parallel universe because for me the perception of conflict of interest is all over this.

Mr Harfield : Absolutely, Senator. That is why we have conflict-of-interest registers and we have protocols in place. It is not just about a real conflict of interest; it is also about perceived conflict of interest and making sure that we are managing appropriately to ensure that the process and the tendering processes are not compromised.

CHAIR: I want a clarification. Did Mr Harry Bradford and Mr Andrew Pyke have something to do with the choosing?

Mr Harfield : They did not have a role in choosing Thales as the final tenderer.

CHAIR: What role did they have?

Mr Harfield : They had subject matter expertise during part of the tender evaluation process on program management and experience in complex programs and now they are being contracted to be the lead negotiator and deputy lead negotiator for the program on behalf of their services and the Department of Defence.

Senator XENOPHON: So you did outsource it? You had to get outside consultants to do it?

Mr Harfield : Absolutely to do the negotiations because the fact is this is not a normal bread and butter and for a complex program, as we have just discussed, of around 1.5 million—

Senator XENOPHON: How much are you paying Mr Bradford?

Mr Harfield : We are paying a daily contract rate but I will have to take on notice what the daily rate is.

Senator XENOPHON: Yes, roughly.

Senator STERLE: Do you have a yearly figure, Mr Harfield? How much so far?

Mr Harfield : I can give you how much so far for the ICCPM contract.

Senator STERLE: Let's go with that.

Mr Harfield : The ICCPM contract, since 2012 has been $4.6 million; it was $740,000 in 2012-13; in 2013-24 it was $1.8 million; and in 2014-15, during the height of the tender evaluation process and leading into the negotiations, it has been $2 million.

Senator XENOPHON: So how much did Mr Bradford get?

Mr Harfield : Mr Bradford's contracting rate, which is paid to ICCPM, through that period is about a million dollars.

Senator XENOPHON: He is obviously a very good negotiator to get that money from you guys.

Mr Harfield : That is not only from us but is also contributed by the Department of Defence. If you have a look at negotiating rates for the size of the contracts that we are talking about into the market, we are actually getting value for money.

CHAIR: When Mr Bradford and company participated in choosing someone for the OneSKY project and eventually Thales was chosen, you said earlier that they did not have to develop, that they had an existing ATM system that combined civil and military?

Mr Harfield : Yes, Senator.

CHAIR: Are you sure?

Mr Harfield : Yes, I am. The issue that surrounds this is that what we are doing here in Australia is that we are the only country in the world that has one civil air traffic management system that covers 11 per cent of the earth's surface. If you look at most countries—for example, the United States has 20 different on-route centres and 20 different systems.

CHAIR: So you are saying they did not have to develop the system, that they had it.

Mr Harfield : What we need to develop is the integration of those systems with the scale and complexity, not that they do not have a system that can—

CHAIR: No, I asked, 'Did they have a combined system?' and you said yes but they—

Mr Harfield : They have a combined system that takes civil and military—

CHAIR: That integrates it.

Mr Harfield : They do not have a system that is on this scale.

CHAIR: So our dear friends at SkyLine Enterprise did have it?

Mr Harfield : Not according to the tender evaluation that we conducted.

CHAIR: According to the documents we have, they did and the crowd you picked did not.

Mr Harfield : That is incorrect, Senator.

CHAIR: That is all right.

Mr Harfield : That is completely incorrect.

CHAIR: How long ago was it that the Thales group was chosen?

Mr Harfield : We announced the Thales group in signing the contract for the advance work supply agreement in February this year.

CHAIR: Do they still expect to complete it in mid-2018?

Mr Harfield : At that stage there was never any intention to complete it in 2018. We have always said that we would commence the transition from the current system to the new system from 2018 over a three-year period. You have to understand that we are actually changing the air traffic management system and we cannot shut it down one day and start it the next. We have to keep it running.

CHAIR: Yes, I understand that. When the tender went out and you chose Thales, did you consider Lockheed or any others?

Mr Harfield : Yes; we considered the six tenderers that were taken through—

CHAIR: You might give us the list and their tender documents.

Mr Harfield : No, I cannot give you their tender documents because they are commercial-in-confidence.

CHAIR: You can give us not their tender documents but the proposition they put to you in terms of their capacity and where they were at with their programs, whether they were fully developed, fully integrated or not. You are saying this one here, which the Thales group had, had the capacity to do this one over there and that one over there but not to do the two together.

Mr Harfield : I can give you the list of those that tendered. The tenderers were: Thales Australia, Lockheed Martin Australia, Raytheon, Indra, ITT Exelis and Nav Canada. The request for tender went out and they were assessed against a number of criteria that went through the process, regardless of what the glossy brochures say of what systems can and cannot do. The tender evaluation took about 12 months to do, going through something like 3,000 requirements to ensure that we got the system that we asked for in the request for tender; not what is in the glossy brochure. As a result of that Thales Australia came out as number one.

CHAIR: If TopSky-ATM Solutions already exists as a system in the Thales group, why does it need such a long development program?

Mr Harfield : Because, ostensibly, what we are doing is integrating 16 different systems together. As I said, if you have a look in Europe, normally an air traffic system will cover the size of a small European country. The closest thing in the market that is the same size and scale to what we currently operate is our current TAAATS equipment. There is no other system in the world that does it on the scale that we do here in Australia. Therefore, all of the tenderers had to have a level of development to put it on the size and scale that we have to operate it on—all of the tenderers.

CHAIR: I have Thales's press release here in which they say they do not have the system but they are going to develop it. But we will come back to that.

Mr Harfield : As I said, that is based on their TopSky system, which is their existing system.

Senator BULLOCK: I have another quick question on Mr Bradford's million. Mr Bradford, a director of ICCPM, was paid $1 million to recommend that this program, which is going to cost hundreds of millions of dollars, be given to his chairman.

Mr Harfield : Negative. No. That is my air traffic control background coming out.

Senator BULLOCK: But he was. He is a director of ICCPM. Jenkins is the chair of ICCPM. Bradford gets paid $1 million—

Mr Harfield : As I stated, Harry Bradford had nothing to do with the selection of Thales. He has been paid the amount that you have talked about for contracting services to be the lead negotiator and negotiate the contracts associated with who we had already chosen as the successful tenderer.

Senator STERLE: Hang on. To negotiate with who?

Mr Harfield : To negotiate with Thales. What I am getting at is that the assertion that was made was that he actually selected it. He did not select it. We selected it. Executives from Defence also selected it as part of their procurement processes and tender evaluation processes. What we have contracted Harry Bradford to do is to assist us, because we do not have the in-house capability to negotiate the contract associated with Thales. He is under guidance from Airservices and Defence on what the parameters are for him to negotiate through with contract negotiation directives. It is not about him just doing something for his mates. He is doing it under instruction from Airservices for the negotiation of the contract.

Senator BULLOCK: But if there was a suggestion that Thales were being paid over the odds, for example, then the person who would have negotiated that contract was Bradford with his chairman.

Mr Harfield : That is not correct, Senator. As I just stated, Harry Bradford would be negotiating the contract within the parameters that Airservices and Defence set for him to negotiate in. So if we decided to pay more, for whatever reason, that would be a decision that Airservices and Defence would make in ensuring that we have the value for money for the system that we currently have.

Senator BULLOCK: You are paying this bloke $1 million to do the negotiations. If he comes back and says, 'This is as good as I can do', are you going to reject his advice?

Mr Harfield : We could reject his advice, because he is just being the lead negotiator that takes his instruction from a governance body made up of Airservices and Defence executives.

Senator BULLOCK: I will leave it there. It just seems to me that this is another line in the web of interrelated parties involved in this.

Mr Harfield : It is all exposed and all audited.

Senator STERLE: Mr Bradford works from ICCPM. Is that correct?

Mr Harfield : He is an associate of ICCPM. We contract his services through ICCPM.

Senator STERLE: And who is Mr Jenkins?

Mr Harfield : Mr Jenkins is the managing director of Thales Australia, but he also is the chairman of the board of ICCPM.

Senator STERLE: So they are both directors on the board of ICCPM. Airservices Australia, via the taxpayer, is paying Mr Bradford $1 million to negotiate with his mate, who is also the boss of Thales—and this does not look murky?

Mr Harfield : Senator, as I said—

CHAIR: You have a straight face.

Senator STERLE: Are you serious?

Mr Harfield : Senator, as I said—

Senator STERLE: How do I get this gig?

Senator BULLOCK: It is all disclosed, so it must be okay. I think that is their evidence.

Senator STERLE: I cannot believe it!

Mr Harfield : As I said, there are probity protocol procedures in place that are all reviewed by an independent probity adviser. They are all audited. We have conflict-of-interest registers to ensure that those conflicts of interest, whether they are real or perceived, are identified. Then we have to ensure that that risk is mitigated appropriately. In the case of ICCPM, we also asked for their declarations as well to ensure that they do not compromise the particular process.

Senator BULLOCK: What do you do to mitigate this obvious risk?

CHAIR: Do you remove them from the information circle, like Mr and Mrs Hein who do not talk to one another and do not talk at tea when they go home and get up in the morning? I have been through conflict-of-interest issues for 20 years. It is like the courts and the law where you have to tell the truth. How in God's name do you do that if they are still in the information loop?

Mr Harfield : Depending on what role they are playing and depending on what activities they are contracted to do is what information loop that they would be in and what access they would have to certain information at certain times—for example, I will take the case of Deb Hein and her contract work. She was not part of the tender evaluation organisation. That was kept separate. It was kept separate from a number of other functions within Airservices to ensure that there was not the crossing of information.

CHAIR: But they are all eating at the same table!

Senator STERLE: Mr Harfield, you said 'the board appointed'. Who chose Thales?

Mr Harfield : The tender evaluation board, which consists of a number of Airservices executives as well as Defence executives, gave the approval of choosing Thales as the number one supplier. Then that selection and the process leading up to the selection was reviewed by Ashurst to ensure that we stuck to particular processes. It was also endorsed by the Airservices board.

Senator STERLE: Were the board aware of all the links between Mr Bradford and Mr Jenkins—that they were both directors on ICCPM? Were they aware that one of them, Mr Jenkins, is the managing director of the company that was successful, and that they have engaged this other company, ICCPM, to negotiate with Thales? Was the board aware of that?

CHAIR: This is classic Airservices!

Mr Harfield : The board were made aware through the normal tender evaluation plan and the protocols.

Senator STERLE: At what stage did the board become aware? After they ticked off, cracked the bottle of champagne and said, 'We've got a good deal here', or was it before?

Mr Harfield : No. The relationship with ICCPM has been around since 2012, and they were aware at that time, throughout the whole period, of ICCPM's involvement.

Senator STERLE: You have to put it in simple terms for me. Before the contract was ticked off for what was allegedly going to be so many hundreds of millions of dollars—we have not even touched on what it is going to blow out to if there is a blow-out—the board was fully aware of the interlinking relationships between Mr Jenkins, ICCPM, Bradford and Thales. They knew all that. That was all in front of them before they said: 'This won't look smelly. We can tick off on this.'

Mr Harfield : As I said, ICCPM have been involved with Airservices since 2012. This was before we even put out the request for tender.

Senator STERLE: Please look me in the eye and say the board knew of all the relationships before the contracts were signed and the agreement was done.

Mr Harfield : I cannot speak for the board and their understanding of all the interrelationships, but they were advised of ICCPM, the activities associated with ICCPM and the potential conflict—

Senator STERLE: And Mr Jenkins's role—

Mr Harfield : I do not know whether they were advised of Mr Jenkins, but they did know that, for the tenders, a number of executives, even those such as Lockheed Martin and Raytheon who were involved in the unsuccessful tenders are also sitting on the board of ICCPM.

Senator STERLE: So what are you suggesting? If we want to get the root of how it was all done, we should have the board and the chairman in front of us? Is that what we should be doing? It took you three goes to come out and say you could not quite maybe lock in the whole board. This is what has given us some problems with Airservices before. We have all played the game in Senate estimates. We know that, the more questions we ask, the more answers you can come up with. All we want is the simple truth, a simple yes or no. Am I right that you have confirmed with me that you cannot guarantee that the board absolutely knew of the interlocking relationships between ICCPM since 2012 and Mr Jenkins as a director—

Mr Harfield : I cannot confirm whether they understood all the nuances.

Senator GALLACHER: Can you confirm that it went to the quarterly audit governance meeting?

Mr Harfield : If you are talking about the board audit committee, which is a subcommittee of the Airservices board—

Senator GALLACHER: It has an independent party on it and meets quarterly.

Mr Harfield : Yes, it does meet quarterly.

Senator GALLACHER: And you are saying that the $660 million purchase did not go through that process; it went through another process.

Mr Harfield : Yes, because the $600 million process is going to the Airservices board as the Airservices board is the financial delegate associated with it. It does not go to a subcommittee of the board. Our board governance manual is that subcommittees of our board do not have decision-making powers, so therefore it is going to the full board of Airservices.

CHAIR: To get it through my thick head: did the board tick off the contract by way of agreeing to a recommendation to the board from your mob, or did they actually evaluate the thing and then tick it off?

Mr Harfield : No, the evaluation is done by the tender evaluation board and the tender evaluation organisation. The recommendation that was made by the tender evaluation board was endorsed by the Airservices board, which was that Thales would be the successful business.

CHAIR: So whoever it was would just say: 'That's the recommendation. Just move that way. Tick. Gone.'

Mr Harfield : No, it does not work like that. There had to be a full presentation to the board on how we came to our conclusion, and they sign off—

CHAIR: It sounds to me as though the board would not know the details of the questions that Senator Sterle was asking—that is, about the incestuous relationships between everyone, which certainly does not even begin to look like it would pass the public test. It sounds dodgy.

Senator XENOPHON: Can you advise us on notice or orally what information the board was provided when those key decisions were made? Were they provided details of any business case and any issues of apparent conflicts of interest? I am trying to work out how much or how little information the board had before they made such a big decision. I think that is a fair, objective question.

Mr Harfield : As we said, we are trying to arrange for the tender evaluation or probity plan associated with the program. That puts in the systems and processes to manage whether there was conflict of interest in the process. There is a tender evaluation plan for how the tender evaluation is to be assessed. That is endorsed by the Airservices board, and the tender evaluation process then continues and is run by the tender evaluation organisation.

Senator XENOPHON: You can provide us with copies of those, can't you?

Mr Harfield : Yes. I just need to take advice on the tender evaluation plan, but I will take it on notice.

Senator XENOPHON: Why wouldn't we be able to see that?

Mr Harfield : Because of the sensitivity of it. I just need to take advice on it. If I can provide it, I will.

Senator XENOPHON: There is always the option to request that it be provided in camera—in confidence to the committee.

Mr Harfield : I am happy to provide it in camera to the committee with no problem at all. It is just the public. The probity plan has just been emailed to the committee, so that is there.

Senator GALLACHER: You still did not try to tell us whether the board had a business case to look at.

Mr Harfield : In this particular case the board does not see the business case for the selection of the successful tender.

Senator GALLACHER: For a $660 million project with $40 million contingent costs per annum for the next 20 years the board does not get a look at a business case? Is that your evidence?

Mr Harfield : No, it is not, because we are not actually at that stage. We are selecting the successful tenderer, not signing the contract. That is the question that I am answering is what Senator Xenophon just asked and is about what the board saw and knew with regard to selecting Thales as the successful tenderer. Then we go through a process of negotiating a contract which the board then has to sign up to, seeing the business case, the financial data et cetera for the contract.

Senator XENOPHON: Once you are a successful tenderer, though, isn't there an expectation on the part of the successful tenderer that they will get the contract? They will get the business; it is just a question of negotiating around the edges. The die is cast, is it not, once a successful tenderer is locked in?

Mr Harfield : Once a tenderer is successful, yes, they will end up getting the contract, but you want to make sure those contractual arrangements are correct and that what you are actually contracting to is actually going to meet the requirements.

Senator XENOPHON: I specialise in personal injury laws. I was an ambulance chaser, so I am not pretending to be an expert on contractual law, but I would have thought it is very pertinent to Senator Gallacher's question that, once the successful tenderer has been chosen, that is basically it. You can argue about the contract, but there is a contractual nexus with the tenderer. For the board not to be aware of the business case prior to the successful tenderer being signed off on—I agree with Senator Gallacher—is quite staggering.

Mr Harfield : The business case was formed before we put out the request for tender. In other words, this was back in 2010 that we had—

Senator XENOPHON: And the board was aware of the business case?

Mr Harfield : Absolutely, and they signed off the release and said that we could release the request for tender to market because of the size and exposure.

Senator GALLACHER: So the board has seen a business case.

Mr Harfield : That is correct.

Senator GALLACHER: Can we have a look at the business case?

Mr Harfield : We can provide a copy of the business case.

CHAIR: I will reflect on my memory. At one stage of the game in your previous role you were in charge of all this?

Mr Harfield : Yes.

CHAIR: So you were actually in charge of the whole game.

Mr Harfield : Once the request for tender went out, I was in charge of taking the thing through the tender evaluation process and bringing it into execution.

CHAIR: Some boards are more aggressive than others. Did the board have any idea that it, whatever it was—$600 million or $1 billion over a period of years—was the size that they were about to let?

Mr Harfield : Yes, they did. The tender evaluation assessed four criteria. There were the technical side, operation and safety aspects of the system; the vendor ability to implement the system; the ability to sustain the system over 25 years; and commercial and financial grounds. Under those particular criteria all of the tenders were assessed, and it came out on accommodation of those that Thales came out in front. As a result of that, those outcomes and the assessments against the other tenderers were all put forward to the board to endorse the recommendation. They could have turned around and said, 'No, that's not the case.'

CHAIR: So you will show us the independent tenders in camera.

Mr Harfield : We will show you in camera what they had tendered or what their proposal was.

CHAIR: Were some companies more advanced in their integration of the technology than others in that process? You were in charge of it. You ought to know.

Mr Harfield : Yes, they were. They all varied to different degrees.

CHAIR: The allegation of part of the criticism of how this has all happened—let alone the bonus system that was behind it—is that some or a company was a lot further developed with the integration than others. You say that is not the case.

Mr Harfield : Not on the evidence that was put before us in the tender evaluation and the proposals put to us by the tenderers.

CHAIR: So you are saying that SkyLine Enterprise was not any further developed. You did not have years of integration, developing. They were at the same stage as Thales.

Mr Harfield : Their proposal had three separate systems that all had to be integrated before we had a holistic system, which is very different from some of the other proposals.

Senator BULLOCK: You said earlier that you took action to mitigate the risk of the perception of conflict of interest. I asked: 'What action did you take to mitigate the risk of a perception of conflict of interest, in this case?' In this case, where conflicts abound, what actions did you take?

Mr Harfield : It would depend on what the potential conflict of interest was.

Senator BULLOCK: It is a question of fact. It does not depend on anything. What actions did you take to address, mitigate, the perception of conflict of interest in this matter?

Mr Harfield : An individual with a potential for conflict of interest would not be allowed to be part of the tenderer-evaluation organisation, as a result of the fact of whatever role they were carrying out. It all depends on what activities they are taking, what they are doing, involved in, depending on the conflict of interest, as to what mitigating factors we would need.

Senator BULLOCK: Undoubtedly, there are hundreds of people involved in all of this. I am just looking at the man and his wife, the chairman and the director, all involved in this process out of which they all benefit to the tune of millions of dollars. There is a perception of conflict there. I want to know—not in theory, what you might have done in some theoretical circumstance—what you actually did to manage these perceived conflicts.

Mr Harfield : For example, both Steve and Deb Hein were excluded from being part of the tender-evaluation process.

Senator BULLOCK: And negotiations between Mr Bradford and Thales, how did you manage that?

Mr Harfield : The lead negotiator from the Thales side is not Mr Jenkins. He sits at a governance role within Thales. Harry Bradford takes instructions from what we call the CMATS review board, which is a combination of a number of executives from Airservices and Defence, to take the instructions.

Senator STERLE: Do you seriously think that we would not think that Mr Bradford takes instructions from someone from Thales but Mr Jenkins might not have any interaction in there? Are you seriously assuming—

Mr Harfield : I did not say that—

Senator STERLE: That is how it comes out. I cannot believe you do not think the managing director would have some input into what is going on with the major client—you being you guys or the taxpayer.

Mr Harfield : Absolutely. There is some influence from the Thales side but Harry Bradford does not take instructions from Chris Jenkins. He takes instructions from the CMATS review board.

Senator STERLE: When he negotiates with Thales, who does he talk to?

Mr Harfield : An individual, in Melbourne, by the name of Lionel Wonneberger.

Senator STERLE: You do not think he is under the pecking order of Mr Jenkins.

Mr Harfield : Not at all. Absolutely. He is the Thales negotiator. The question was whether Harry Bradford would take instructions from Thales. I said Harry Bradford does not take instructions from Thales he takes it from Airservices and Defence. He has to operate within the bounds of what we describe not what Thales describes.

Senator STERLE: Nobody has to go back and talk to Thales. That is the whole idea. He is not negotiating with the cleaner.

Mr Harfield : He is negotiating with Thales within the bounds that we set for him.

Senator BULLOCK: Totally uninfluenced by his relationship with Mr Jenkins.

Mr Harfield : Absolutely.

Senator BULLOCK: Absolutely. Good evidence.

Senator STERLE: Is Mr Jenkins paid anything by Airservices Australia?

Mr Harfield : Other than the contracts we have with Thales Australia?

Senator STERLE: There is no other payment?

Mr Harfield : No, there is not.

Senator STERLE: It is straight to Thales. Mr Jenkins has no role—

Mr Harfield : It is a contracting arrangement between Airservices Australia and Thales; correct.

Senator GALLACHER: There are huge amounts of money being talked about in this hearing. I just had a look at your 2013-14 report. You did four million aircraft movements and 90 million passengers. You billed the airlines $978.5 million for those services. Presumably, the airlines then pass that back to passengers. The travelling public, in Australia, are paying about $10.87 to fly safely, and you have done a good job. But there is another probity issue about what you do with that $978 million. Is there any objection to those figures, about $10.87 a passenger?

Mr Logan : That sounds about right.

Senator GALLACHER: If you skip through your 2013-14 report you will come to the bit where you get $21.3 million, and a final dividend of $10 million was paid to the federal government. There was an interim dividend of $6 million. You were 2.2 per cent down on your average return on equity. You were supposed to get 6.1 per cent but you got 3.9 per cent. Is that correct, Mr Logan?

Mr Logan : That sounds right.

Senator GALLACHER: You were down on your return. You did spend $186 million on capital works, some of which you forgot to send to the public works committee, but you apologised for that. Your overall expenses were up by 11.2 per cent to $994 million. Your employee costs increased by $78 million due to salary increases and increases in staff numbers associated with delivering the capital works program and increased delivery of regional services.

What really intrigues me in your financial affairs is that your provision for separation and redundancies went up $3 million in the same year. So you are spending more on wages, more on people, yet somehow or other you have managed to find an extra $3 million for separation and redundancy packages. It was up from $4 million to $7 million. If you are getting 10 or 11 bucks off the travelling public—and we want to travel safely, no-one more so than this table—you have to come to this committee hearing with clean hands and assure us that your probity is excellent, that your governance is excellent. You have a quarterly meeting, I am advised by the Auditor-General, which he take some comfort in, and you tell us that this process of $660 million does not go that way; it goes another way.

Mr Harfield : Correct.

Senator GALLACHER: Can you tell me why you spent $7 million on separation and redundancies, in the 2013-14 year, in an environment where you were putting people on and growing?

Mr Logan : I would have to take that question, in detail, on notice.

Senator GALLACHER: Did you put off 100 people?

Mr Logan : No, I would have to check the numbers.

Senator GALLACHER: Did you put off five people?

Mr Logan : We did put off some people as part of, as I recall, a restructure that was taking part in our air traffic control area. My colleague from air traffic control may be able to explain a little bit about this.

Senator GALLACHER: If it is a question on notice and it involves 150 people, fine. But if it is departing CEOs or senior executives writing their own redundancies then this committee wants to know about it.

Mr Logan : No, those numbers were really about restructuring the organisation to allow it to operate more efficiently, going into the future.

Senator GALLACHER: In your CEO's report and your chairman's report none of that is mentioned. It just says that it is due to salary increases and increases in staff numbers. Yet if you read the fine print it went up $3 million on separation and redundancies.

CHAIR: You have had some pretty dramatic, shall we say, events in Airservices and you have lost, in recent times, Mr Russell's replacement. You have lost your chief financial officer, Mr Clarke, have you not?

Mr Harfield : That is right.

CHAIR: He got handed what I would call the 'shit sandwich' on all the financial stuff that went wrong, and Mr Russell went to heaven. What sort of package did he get when he left?

Mr Harfield : I am not privy to any of the confidential or commercial arrangements.

CHAIR: Who is? You are the boss but you do not know.

Senator XENOPHON: Do you not know the terms of Mr Clarke's departure?

Mr Harfield : Mr Clarke resigned effective 1 July and only took over as the interim chief executive on 10 August. It was one of his colleagues before that.

CHAIR: The first thing I would want to know, if I were you, is what the deal was.

Senator XENOPHON: Further to Senator Heffernan's line of questioning, Mr Clarke resigned; is that correct?

Mr Harfield : That is correct.

Senator XENOPHON: Did anyone within Airservices, to your knowledge, request his resignation?

Mr Harfield : To my knowledge, no. He resigned of his own volition, for his own reasons.

Senator XENOPHON: Does that mean, by virtue of resignation, you are entitled to a lesser amount in a redundancy or separation package? It is not a redundancy matter; it is a resignation. So did he get anything other than his statutory entitlements once he resigned—in other words, any outstanding leave that may have been owing to him?

Mr Harfield : I have no understanding of what arrangements were made in reference to Mr Clarke.

Senator XENOPHON: Does Mr Logan know?

Mr Logan : No.

CHAIR: So who does?

Senator STERLE: This is not good enough.

CHAIR: If you blokes are the boss cockies, who does know?

Mr Harfield : That is a matter between Andrew Clarke and the board.

CHAIR: I bet you it is not.

Senator STERLE: No, Mr Harfield, it is taxpayer dollars. It is no different to when we leave or whatever; it is taxpayers' money.

Senator XENOPHON: We need to call Sir Angus Houston to give us information about Mr Clarke's resignation and any payment package he got.

CHAIR: Are you saying, which does not sound right to me, that the board would negotiate directly the package for Mr Clarke to leave?

Mr Harfield : Our governance arrangement is that the chief financial officer is appointed by the board of Airservices, so, therefore, that was handled by the board.

CHAIR: Would the board be across the details of his package when he was put on?

Senator XENOPHON: On who's advice, Chair? The decision was the board's.

Mr Harfield : No, I did not say that. You said who handled the resignation and I said—

CHAIR: What was the advice given on Mr Clarke's leaving as a recommendation to the board of what was a fair thing? Who gave that advice?

Mr Harfield : I do not know.

CHAIR: This is a very mysterious operation you run. You must have someone in the system who makes a recommendation to the board on Mr Clarke's leaving—for health reasons is the usual excuse—that says, 'This is what we think a fair package is. Tick off, please.' Someone in your organisation must have had the book with the sums in it, because the board would not have it to know what the package would be.

Mr Harfield : I am unaware of who handled that.

Senator STERLE: I just want to assist. We have called Airservices back for a number of reasons. There were very high-profile pieces of commentary in The Australian newspaper about bonuses. We had a run in a couple of times with Airservices Australia because of the uncertainty of evidence that was given at Senate estimates in credit card fraud. Mr Harfield, I am not suggesting this for one minute but put yourself out to all those people listening. There has been a flurry of activity around Airservices. There has been commentary from myself and from the chair about something is not right. Things should not be shoved under the carpet but all of a sudden the CEO has left. I understand that. I believe that was sick leave; am I right there?

Mr Harfield : Ms Staib decided not to take on a second term as chief executive and asked to be released early due to short-term—

Senator STERLE: So in that case you have clarified that it was not sick leave. Was she reappointed by the board?

Mr Harfield : My understanding is she was offered a reappointment by the board and decided not to take it.

Senator STERLE: The CFO has left?

Mr Harfield : The CFO decided to resign, yes.

Senator STERLE: For those of the uninitiated that are sitting around listening to this, this seems very strange that there is a flurry of departures by senior people from Airservices and we know there were some serious pays. I think Ms Staib told us it was nearly $700,000 or whatever. I am sure the CFO was not on a truckies wage. But you have come here today, you know we are going to talk about redundancies and bonuses, and no-one at Airservices thought, 'How far do you think the senators might want to go back?' No-one from Airservices may have thought—and I am looking at you, Mr Harfield, as CEO—'Crikey, we better arm ourselves with some logical pieces of information that will go to why people left, how much they got, the packages, why they got it.' You do not have that information?

This is absolutely appalling and it is a trend being set with Airservices that is actually like pulling teeth. I was hoping, Mr Harfield, you would be a new broom but you are not setting me on fire.

Mr Harfield : I have just been notified about Ms Staib departure, who I can say got paid no more than her entitlements. That was something that I was not necessarily a part of but I was aware of it in accepting my role as the interim chief executive.

Mr Clarke resigned back in June this year. It was effective 1 July. The reason I do not have the information at hand is that I am not privy to it because they are confidential-in-commercial arrangements that are put in place by a relationship between Andrew Clarke and the board of Airservices. Under privacy and that, it is not my business.

CHAIR: But you knew Ms Staib's package?

Mr Harfield : That is because Ms Staib did not get any package as a result—

CHAIR: You knew what her circumstances were but that was not privy to the board?

Mr Harfield : It was privy to the board because the board of Airservices have quizzed the chief executive.

CHAIR: Mr Clarke was the chief financial officer and, as I said to him and others, 'Grow up because you are undermining the boss.' Would he not have negotiated the severance packages for other people that left?

Mr Harfield : The chief financial officer?

CHAIR: Yes.

Mr Harfield : Not necessarily, no.

CHAIR: But he would know what they were.

Senator GALLACHER: He would have had to authorise the payment.

CHAIR: He would have had to write the cheque.

Mr Harfield : He would most likely know, yes.

CHAIR: So would he have then organised his own package?

Mr Harfield : No.

CHAIR: Who did?

Mr Harfield : My understanding is if there was a package or what those arrangements were, that is a relationship between him and the board of Airservices.

Senator XENOPHON: Directly to the chair's question, do you sit on the board as interim CEO?

Mr Harfield : I do, yes.

Senator XENOPHON: Do you do that now?

Mr Harfield : Yes. But I only took over as interim chief executive on 10 August, which was last Monday.

Senator XENOPHON: I understand that. So you were not aware. But do you have access to the board's minutes?

Mr Harfield : I would have access to the non-executive director minutes of the board.

Senator XENOPHON: Have you made inquiries as to Mr Clarke's terms of severance of resignation?

Mr Harfield : No I have not.

Senator XENOPHON: When you say that the board deals with those issues, did the board get advice from any executives in Airservices Australia in relation to its negotiations with Mr Clarke?

Mr Harfield : I am unaware of any of the executive within Airservices.

Senator XENOPHON: So the board did it all on its own as an autonomous body, not with any reference to any executives or expertise within Airservices Australia?

Mr Harfield : That is my understanding.

Senator XENOPHON: Is that a bit unusual? Does the board not normally take advice from executives?

Mr Harfield : It can but, under the governance arrangements in Australia, a board director can take independent advice other than from management.

Senator XENOPHON: Chair, I think it is very important that we hear from the board as to the nature of these arrangements. To be fair to you, if you are not aware of it, then obviously the board is.

CHAIR: Are there bonus arrangements?

Senator STERLE: Mr Harfield, I am quoting from your opening statement here. You said:

There is no doubt that there has been times when communication has not been as clear as it could be and this had led to further concerns and indeed a perception of erosion of confidence.

You then go on to say:

I assure you senators that I will work hard to correct this.

Who do we have to get on the telephone to find out how many taxpayers' dollars were paid to the departing CFO and how the heck did they come to that figure? Is there someone still down in there in the department or is there a red wine club going on with the board at the moment where you can track them down? We just cannot accept that it is a little secret between the CFO and the board.

Senator GALLACHER: I will put it out there. I have been told that the CFO negotiated or authorised all of the departing executive payments and was in a very good position to know what everybody had been paid. He wrote his own ticket for his resignation. Now that might be completely erroneous information; it is up to you to disprove it.

Mr Harfield : I can take advice on it because I have no knowledge of any of those facts. I can take advice and take it on notice.

Senator GALLACHER: Somebody does and that is the direct allegation.

Senator XENOPHON: Do you think, as the interim CEO, you should have knowledge of something as significant as the CFO leaving and the nature of any package and any remuneration payments made as a result of that resignation? It does impact your bottom line, does it not, depending on what he was paid out.

Mr Harfield : Yes it does.

Senator XENOPHON: Therefore you should know about it, should you not?

Mr Harfield : Not necessarily because it would be part of decisions made within an allocation that the board has. What I am getting at is that this was a departure that came into effect over a month ago. Since that time, the chief executive of the organisation has decided not to continue. As a result of that, I have been appointed as the interim chief executive. This is something that has happened in the past so therefore, in answering your question, do I go back to every executive that has left?

Senator XENOPHON: But do you not want to know about the size of this discretionary fund the board may have? Do we know how big this discretionary fund is that the board may have?

Mr Harfield : There was an allocation under the budgeting arrangements.

Senator XENOPHON: How big was that allocation? Can somebody tell me?

Mr Logan : I am not aware of it.

CHAIR: Who runs the books at this bloody place?

Mr Logan : I do.

CHAIR: And you do not know what is in the books?

Mr Logan : I do know what is in the books. In the case of this particular payment, I have not been privy to the details.

Senator XENOPHON: But we know about the global fund.

CHAIR: You decided credit card fraud was not worth reporting to the police—not you personally. How do you know someone is not knocking the place off if you are not privy to do it?

Mr Logan : Under the governance arrangements that we have in place, we have an executive remuneration officer that worked with the board.

Senator GALLACHER: So would this person know how much the payout was?

Mr Logan : I would presume so.

Senator GALLACHER: Can we give them a call?

Senator XENOPHON: Is he or she here?

Mr Logan : I do not believe so.

Senator STERLE: I will lend you the phone.

Mr Logan : They are not here.

Mr Harfield : I need to take advice on this because there are commercial-in-confidence arrangements that have been put in place.

Senator STERLE: I am sorry but, no, you have no competition. The travelling public pays every cent into Airservices. Aviation travellers fund you. This is ludicrous. As an ex-union official and as an young shop steward in the trucking industry, I wish for crying out loud that I could have negotiated secretly with the board a few payouts for my mates. This is just not acceptable. You have got to understand the stench around this. Mr Harfield, pick up the phone. Can you ring this person? Who is this person, Mr Logan, that you said would know?

Mr Logan : I would need to take advice.

Senator STERLE: You do not need to take advice. You do not know the person. Put your hand up; does anyone know who this is?

CHAIR: But are you not in charge of the books?

Mr Logan : Yes I am.

CHAIR: How can you be in charge of the books if you do not know what the books are doing?

Mr Logan : In this case it was an arrangement that I was not privy to.

Senator STERLE: Someone has got to know, mate. They can pick up the phone.

CHAIR: You say in this case you did not know. Is that not a serious flaw in the area of your responsibility? If it happens to be dodgy—and I am not saying for a minute it would be—the buck will stop with you.

Mr Logan : The arrangement was negotiated before I came into this position.

Senator GALLACHER: Can we just put on the record that we are talking about a salary which was about $509,000 a year inclusive of $100,000 bonus, so it is not a trivial matter and it would stick out in the finances.

Senator XENOPHON: Chair, can I get some guidance from you and the committee. If it is the will of the committee to establish what the severance package or whatever you want to call it that was paid to Mr Clarke then that is something that is within the knowledge of the executive remuneration officer. Is that right?

Mr Logan : Yes it would be.

Senator XENOPHON: I wonder whether we need to have a two-minute break as a committee to resolve to request that now or whether there is a consensus among the committee to request that and that we request that Airservices Australia provide us with some information while they are still giving evidence.

CHAIR: I do not think there is any need for a meeting.

Senator STERLE: This is a classic stalling; no-one wants to answer it. You have identified someone but no-one is making an effort to get on the phone. Everyone sitting at the back here, do not tell me that you do not have a contact number for this person because you have and you are stalling.

Senator XENOPHON: If it is the will of the committee that we establish the amount paid to Mr Clarke on his resignation then that is something that would be within the knowledge of the executive remuneration officer. The question is: do we request that of Airservices Australia so that we can establish that?

CHAIR: Move that way.

Senator XENOPHON: I move that we should request that figure.

Senator STERLE: Done.

Senator GALLACHER: You could take it in camera.

Senator XENOPHON: If we need to take it in camera, we can request that.

CHAIR: Doesn't that worry you as the boss of the books that you do not know what is going on?

Mr Logan : We have obviously a number of expenses. In this case, I have not looked into the specifics of that particular payment. The payment was arranged before I arrived in the job. I have no doubt that I will be looking into it in detail.

CHAIR: Mr Russell flicked a lot of the responsibility away from himself to this Mr Clark on how you spent $300,000 or something travelling around the world first-class with the cook and sipping wine. This Mr Clark was the keeper of all the financial secrets in the finish. The person independently standing at the back of the room could say because you do not know that he might have got a shut-up deal to get out of the place before he blew the bloody whistle. How do we know? We are sitting here thinking: this is very strange as it was with the credit card fraud. As I said at that hearing, you have a responsibility under the Crimes Act to report it.

Mr Logan : Understood.

Mr Harfield : We have just had advice that any agreement is actually subject to legal professional privilege. As a result of that, I am happy to take advice on that and take it on notice.

CHAIR: This is Mr Hood's advice to you, is it?

Mr Harfield : This is the information that has been provided to me that—

CHAIR: He is a cunning old dog, this man.

Mr Harfield : It is not Mr Hood's advice.

Senator WILLIAMS: I could say that about you, Chair!

CHAIR: That is a compliment.

Senator XENOPHON: Can we just establish: a request has been made—I think I should clarify that and whether there needs to be fresh motion. I move that Airservices Australia provides to this committee by 7 pm tonight details of the payments made to Mr Clark upon his resignation or related to his resignation; and that, in the absence of that information by 7 pm, to have an explanation from Airservices Australia why they cannot provide that information—that is the motion.

CHAIR: So, yes, deal with that—unanimous.

Mr Harfield : We are saying we will not be able to provide that because my understanding is, subject to legal professional privilege, which I need to take advice on, so I need to take it on notice.

Senator XENOPHON: Are you aware of the provisions of the Parliamentary Privileges Act?

Senator GALLACHER: It is a standing order.

Mr Harfield : Please remind me.

Senator XENOPHON: I am just suggesting—

Mr Harfield : I cannot make a decision on something that it is legal professional privilege and I need to take advice on that.

Senator XENOPHON: Why would it be legal professional privilege, Mr Harfield? Was there a settlement?

Mr Harfield : I do not know, Senator; all I have been advised is that any agreement is subject to legal professional privilege.

Senator XENOPHON: That is very unusual because, if it is just resignation of his own volition, why would it need to be legal and professional privilege?

CHAIR: Just pausing there: Mr Harfield, to be fair to you, are you making a claim under public immunity?

Mr Harfield : Could you please explain that?

CHAIR: Public interest immunity?

Senator STERLE: It sounds like board interest immunity.

CHAIR: No, are you making a claim—

Senator STERLE: This is the boys' club, mate.

CHAIR: Order, please.

Mr Harfield : What I am saying is that my understanding is that any agreement is subject to legal professional privilege. I need to take advice on that to what can be provided, so I need to take it on notice.

Senator XENOPHON: Why would a voluntary resignation be subject to legal professional privilege?

CHAIR: Order! We will leave it at that—

Mr Harfield : We will take that on notice.

CHAIR: and you will come back to us.

Mr Harfield : Correct.

CHAIR: But in your position—I am just a worn-out farmer. If I took over the job that you have taken over—and congratulations—the first thing I would want to know is these sorts of things. We have not got to the bonuses—do we have questions on the bonus system?

Senator STERLE: We do; we are not pushing. There is still more to talk about.

Senator EDWARDS: I do not know how you are dividing up the time, but I would like my turn.

Senator XENOPHON: Chair, I need a few minutes to discuss the issue of the automatic dependent surveillance broadcast system.

CHAIR: We are just going to move off this for a minute, so we all cool down. We are going to go to Senator Xenophon and then Senator Edwards. Change the subject.

Senator XENOPHON: Can I just go to the issue of the automatic dependent surveillance broadcast system—ADS-B. I will go to that to change the subject. I note that Mr Dick Smith will be giving evidence later this evening in relation to his concerns about that, and I have also been contacted by people within general aviation about the impact of ADS-B and its rollout on general aviation. Mr Smith's submission is fairly clear; however, what people in general aviation are telling me is that the way it is being rolled out and the burden of it will be crippling to large sections of general aviation. My question to you is: why is it being rolled out at this time rather than waiting until the United States rolls this out when the cost of the ADSB per aircraft will be dramatically lower?

Mr Harfield : The mandates that have been put forward as part of the government policy in rolling out ADS-B have been formulated in improving our service provision and aviation, considering that we have a different surveillance base from what the United States has. This is about meeting our needs, not necessarily those of Australia—

Senator XENOPHON: Not necessarily those of America, you mean?

Mr Harfield : Sorry—of the United States. Until 2004 the surveillance coverage in Australia was pretty much up and down the east coast and a bit around Perth and around Darwin. The entire country—

Senator XENOPHON: I am happy for you to provide some of this on notice. I only have a few minutes. I need to ask a series of questions.

Mr Harfield : Yes but—

Senator XENOPHON: I do not have to get a history lesson. I am happy for you to provide more information on notice on this. What I am trying to understand is this. There was a regulation impact statement in relation to the ADS-B. Is that correct?

Mr Harfield : That is correct, Senator.

Senator XENOPHON: When was that prepared?

Mr Harfield : I do not have that in front of me.

Senator XENOPHON: Is it fair to say that it was prepared several years ago, back in—

Mr Harfield : Yes—done by the Civil Aviation Safety Authority.

Senator XENOPHON: About six or seven year ago?

Mr Harfield : It would have been around then.

Senator XENOPHON: Thereabouts—I am happy to be corrected on that. Are you familiar with the regulation impact statement?

Mr Harfield : Vaguely, in that it is there.

Senator XENOPHON: I put it to you that the regulation impact statement is either wildly inaccurate or hopelessly out of date, because the costs that are set out in that do not bear comparison with the reality of what the actual costs will be for general aviation. Are you familiar enough with the regulation impact statement to comment on that?

Mr Harfield : That is a CASA document and CASA is responsible for the regulation impact statement. The understanding is that the information that was provided was accurate at the time.

Senator XENOPHON: At the time. I am not having a go at CASA but I suggest to you—because it is a matter that fairly should be put to CASA—that it has been a number of years since that document was prepared. Things have moved on since that time. Do you think it is reasonable, given the impact this will have on general aviation in this country, that there be a fresh regulation impact statement? It is a dated document; it is something like six or seven years old.

Mr Harfield : That will be a matter for CASA.

Senator XENOPHON: Airservices does not have a view on that?

Mr Harfield : No. At the time that was the regulation impact statement on what was going forward, and we have continued to roll it out.

Senator XENOPHON: Mr Hood, is this something that Dick Smith has approached you about?

Mr Hood : Yes, I have been in correspondence with Mr Smith for some time over the issue of ADS-B. He is facing the same challenge as I am. I fitted my aircraft with ADS-B and it is not a cheap proposition.

Senator XENOPHON: Right. And there are lots of small general aviation operators that could be driven to the wall but there does not appear to be any compelling safety case in relation to this.

Mr Hood : From my perspective, I feel that I have enhanced safety by having ADS-B in my aircraft.

Senator XENOPHON: Why?

Mr Hood : For a number of reasons. One is that it assists with search and rescue. If I have an engine failure and put down in a paddock, if I am in ADS-B coverage I will get much better search and rescue. If I am undertaking VFR flight following, the services I receive are considerably enhanced in ADS-B airspace.

Senator EDWARDS: Ask him how much it cost.

Senator XENOPHON: Thank you, Senator Edwards. How much did it cost you, Mr Hood?

Mr Hood : There are two components to the ADS-B. You need a GPS navigator. That cost me around $11,000. Then I needed a mode S transponder, and that cost me around $7,000.

Senator XENOPHON: So it was $18,000.

Senator EDWARDS: Eighteen grand! That is as much as a plane is worth.

CHAIR: Yes, for a 152 Cessna.

Mr Hood : Mine is an American BD-4.

CHAIR: No—if I had a 152 Cessna.

Mr Hood : You have a Cessna? The $10,000 mark is, I think, the minimum equipment fittage for a GA aircraft.

Senator XENOPHON: Mr Harfield, there is an issue about bonuses that Airservices Australia executives receive. Are there KPIs for those bonuses?

Mr Harfield : Can I clarify what we actually mean when we are talking about the term 'bonus'. We are actually talking about an at-risk component within the remuneration package—

Senator XENOPHON: Sorry, say that again. Let me just hear that. An at-risk component—

Mr Harfield : An at risk component that is within the remuneration package of the particular person. This is not like what I call a traditional bonus, which is on top of the normal remuneration package. It is an at-risk component, and that at-risk component does have performance KPIs associated with it.

Senator XENOPHON: So if you do not meet that at-risk component you will not get that part of your remuneration. Is that a fair, objective way?

Mr Harfield : Correct.

Senator XENOPHON: I do not want to have any emotive terms like 'bonuses' thrown into it, but if it is an at-risk component there are certain KPIs in respect of that?

Mr Harfield : Yes, that are set by the relevant budget.

Senator XENOPHON: Can we, as a committee, see those KPIs?

Mr Harfield : You can see my KPIs for my—

Senator XENOPHON: But generally, for executives. Is that a public document?

Mr Harfield : Yes, you can see how we break it up in a generic sense. Obviously, they are tailored for each individual—

Senator XENOPHON: But is it a document that can easily be provided to this committee?

Mr Harfield : We can provide the break-up of how we assess the at-risk component.

Senator XENOPHON: Does that at-risk component include technology being rolled out?

Mr Harfield : It may in some individuals' performance agreements, depending on what their role is. If they are in charge of rolling out a particular technology, there would probably be a KPI into meeting certain milestones for that particular—

Senator XENOPHON: I think Senator Gallacher might have some questions for you about these bonuses—sorry, these at-risk component elements. Sorry, I just have to get out the habit. I need to understand this: are there any at-risk component remuneration aspects that are in any way linked to the rollout of the ADS-B amongst any of your executives?

Mr Harfield : I need to take that on notice, because I do not have that detail in front of me. Specific to ADS-B I find that unlikely—

Senator XENOPHON: Not necessarily specific to ADS-B, but part of the package of rolling out certain technologies and rolling out certain things, including ADS-B, would be relevant in terms of that at-risk component of the remuneration.

Mr Harfield : For example, part of our delivery of our capital program is introducing more ADS-B antennas around the country. We have a program called enhancement for ADS-B and rolling out the antennas, and that would form a part of an executive's performance because it is part of the capital program and delivery of the capital program.

Senator XENOPHON: What I am worried about is that I speak to small operators who are worried sick about this. They say that it is going to mean the difference: either it will break some of them or, more disturbingly, some people, because of the financial pressures of this rollout, may cut corners. That is what I am worried about. That raises all sorts of other regulatory risks. Is there any aspect of this at-risk component of remuneration that is linked to the rollout or implementation of programs such as ADS-B?

Mr Harfield : I will have to take that on notice.

Senator XENOPHON: Does Mr Hood know?

Mr Hood : Certainly it is not in my agreement to my knowledge.

Senator XENOPHON: Mr Logan, are you aware?

Mr Logan : No, it is not in my agreement.

Senator XENOPHON: Perhaps the best thing to do is take it on notice. I have some questions to ask in relation to the OneSKY program and whether milestones have been met thus far. I am not sure if any of my colleagues have asked that.

CHAIR: I will just flick over to Senator Edwards first, and then we will come back.

Senator EDWARDS: You have been in the job a week but you have been with Airservices for quite a while, Mr Harfield?

Mr Harfield : That is correct.

Senator EDWARDS: For how long?

Mr Harfield : For over 25 years.

Senator EDWARDS: What is your annual revenue?

Mr Harfield : Annual revenue is about $1 billion.

Senator EDWARDS: What is your budgeted profit this year?

Mr Harfield : For this particular financial year?

Senator EDWARDS: Correct.

Mr Harfield : The 2015-16 year?

Senator EDWARDS: Yes.

Mr Harfield : I think it is in the order of about $15 million.

Senator EDWARDS: Why is it down so much?

Mr Harfield : One is that over the last two years we have seen a real decline in revenue coming through. The revenue from the last financial year is actually less than the revenue the year before.

Senator EDWARDS: Why is that?

Mr Harfield : Because of changes in aviation. We charge the airlines based on a charging regime which is based on the weight of the aircraft and the distance it has travelled. With changing fleets, and a decline or rationalisation of the aviation industry, we have seen a decline in revenue.

Senator EDWARDS: What were the profits the year before last?

Mr Harfield : The profits last year—

Senator EDWARDS: Approximately.

Mr Logan : Sorry, which year?

Senator EDWARDS: The year before this one; the last reported year.

Mr Logan : For 2014-15?

Senator EDWARDS: Yes.

Mr Logan : We are just finalising the accounts now, but it is in the order of a $5 million net profit after tax.

Senator EDWARDS: And the year before that?

Mr Logan : In the order of $20 million.

Senator EDWARDS: Wasn't there one year where you made $62 million?

Mr Harfield : Yes, it was around 2010.

Mr Logan : Two to three years ago.

Senator EDWARDS: When?

Mr Harfield : It would have been about 2010-11, or a bit later.

Mr Logan : In 2011-12.

Senator EDWARDS: If you had shareholders, what would they be saying?

Mr Harfield : We have to rationalise and realign our cost base. One of the things that we have seen over the last couple of years is that our costs have been increasing, mainly around putting on extra staff to help with a $1 billion capital expenditure program. As a result of that, if we are not as efficient in the delivery as we would like, obviously that incurs an extra cost. It has been notified that our cost base has been raised and one of the things that the executive and I have agreed on are priorities for this particular financial year is focusing on realigning our cost base, because, with the declining revenue, unless we actually get into that—

Senator EDWARDS: Okay, I have got it. You are running a company or an entity—I am sorry, I am not sure—

Senator STERLE: A monopoly.

Senator EDWARDS: that used to make $62 million a year, or thereabouts, fairly consistently and now you are down to $5 million, $10 million or $15 million. How many redundancies have there been over that period?

Mr Logan : I would need to take that on notice. The numbers that we were discussing before were about $4 million, I think, a couple of years ago and maybe $7 million the year before.

Senator EDWARDS: A dramatic fall in profitability and you are telling me it was because you implemented a billion-dollar capex program which has been inefficient and you have not been able to capture any value out of that.

Mr Logan : I can address the $60 million you are referring to. As a result in the change in the accounting standards the year before last, we had to readjust that profit number down to about $40 million or $45 million. The change in the accounting standard at that time required us to record our expense for our superannuation, for members in the defined benefit fund for superannuation, and it was in the order of a $20 million adjustment to the profit. That would have taken the number down to about $40 million. Against the $40 million we have seen wage increases associated with our enterprise agreements, which have been in place for two to three years, and we need to do something about it.

Senator EDWARDS: I get the picture. I am looking at all of my mates and they have all got far more in-depth knowledge of all of the various issues around Airservices Australia. I have been on this committee ever since I got to this place. I am not on the references committee; I am on the legislative committee, so I do not come here very often and get a vote. But I have been watching what has been going on at Airservices Australia and I am looking around here: you have three opposition senators, three coalition senators, an independent and a Green. Not personally, but you are friendless. You are facing a whole world of hurt. A whole world of hurt is coming at you. This is a specially convened Senate hearing. Mr Harfield, in the context of my comment to you, then: you have been there for one week, and you never get a second chance to make a first impression. In your first week, how are you going to: one, arrest the profit decline; and, two, there is the efficiency that you require to deliver world-class benchmark productivity service in a monopoly organisation, which I would suggest to you is unravelling, given those figures that I have just watched over the last three years?

Mr Harfield : The rise in our cost base versus the decline in our revenue has meant that we really have to get stuck in and realign our cost base.

Senator EDWARDS: You are a billion-dollar turnover company. You had better get at it.

Mr Harfield : Absolutely. And it is one of the—

Senator EDWARDS: And you had better be quick.

Mr Harfield : As I mentioned before, it is one of the priorities that we have set. We said in the first week that that is one of the areas that we need to get this thing moving—not next week; it is right now. And the first port of call on that is to start focusing on productivity and to work through that because a significant amount of our cost base is actually staff costs. Around 60 per cent of our cost base is staff. Therefore, the first port of call is getting productivity into that particular area and then working through that as we go forward.

Senator EDWARDS: You have been there for 25 years. Have you ever flown a flare and said, 'We'd better have a look at our productivity here. Let's have a look at our efficiency. Let's have a look at how we deliver capex.' How many customers have you got?

Mr Harfield : I think it is over 2,000.

Senator EDWARDS: Who are your biggest customers?

Mr Harfield : If I remember correctly—and correct me if I am wrong, Mr Logan—our top 10 customers equate to nearly 80 per cent of our revenue.

Senator EDWARDS: What interaction do you have with your top 10 customers. In my previous life, and it is a life that is still ongoing without me, fortunately—they do a very good job without me—our top 10 customers are gold. We interact with them a lot about what our product is delivering and everything like that. Do you do that with your top 10 customers?

Mr Harfield : Absolutely, Senator, and I will ask Mr Logan to go through what level of interaction and consultation we do on a regular basis.

Senator EDWARDS: Do you discuss your capex program with your top 10 customers—

Mr Harfield : Absolutely, Senator.

Senator EDWARDS: because they ultimately have to pay because they cannot go anywhere else for your service, can they?

Mr Harfield : Absolutely, Senator.

Senator EDWARDS: 'Absolutely' what?

Mr Harfield : Absolutely we discuss our capex program.

Senator EDWARDS: No, I asked: can they go anywhere else for your services?

Mr Harfield : No, they cannot, Senator.

Senator EDWARDS: So you are a monopoly. You set a capex agenda in full consultation with your customers.

Mr Harfield : Correct, Senators.

Senator EDWARDS: Nonsense! Do they all agree and sign off on that?

Mr Harfield : The normal processes—and we are going through that process right at this moment in time—is that we have a five-year pricing agreement with the industry. We have just put out our pricing proposal for the next five years. That goes through consultation with the industry, and then that is regulated by the Australian Competition and Consumer Commission, and all of our customers get to put their—

Senator EDWARDS: How often have your top 10 customers taken you to the ACCC?

Mr Logan : They have not taken us to the ACCC per se. We go to the ACCC every five years to review our prices going forward, and as part of that process there is a public review process where we publish our capital program along with our operating costs, and that is scrutinised by the ACCC based on feedback from the industry.

Senator EDWARDS: Do you reckon you operate in a space which operates as efficiently as is required by your top 10 customers in a global aviation sense? Do you seek the same efficiencies that they have to by virtue of their shareholders' needs, their employees' needs and their customers' needs? You are in the aviation business, yet you seem to be in a bubble of inefficiency, as your revenues would show.

Mr Logan : I am not sure of the correlation with the revenue. Our cost base with the—

Senator EDWARDS: Your revenue has just gone from here to there. No matter what accounting standard you put over it your revenues have declined. By your own evidence you are not operating as efficiently and you are urgently seeking efficiencies to your operations.

Mr Logan : Absolutely I can only talk to the future and—

CHAIR: I will just pause you there. Given this dialogue and the points that Senator Edwards has raised, could you tell the committee the gross amount of bonuses paid in the last two years?

Senator XENOPHON: Or—what do they call it?—the at-risk component.

Senator EDWARDS: At risk of taking the micky out of one of our Senate colleagues who is not here to represent himself, would you just take a step back and we will unpack this. You know who I am referring to. At-risk bonuses are what?

Mr Harfield : If you take a remuneration package of an executive, a component of that is salary, a component of that is superannuation and a component of it is what we call the at-risk component. That is where we have KPIs set and, depending on the meeting of those KPIs, what level of that at-risk component is paid. As I said before, it is not above the normal remuneration, it is in the remuneration package.

Senator EDWARDS: That is the people. Who sets you KPIs for efficiencies and are they benchmarked around the world with other peers that deliver air services to other countries?

Mr Harfield : My performance requirements will be set by Airservices board. Our performance is benchmarked against other ANSPs around the world.

Senator EDWARDS: Let me put it another way: there are a million, two million or several hundred thousand take-offs and landings every year. I do not know how you measure your revenue or how you derive it. How do you go delivering those services that are measurable, compared to Canada, the US, Singapore and Beijing airports? Are you two times more expensive to land and lift a plane or are you three times or four times more expensive? Are there mitigating circumstances that would lead me to believe that my benchmarking or my analogy is completely flawed?

Mr Logan : We do engage in benchmarking through the Civil Air Navigation Services Organisation, or CANSO. That includes benchmarking on a whole range of activities, from safety right through to cost efficiency. On those benchmarks, we compare quite favourably. The feedback we get from our customers though is that they are not a good indicator and that they believe that we should be more efficient. We take those on as challenges to operate the organisation more efficiently, but when we are compared against our peers we compare favourably. Our challenge is, as you said, that the airline industry is a tough industry to operate in. We need to reflect the type of attitudes that they have as we operate our organisation in terms of the efficiency—

Senator EDWARDS: But you have the luxury of not having any competitors. The issue for me is that the 10 top customers, who deliver the majority of services in and out of this country, have no alternative. Do you know who pays them and who their customers are?

Mr Logan : The travelling public.

Senator EDWARDS: That is every person sitting behind you and in front of you. Your inefficiency is reflected in the fares that people pay in this country. If we are not globally competitive by virtue of an Airservices branch, which is a monopoly organisation, and you do not have KPIs which your board sets you to achieve which makes you as efficient—Could you operate on a half a billion dollars' worth of revenue?

Mr Harfield : As we are currently structured—

Mr Logan : As I understand the international KPIs and benchmarks that we engage in, we compare favourably on the cost metrics internationally against those standards. Our prices and our charges are—

CHAIR: I did ask you five minutes ago what your bonus total, or whatever you called it, for the year was. What proportion of the wage structure is—whatever the technical term you use—

Mr Logan : The at-risk component. In the 2013-14 financial year, it was about $778,000.

CHAIR: For the whole organisation?

Mr Logan : That was for the executive.

CHAIR: How many people is that?

Mr Logan : In that year, that would have been about 11.

CHAIR: So it was $77,000 a piece. How do you assess that you have ticked off for that?

Mr Logan : Each of the executives has a work performance agreement that is—

CHAIR: Is the bonus sort of automatic?

Mr Logan : As Ms Harfield said, there is an at-risk component. That varies depending on the individual, but it is in the order of 20 to 30 per cent of the total remuneration package paid to each of those executives. Against those, there is a range of key performance indicators that will go, in terms of the delivery of the function of what they are accountable for or responsible for. At the end of the year, there will be an assessment against those performance indicators to understand how they have performed against that. A percentage of the at-risk component would then be paid to them.

CHAIR: Were there bonuses associated with the implementation or the acceptance of the OneSKY program?

Mr Harfield : My performance agreement had milestones in there for completing the tender evaluation, because I was the responsible executive for it.

Senator STERLE: What about the 2014-15.

CHAIR: No, hang on. And who else had the same bonus system as you?

Mr Harfield : It would have been me.

CHAIR: Just you?

Mr Harfield : Yes, I was the executive in charge, the Airservices executive in charge [inaudible]—

CHAIR: $100,000? How much was it? Don't tell me you don't know.

Mr Harfield : The exact figure that I have—

Senator EDWARDS: This is a matter of public record—

CHAIR: Just rough it.

Senator EDWARDS: Is it a matter of public record? Because I do not want you to—

Mr Harfield : It is not a matter of being public record; it is reported in our financial statements or whatever—

Senator EDWARDS: So it is a matter of public record.

CHAIR: $100,000—or five or six?

Mr Harfield : I do not have the exact figure here. I am happy to provide it on notice.

Senator EDWARDS: Around about?

Mr Harfield : Around about 25 per cent of my remuneration package. So we are talking about roughly $80,000. That was one component of my entire at-risk component. It was not the entire part.

Senator XENOPHON: Has the selected bidder for the OneSKY program, Thales, met its scheduled milestones so far?

Mr Harfield : At the moment where we originally envisaged coming into the RFT, some of the scheduled milestones have been met in the sense that some of the phases—what we are currently calling phase 5, where we were actually doing the negotiations—is a little bit slower or not meeting that particular target.

Senator XENOPHON: Does that mean you are going to pay back some of your at-risk component payments?

Mr Harfield : No. My at-risk component was about getting through the tender evaluation process.

Senator XENOPHON: But not the execution process.

Mr Harfield : The execution, we are still working through.

Senator XENOPHON: In terms of the at risk component aspects of it, in terms of the revenue of Airservices, you get money for every take-off and landing in the country, correct?

Mr Harfield : It is based on landings.

Senator XENOPHON: Sorry. If they take off, they are going to land.

Mr Harfield : If they can land, they must have taken off; therefore, you only have to charge them once.

Senator XENOPHON: Okay I apologise. It is based on landings. If there are delays at an airport, if carriers do not operate and so on, and if you go to a particular airport, that obviously affects revenue, doesn't it?

Mr Harfield : In the sense of, for the airline—but, if that flight is completed, we will still get the revenue for that flight.

Senator XENOPHON: Right. But in terms of the at-risk component remuneration, is there a link in terms of having growth in the number of landings each year? Is there an aspect of that?

Mr Harfield : No, because we do not actually have control over those that use our services—and the growth, what we would have in there is the establishment of new services as required, maybe a key performance indicator, would be useful.

Senator XENOPHON: But what has been put to me in the aviation industry and from people involved in air traffic control is that it is Melbourne Tullamarine is long overdue for an extra runway. Is that right?

Mr Harfield : Yes.

Senator XENOPHON: Brisbane airport is long overdue?

Mr Harfield : I would not say they are overdue. They are reaching capacity constraints. Therefore, there is business case—

Senator XENOPHON: I want to take a couple of minutes because this is a safety issue I am really worried about and I think it falls directly within your bailiwick.

CHAIR: Keep going. You have two more minutes. Quick.

Senator XENOPHON: LAHSO, the land and hold short operations, is not allowed in the US but is allowed at Melbourne airport because you have capacity constraints there. Is that right?

Mr Harfield : LAHSO would be used whether there were capacity constraints or not. It is a runway configuration mode, an operation mode—

Senator XENOPHON: I have only got a minute. I have had previous correspondence with Airservices and corrections were made by Ms Staib on 2 July about clarification. There were some inaccuracies given in evidence—Mr Hood, I am not having a go at you, but they had to be clarified. Is that right?

Mr Hood : That is correct.

Senator XENOPHON: Mr Hood, are you aware of what happened at Melbourne airport around 6.15pm on Sunday, 5 July?

Mr Hood : Yes, I am. There was a double go-around on runway 2-7 and 3-4.

Senator XENOPHON: It was a close call, wasn't it?

Mr Hood : It was a double go-around, and the ATSB are investigating that—

Senator XENOPHON: It is pretty serious incident.

Mr Hood : It is a serious incident.

CHAIR: What was the separation?

Mr Hood : Visual separation—and that is in that circumstance when you have a double go-around both in sight of the tower. Both aircraft were alerted to the position of the other.

Senator XENOPHON: So, three days after I get a letter clarifying some issues on LAHSOs, we have a very close call.

Mr Hood : We have a double go-around.

Senator XENOPHON: Double go-arounds are pretty bad, aren't they?

Mr Hood : Certainly. Not something I like to see.

Senator XENOPHON: How close were the two aircraft?

Mr Hood : I would have to take that on notice. I have the—

Senator XENOPHON: How many seconds away were they away from a collision in terms of the separation?

Mr Hood : I am not sure they were headed towards a collision at all, but the ATSB will verify the facts.

CHAIR: I want to go to Senator Edwards, and he is saying he wants to go to you, Senator Bullock.

Senator EDWARDS: It is relevant.

Senator BULLOCK: Senator Edwards was just—

Senator STERLE: That is very collegiate.

Senator BULLOCK: I am just trying to understand this, because I might be wrong. You said that your charges sat well against your international peers?

Mr Logan : Yes.

Senator BULLOCK: Earlier, you said that something was related to weight and distance travelled. That was what?

Mr Logan : The charges.

Senator BULLOCK: So the charges are related to weight and distance travelled. Australia is a big country. Aircraft travel big distances. So, if your charges are related to weight and distance travelled, I just wondered whether that favourable comparison with other countries reflected the fact that, in other countries where there was more traffic over shorter distances, landings constituted a greater proportion of the total weight and distance travelled and, therefore, their charges were proportionately higher over shorter distances. I wondered if it was an apples for apples comparison on charges?

Mr Logan : I think it is always difficult getting an apples and apples comparison in any key performance indicators. The adjustments that we try to make to the key performance indicators try to bear out some of those situations.

Senator BULLOCK: In doing your international comparisons do you adjust for Australian distances travelled or do you just take it raw?

Mr Logan : We attempt to adjust.

Senator BULLOCK: Thank you.

Senator EDWARDS: In March 2014, which is not that long ago, the National Commission of Audit phase 2 report recommended that an independent review of Airservices be undertaken, with a particular focus on the scope of activities and the planned capital expenditure program. Where did that land? Excuse the pun.

Mr Harfield : That is still a recommendation.

Senator EDWARDS: Do you reckon it would be worthwhile?

Mr Harfield : As we mentioned before, we are quite attuned to the fact that the efficiency of our capital program particularly is something we need to tackle and address sooner rather than later as a result of how it affects our cost base. So that is work we are currently conducting and is underway.

Senator EDWARDS: But it is true that any capex that you have has got to be recouped with fees to customers, being then ultimately the passenger of your customers, who are customers of them. So what level of probity, governance or productivity do you put around your capex program? Because, for a monopoly, if you have sloppy governance or you are obviously—I would love to have a business where, wherever my expenses landed, I could just oncharge them to my customers. That is a great business. That is a really good business to be in, Fellas. Then to have a business where you could that—and these fellas keep talking about bonuses and things like that. And our other colleague from Victoria, when she does speak, I am sure she will be interested in these things. We keep talking about the rising cost and the lack of profitability. So, not only are your revenues up because your capital expenditure is up, but your costs are up. Everything is up, but do you know who is paying? The airlines. And do you know who is paying the airlines?

Senator BULLOCK: Us.

Senator EDWARDS: Correct! What on earth are we going to do about undertaking a review that will assist you? You are not going anywhere and you provide a good service. Have you ever ridden a bull? Do you know how much its skin moves? Trying to get a handle on your organisation is like riding a bull—it shifts from pillar to post.

Senator WILLIAMS: And that's no bull, in my opinion.

Mr Logan : Perhaps I could clarify the price regulation that Airservices operates within. We do not merely calculate our costs divided by the activity and charge a price. The process is one where we engage very heavily in being quite transparent with, as you said, the equivalent of not just our top ten customers but also representatives from the Regional Aviation Association, small aircraft operators and flying training schools. In doing so we lay out our costs and look at the relative efficiency of our costs in particular every five years. We are about to embark on that over the next two to three months. Over the next two or three months we will issue a proposed pricing arrangement for the next five years that will look at our costs and our capital expenditure over the next five years. We will spend the next two months going through quite a detailed consultation process with the industry to get feedback on their views of our relative efficiency, our capital expenditure program and whether they think there is value in that going forward.

After we take feedback from them, we will then formulate a price notification. That price notification would take into consideration those things and would then be issued to the Australian Competition and Consumer Commission. The ACCC will then go through a process which we expect will take between six and nine months over the next 12 months and in which they will review our relative efficiency. Part of that price regulation looks at whether our costs are actually at an efficient level. It is not a matter of them confirming our cost base and allowing us to roll over. They will look at the relative efficiency and see how it has been demonstrated. If I go back to one of the first pricing arrangements we put in place back in 2004, there was a few million dollars—I cannot remember exactly—where they felt we should have been more efficient in the way we were maintaining our asset base and they deducted that from the amount going forward. Similarly, for things like the return targets that we have been talking about, they will provide a view as to whether they think the return target for full prices going forward is considered reasonable in the context of how they regulate.

Senator EDWARDS: So remain calm, everything is in order. It's a good system; I can go home and sleep tight.

CHAIR: Senator Sterle has a little question, but do not take the bait.

Senator STERLE: Mr Logan, what were your 2014-15 bonuses?

Mr Logan : We are in the process of finalising the books at the moment.

Senator STERLE: No stress, you will have them when we bring you back again. When we come back, I want to talk about the Aunty Pru site—the whistleblower site.

Mr Logan : I am aware of that.

Senator STERLE: I want to talk about the whole-of-life costing and I want to get confirmation about meeting 209 agenda items (1) and (2) to see if they are ridgy-didge.

Mr Harfield : I would point out that in regard to the information that was released on Aunty Pru—not the accusations that were made on the front cover; they are things we can address. The attachments were an unauthorised release of commercially confidential documentation, which is a breach of the code of conduct and which is currently being investigated by the Australian Federal Police. I have no problem with the accusations, but I do with the attachments.

Senator STERLE: I am not worried about that. I want to know if they are the real thing.

Mr Harfield : We can discuss that.

Senator RICE: I have been listening. My colleagues have been following the issue of Airservices Australia for a lot longer than I have, so it has been a very interesting two hours. In your opening statement, you stated that you want to be doing your work to maintain the confidence of the public and that you are going to be working hard to correct the level of information and discussion with us, the Senate. But in terms of maintaining the confidence of the public—in fact, I would say regaining the confidence of the public given the controversy around Airservices Australia—could you give a short statement succinctly summarising what sort of measures you as the new CEO, having been in the job for a week, think you are going to need to put into place on probity, integrity, accountability and transparency.

Mr Harfield : To put it succinctly, we have set four priorities in dealing with the challenges that we have ahead of us, because not only do we have to maintain and safely continue our operations around the country but we have a number of significant initiatives that we also need to navigate. In doing so, the executive team and I have agreed that our primary focus and priorities over the next 12 months in particular will be about continuing to engage our people; maintaining our core business and safety focus; making sure there is disciplined financial management, including in our long-term pricing and in realigning our cost base; and the efficient delivery of our OneSKY program as well as our supporting capital expenditure program. We are making sure that we are focusing on those. Delivering against those means that we will be able to perform as an organisation.

May I just make the point that the performance of this organisation, while under scrutiny on a number of fronts for a number of particular areas, is that we are one of the safest air navigation service providers in the world. Our operational performance in delays and managing the efficiency of the air traffic is up there with anywhere else in the world. You can compare us in the sense of financial performance, operating performance and all metrics around the world, and we are there favourably compared. Does that mean we cannot do anything better? It does not mean that. Does it mean that we cannot continually improve? No. Based on those four particular priorities, that is how we are going to continue.

Senator RICE: So you do not see that you need to make any changes in terms of transparency and accountability?

Mr Harfield : As I stated, we will make whatever changes we make to be as transparent as we possibly can, understanding the probity constraints around various elements and how we manage that. I am happy to be open and frank on anything, but obviously there are legal issues, privacy issues and all that sort of stuff, and we are making sure that we are dealing with them appropriately.

CHAIR: Thank you very much. Finally, you made a statement a minute ago about the alleged board minutes. Are you saying that we should take precaution as the principle and not publish them? The board papers, I should say.

Mr Harfield : The attachments on that on the Aunty Pru side were an unauthorised release of confidential information that is currently being investigated by the Australian Federal Police. This is not to say anything about the accusations that are made in the covering letter; we will deal with them in an appropriate way. What I am getting at is that those attachments are an unauthorised release that is under investigation.

CHAIR: The releases—

Mr Harfield : It is an unauthorised release.

CHAIR: It is unauthorised, but the papers are legitimate?

Mr Harfield : The papers that are attached to that—in particular the board papers—are draft board papers.

CHAIR: Thank you very much. I think it would be a bloody good idea if you all go away and have a nice quiet glass of wine. We are very grateful for your attendance and your patience.

Mr Harfield : Can I just add two things. I mentioned, in reference to the board of ICCPM, that Raytheon was on there. That is not correct. The other point, in reference to the chief financial officer's potential payout, is that we have received advice. We will take it on notice. We will supply the information, but it will be in camera.

CHAIR: Okay. We will be calling you back. It is up to us to decide what we will take in camera.

One of the interesting things in the tender process was the equalisation of the tenders. With the acquisition cost-risk and acquisition cost contingency, the acquisition price baseline was: Lockheed 460, Raytheon 326 and Thales 630. Then, by the time you added the acquisition cost-risk and the acquisition contingency, you reversed the proposition altogether. I would like to see the sums and the assumptions in coming to those conclusions, but not today. We are now going to have a short break, and I hope you all go away and have a nice, quiet glass of wine. Thank you very much.