Chapter 2
Background to the 2010 tender process
2.1
In this chapter, the committee provides the context for its examination
of the 2010 tender process. It gives a brief history of the delivery of air
sustainment services to the MEAO and also identifies the main entities and
individuals involved in or associated with the 2010 tender process.[1]
The chapter concludes with the committee's observations on the nature of the
commercial air charter industry in Australia and the likely problems it posed
for the tender process.
The delivery of air sustainment services to the MEAO
2.2
For many years, Defence has engaged private air charter companies to
transport personnel and equipment to and from the MEAO. Defence informed the
committee that 'commercial air assets have become an integral component of the
support infrastructure to the ADF operations in the MEAO'.[2]
2.3
Defence identified two broad reasons for this practice. Firstly, since
the early 2000s, there has been a progressive increase in the frequency and
capacity of strategic air lift requirements, as a result of 'the increased
numbers of personnel and equipment committed to Afghanistan operations...and
the associated increase in both operational tempo and complexity'.[3]
2.4
Secondly, the gradual retirement of the Royal Australian Air Force
(RAAF) Boeing 707 aircraft—which was completed in 2008—has resulted in greater
reliance on commercial airlift support. According to Defence, the retirement of
the Boeing 707 aircraft meant that the ADF no longer had the ability to move large
numbers of personnel and their equipment over intercontinental distances. It
noted that the ADF's current fleet of aircraft—including the C130 Hercules and,
more recently, the C17 Globemaster—are 'fully tasked assets' with limited
availability to carry out new tasking.[4]
Defence noted further that these aircraft are not suited to the long-range
carriage of personnel, because they are designed to transport heavy and bulky
cargo. It also stated that these aircraft are more expensive to operate
compared to the purchasing of commercial charter services.[5]
The move to a single contract for
air sustainment services from 2005
2.5
Initially, the recurring movement of personnel and their equipment to
and from the MEAO was provided through a combination of commercial scheduled
services[6]
and chartered aircraft.[7]
Freight and cargo were moved by a combination of ADF and commercial aircraft,
and commercial and military sea lift.[8]
2.6
In 2005, Defence identified opportunities to achieve greater value for
money by moving to a single contract for air sustainment services. The
preferred solution was the chartering of a large passenger aircraft to move
troops, stores and equipment to and from the MEAO.[9]
Further benefits identified with this solution included:
- enhancing security and force protection of ADF personnel and
materiel, as charter arrangements provided the ADF with full control of
movement, including the ability to utilise military airfields within the MEAO;
and
- avoiding difficulties associated with obtaining large 'block'
bookings on commercial scheduled services.[10]
2.7
In April 2005, the first single air sustainment services contract was
awarded to the charter broker company Strategic Aviation Pty Ltd (Strategic). The
contract term was for six months with options for up to four, six-month
extensions, one of which was exercised by Defence.[11]
The published value of the contract was $22.1 million (2005 value).[12]
Strategic performed this contract utilising a chartered Airbus A330-300
aircraft operated by the Portuguese carrier, Hi Fly Transportes Aereos SA of
Lisbon (Hi Fly).[13]
2.8
Following a decision by Defence to re-tender the contract, Strategic was
awarded subsequent contracts in 2006 and 2008.[14]
The 2006 contract term was six months with options for up to four, six-month
extensions.[15]
The published value of the contract was $34.4 million (2006 value) which
covered 168 days.[16]
The 2008 contract term was 12 months, with two, one-year extension options—one
of which was exercised by Defence in 2009.[17]
Strategic performed these contracts using a combination of chartered Airbus
A330‑300 aircraft operated by Hi Fly,[18]
and, subsequently, aircraft operated by Strategic, including an Airbus A330‑200.[19]
The latter aircraft was employed following a contractual amendment agreed on 5 March 2010.[20]
The amendment enabled a load-splitting solution, whereby Strategic moved 114m3
of freight using the A330-200 aircraft, and forwarded the remaining 33m3
of freight separately.[21]
Re-test the market in 2009
2.9
Defence elected to re-test the market in 2009.[22]
In November of that year, it established an Air Transport Standing Offer Panel pursuant
to a deed of standing offer.[23]
Defence intended to use this Panel, which consisted of a mixture of charter
operators and brokers, for the procurement of air sustainment services to the
MEAO.[24]
According to Defence the decision to use the air standing offer panel for
potential providers was appropriate as it provided a 'valid existing legal
procurement framework with standardised terms and conditions with which to
engage air charter services'.[25]
2.10
A request for tender (RFT AO/014/09-10) was released to the 13 suppliers
registered on the panel on 29 March 2010, with a closing date of 1 June 2010.[26]
From the 11 solutions submitted by seven panel members, charter broker Adagold
Aviation Pty Ltd (Adagold) was identified as the preferred tenderer on 9 July
2010. Its tender response involved a single aircraft solution using an Airbus
A340-300. The aircraft is provided by Hi Fly, with whom Adagold has an
exclusive access agreement.[27]
2.11
The contract was signed on 22 October 2010, with services commencing on
23 November 2010.[28]
The contract term is two years, with options for two, one-year extensions.[29]
The estimated annual contract price is approximately $30.9 million (2010 value),
excluding fuel costs, or over $122 million over the four years.[30]
2.12
Due to delays associated with the awarding of the 2010 contract,
consequent upon reviews of the 2010 tender process, Strategic was awarded an
interim contract to provide air sustainment services to the MEAO. This contract
operated from 23 October 2010 to 22 November 2010.[31]
The 2010 tender process is examined in detail in chapters 3-7 of this report.
The nature of the Australian air
charter industry
2.13
The committee heard evidence that the Australian air charter industry comprises
a limited number of suppliers—predominately small-to-medium enterprises—with
intense competition between them.[32]
The committee was further informed that 'it is common government practice to
contract with an air charter management company rather than directly with
aircraft operators'.[33]
Indeed, membership of the Air Transport Standing Offer Panel includes a
combination of charter managers or 'brokers' and operators.[34]
The committee also heard evidence of personnel movement between suppliers, and
between the ADF and suppliers.[35]
2.14
In its submission to the inquiry, Defence provided the following
assessment of the Australian air charter industry:
The Australian air charter industry is very small,
competitive, operates on tight margins, and is not well placed to meet the
services required by the ADF. The major Australian airlines (Qantas and Virgin
Blue) are generally not competitive in tenders for services required by the
ADF. They have limited capacity to provide aircraft for charter, usually have
higher overheads and do not as a matter of course have spare aircraft regularly
available for service when required by the ADF. In addition, there are few Australian
based airframes with seating for more than 100 passengers, available from the
smaller operators...
Consequently, when Defence issues a Request for Tender to move
large numbers of passengers (in excess of 100) and baggage in support of an Operation
or Exercise, the operators and air charter brokers are all competing for the same
limited aircraft resources. This makes for competitive behaviour, including in areas
other than price, reinforced by the fact that a number of companies have significant
experience with ADF charters, and closely monitor competitors’ activities.[36]
2.15
A number of tenderers supported this view, describing the industry as
'cut-throat' and noting that 'people have a high knowledge of what their
competitors are doing' and 'some people seize on the appearance of any improper
behaviour'.[37]
Controversies associated with
previous air sustainment contracts
2.16
Consistent with the nature of the air charter industry, arrangements for
the delivery of air sustainment services to the MEAO have attracted
controversy. For example, in 2002-2003 concerns were raised about the
airworthiness of the Soviet-built aircraft chartered by contractors including
Adagold.[38]
Probity related concerns were raised with Defence following the awarding of the
2005 contract.[39]
In 2006, complaints surfaced about the non-use of Australian pilots.[40]
In 2007, allegations were made regarding non-compliance with aviation safety
regulations.[41]
In the latter incident, the contractor, Strategic, maintained that it was a
victim of 'a commercially motivated campaign to discredit' the company.[42]
2.17
Recent allegations, which have received media attention, have surfaced
which again cast doubts over the integrity of the tender process for the 2005
contract.[43]
This matter is currently the subject of an investigation by the Australian
Federal Police (AFP).[44]
2.18
Against this troubled background, serious questions have now been raised
about the probity of the 2010 tender process involving allegations of the
unauthorised disclosure of confidential tender information to the successful
tenderer. Indeed, even before Defence released the request for the 2010
contract, the incumbent contractor, Strategic, had expressed concerns about a
previous employee, Major David Charlton, who was then working as a Reservist in
1st Joint Movement Group (1JMOVGP).[45]
Companies involved in the 2010 tender process
2.19
The major companies associated with the allegations made in respect of
the 2010 tender process are:
- the former contract holder and unsuccessful tenderer, Strategic;
-
the current contract holder, Adagold; and
- Hi Fly, the Portuguese operator that provides the aircraft for
Adagold in the 2010 contract under an exclusive access agreement between itself
and Adagold.
Strategic Aviation Pty Ltd
2.20
Strategic is an Australian proprietary company limited by shares,
registered on 23 March 1993.[46]
Its founder and former Executive Director is Mr Shaun Aisen.[47]
Its Chief Executive Officer is Mr David Blake.[48]
The company's advertised services include facilitating ad-hoc charter services
and specialist project cargo flights.[49]
Strategic is a division of the Strategic Aviation Group Pty Ltd,[50]
which includes three companies—Strategic Aviation (as the aircraft charter
brokerage, logistics and cargo solutions arm), Strategic Airlines (as the commercial
airline arm providing regular public transport and charter services)[51]
and Strategic Europe (as the charter and wet lease[52]
arm within Europe).[53]
Previous MEAO experience
2.21
Strategic was the successful tenderer for the 2005, 2006 and 2008
contracts to provide air sustainment services to the MEAO. Over this period, it
used a combination of an A330-300 aircraft operated by Hi Fly, and its own
fleet of aircraft to carry both troops and stores to and from the Middle East.[54]
Strategic has also provided services to other Australian Government agencies participating
in the Air Transport Standing Offer Panel arrangement, including the Department
of Immigration and Citizenship.[55]
2.22
In February 2009, the Chief of the Defence Force stated that Defence had
been 'very satisfied' with Strategic's contractual performance.[56]
The committee was, however, made aware of three issues arising in the course of
these contracts.
2.23
Firstly, the AFCD review of the 2010 tender process mentioned the need
for independent mediation between Strategic and Defence in early 2010, as a result
of a fuelling cost issue. The review suggested that this disagreement 'could
indicate that there may have been some existing tension between the
Commonwealth and Strategic, or at least the existence of a commercial
difference of opinion'.[57]
The review noted that the seventh contract change proposal agreed to by the
parties was a consequence of the mediation.[58]
It also appears to the committee that there was growing dissatisfaction with
the load-splitting solution.[59]
2.24
Secondly, the committee is also aware that an unsuccessful tenderer in
the 2005 tender process raised concerns about matters of probity during that
process. Defence engaged legal firm Phillips Fox (now DLA Piper) to undertake a
probity review of the process. The review found that no issues arose in the
2005 tender process that would justify a re-tender. As noted earlier,
complaints relating to the provision of insider information in the 2005 tender
process were referred to the AFP for investigation on 10 September 2010,
following the publication of allegations in media reports on 2 September
2010.[60]
2.25
Thirdly, the committee was made aware that Defence, in the course of
performing the 2008 contract, sought Strategic's advice about possible
alternative technical solutions to the 2008 arrangements. Mr Aisen gave
evidence to the committee that Defence indicated to Strategic that it regularly
received approaches from other panel members about different aircraft
solutions. It sought Strategic's advice, as the incumbent contractor, about
some of these solutions. This included a request for advice about an Airbus
A340-300 aircraft option, with a payload of 42,000 kg—the specification
which was ultimately included in the 2010 request.[61]
Adagold Aviation Pty Ltd
2.26
Adagold is an Australian proprietary company limited by shares,
registered on 12 September 2002.[62]
Its Executive Director and Chief Executive Officer is Mr Mark Clark.[63]
Adagold is an aviation brokerage and management service company and, as such, does
not hold ownership interests in aircraft. It obtains the aircraft identified in
its tender responses through other suppliers.[64]
As noted above, Adagold is providing services under the 2010 contract using the
Portuguese operator, Hi Fly, with whom it has an exclusive access agreement in
relation to an Airbus A340-300 aircraft. The arrangements in respect of the
2010 contract are examined in detail in chapters 3–7 of this report.
2.27
Adagold's advertised range of domestic and international services
include aviation consultancy; services to the mining and resources sectors; VVIP[65]
and diplomatic services; contract aircraft and management services; and supporting
specialised government and military operations.[66]
Previous MEAO experience
2.28
Adagold has previously delivered air sustainment services to the ADF on numerous
occasions. Between 2000 and 2005, Defence used Adagold for the regular movement
of sustainment stores between Australia and various points in the MEAO.[67]
Although it carried small numbers of troops, the primary contracted services were
the carriage of vehicles and heavy cargo that could not be transported by other
means into theatre. Adagold used the Latvian operator, Inversija, which used the
Soviet-built aircraft, Antonov AN12 and Ilyushin IL76, to provide the service.[68]
2.29
Defence noted further instances of Adagold's 'relevant and recent
experience' of operating in the Middle East region, as well as its close
monitoring of the market.[69]
They included:
- an ongoing contract with the Danish government, 'providing
similar services to those requested in [the 2010 tender]';[70]
- undertaking a site visit to the Al Minhad airbase;[71]
- conducting its own MEAO support assessment in conjunction with Hi
Fly in 2009;[72]
and
- monitoring the operations of the incumbent contractor, Strategic.
This included, for example, observing the separate forwarding of MEAO freight at
Brisbane Airport via Etihad Airlines.[73]
2.30
An example of Adagold's active lobbying occurred in February 2010 when the
company submitted an unsolicited proposal for the Middle East Area of
Operations (MEAO) air sustainment services.[74]
This action followed an earlier visit by representatives of Adagold to the Head
Quarters Joint Operations Command Facility at Bungendore where they engaged in
a 'broad discussion about aircraft logistics requirements' with personnel from
the Joint Movements Group.[75]
2.31
Defence informed the committee that representatives of Adagold had told
it that since 2005 the company had 'been focused on winning the contract in
future'.[76]
Indeed, according to Mr Clark, Adagold had been studying the market since
October 2009 and had submitted its unsolicited proposal as 'part of its
business development'. In his view, this placed Adagold 'in a position to move
quickly when the tender was released'.[77]
2.32
As a member of the Air Transport Standing Offer Panel, Adagold has also
provided charter services to other Australian Government agencies participating
in the panel arrangement.[78]
This included multiple contracts administered by the Department of Immigration
and Citizenship.[79]
Relationship between Adagold and Hi
Fly
2.33
It is evident that Adagold and Hi Fly enjoyed a close commercial
relationship in the lead-up to the 2010 tender. This is evidenced in their
strategic partnership discussions, including their joint MEAO support
assessment in 2009.[80]
According to the Defence Audit and Fraud Control Division (AFCD) probity review
of the procurement, prior to the release of the RFT in 2010, Adagold had a
'general arrangement' with Hi Fly, in the event that the contract was
re-tendered, but 'no commitment to a specific aircraft'.[81]
As discussed subsequently in this report, allegations regarding the precise
nature of the relationship between Adagold and Hi Fly were made to Defence
and were considered in reviews of the tender process.
Performance of the 2010 contract
2.34
Defence indicated that, to date, it is satisfied with the services
performed under the 2010 contract, which came into operation on 23 November
2010.[82]
Hi Fly Transportes Aereos, SA
2.35
Adagold's operating partner, Hi Fly, is a Portuguese private (family
owned) company that operates worldwide and specialises in the wet leasing of
long haul, wide-body aircraft.[83]
Its Managing Director is Mr Paulo Miripuri.[84]
2.36
Hi Fly obtains access to aircraft under operating lease arrangements and
then subleases the aircraft to end users.[85]
Hi Fly subleases a fleet of Airbus wide-body aircraft, mainly on long haul
operations across Europe, the Middle East, the Far East, Australia and Africa. The
company states that it is certified and authorised to fly into the USA.[86]
Hi Fly identified other areas of its operational experience and expertise as including
Africa, Central America, the Caribbean and South America.[87]
At the time of writing, its fleet included six Airbus wide-body, long range,
last generation aircraft of the following models: Airbus A310 (two aircraft);
Airbus A330 (two aircraft); and Airbus A340 (two aircraft).[88]
Regulatory compliance
2.37
Hi Fly holds an Air Operator's Certificate (AOC) issued by the civil
aviation authority of Portugal, INAC. It has held the relevant Australian
certification—a Foreign Aircraft Air Operator's Certificate (FAAOC)—issued by
the Civil Aviation Safety Authority (CASA) since 2004.[89]
Its current FAAOC was issued on 26 October 2010 and is current between 1
November 2010 and 31 October 2011, subject to Hi Fly's ongoing INAC
certification during this period.[90]
2.38
CASA explained that an AOC—granted under s 27 of the Civil
Aviation Act 1988—authorises carriers to provide civil air service
operations in accordance with the conditions prescribed by the AOC.[91]
Certification conditions include compliance with designated Aviation Safety
Rules,[92]
and with all other applicable provisions of the Civil Aviation Act, the Civil
Aviation Safety Regulations 1998 and the Civil Aviation Orders.[93]
2.39
CASA explained further that FAAOCs are a type of AOC 'covering the
operation of foreign registered on-flights that are not undertaken wholly
within Australia, and are undertaken as part of a flight into or out of
Australian Territory'.[94]
CASA advised the committee that on 23 April 2010, Hi Fly applied to add an A340
aircraft to its AOC which CASA varied on 4 May. On 21 July 2010, Hi Fly applied
to add a Danish registered A340 to its AOC.[95]
Previous MEAO experience
2.40
Hi Fly has a history of providing services to the ADF to and from the
MEAO, through servicing contracts awarded to members of the Air Transport
Standing Offer Panel. It supplied an Airbus A330 used by Strategic between 2005
and 2009, and an Airbus A340 in May 2010 during scheduled maintenance of one of
Strategic's A330 aircraft.[96]
Involvement in the 2010 contract
2.41
Hi Fly has an exclusive access agreement with Adagold to provide the Airbus
A340 aircraft for the performance of the 2010 contract. Defence advised the
committee that Adagold also made a commitment in its tender response to providing
contingency arrangements that ensured the availability of a replacement
aircraft should the regular aircraft become unavailable.[97]
2.42
Further to the findings of the AFCD and Deloitte Reviews (discussed in chapters
5 and 6), Adagold was required to and obtained a performance guarantee of $2
million, underwritten by the Commonwealth Bank of Australia. This provides
Defence with financial compensation of up to $2 million should Adagold fail to
perform—for example, in the event of aircraft unavailability.[98]
Defence further informed the committee that it has executed a novation
agreement between itself, Adagold and Hi Fly. This agreement enables Defence to
'take over the contract and have the aircraft supplied directly to Defence and
bypass Adagold' should it fail to perform—for example, in the event of insolvency.[99]
Both the performance guarantee and novation agreement were obtained subsequent
to preferred tenderer status.[100]
Individuals involved in the 2010 tender process
Mr Shaun Aisen, Strategic
2.43
Mr Shaun Aisen founded Strategic Aviation in 1991 and resigned as its
Executive Director in February 2011. He was the company's point of contact with
the ADF for the MEAO tender processes.[101]
Mr Aisen raised several probity related concerns about the 2010 tender process,
which set in train a number of reviews and examinations. These representations
and reviews are discussed in chapters 4-6 of this report.
Major David Charlton
2.44
Mr David Charlton (referred to as Major Charlton throughout this report)
also has a long connection with the tendering processes for air sustainment
services to the MEAO.
ADF engagement—1995–2005
2.45
Major Charlton is a member of the Australian Army Reserve. He joined the
Reserve in 1995 and was initially posted to 11 Movement Control Group,
predecessor of 1st Joint Movement Group (1JMOVGP). Between November
2001 and April 2003 he was posted to Joint Movement Control Office (JMCO),
Sydney, a sub-unit of 1JMOVGP. On or about April 2003, he was posted to the Headquarters.
After a period of Reserve service, he commenced a period of continuous full-time
service as Senior Officer (SO) 3 and SO2 Strategic Lift, responsible for
supporting the charter activities for air, land and sea on behalf of the ADF.[102]
On 22 June 2005, Major Charlton was deployed to the Middle East on Operation
Catalyst as Officer Commanding Joint Movements Co-ordination Centre, MEAO. He
returned to Australia on 2 November 2005.[103]
2.46
On 7 September 2010, Major Charlton signed a statutory declaration
detailing his involvement in the ADF and the civil aviation industry, as
relevant to the matters under consideration in respect of the 2010 tender
process. The committee was informed that an initial draft of the statutory
declaration was undertaken by the Director of Investigations within the Office
of the Chief Audit Executive, Department of Defence. The draft was based on
transcripts of interviews of Major Charlton conducted by the Office. [104]
Civilian employment—2006–2009
2.47
Although he did not mention the fact in his statutory declaration, Major
Charlton was the non-voting chair of the Tender Evaluation Board in the 2005
tender process, which selected Strategic as the preferred tenderer.[105]
On or about 5 January 2006, Major Charlton ceased active Reserve service and
was appointed General Manager, Strategic Aviation. Before taking up this
position, he spoke with Group Captain Peter Brennan about his intentions and
employment options and consulted the relevant Defence Instruction for post-separation
employment.
2.48
In August 2006, Major Charlton resigned from Strategic Aviation and
established his own airline, Sky Air World Pty Ltd. Major Charlton stated that
Sky Air World supported Adagold's bid for a Danish Defence Force air
sustainment services contract, discussed opportunities relating to an Exxon
project in Papua New Guinea, and had involvement in numerous ad hoc tasks
unrelated to Defence tenders.[106]
In February 2009, Sky Air World entered voluntary administration.[107]
ADF re-engagement—2009–2010
2.49
Major Charlton sought to re-engage with the Army Reserve in 2009
following the appointment of administrators to Sky Air World. On 23 March 2009,
he was advised of a position within JMCO, Brisbane. Major Charlton was posted
to the position of Training Officer on 24 June 2009. This role involved
managing the training of members of the unit and supporting corporate
governance activities—in particular the re-writing of Standing Orders. Major
Charlton stated that he had no role in, or visibility of, the air sustainment
procurement being undertaken by 1JMOVGP.[108]
2.50
Strategic gave evidence to the committee that it became aware of Major
Chalton's return to 1JMOVGP in June 2009 and had 'continuing conversations'
with Defence expressing its concerns.[109]
These matters were considered in external reviews of the tender process, the
findings of which are outlined subsequently in this report.
Civilian employment—2009–2010
2.51
While serving with JMCO, Major Charlton was also employed in a civilian
capacity as a consultant to the aviation industry for the firm Aviation
Integration Services Pty Ltd (AIS).[110]
According to Major Charlton, on his posting to JMCO, he discussed this
employment with the then Officer Commanding (OC) JMCO Brisbane, Major Tamara
Rouwhorst.[111]
2.52
Major Charlton stated that, following the release of the Request for
Tender (RFT) on 29 March 2010, AIS was approached by some members of
the Air Transport Standing Offer Panel to request his services in providing
technical assistance on their tender responses. He identified these panel
members as Adagold, Rex/Pel-Air and Alltrans International.[112]
2.53
On or about 31 March 2010, AIS elected to assist Adagold with its tender
response. Major Charlton stated that the basis for this decision was that
Adagold 'appeared to be most capable of making the most competent and compliant
tender submission'. He described his role as assisting Adagold with
understanding the tender requirements, and identifying the 'platforms that
could meet the specified criteria in the context of operational performance and
documentation'.[113]
Declaration and management of
potential conflict of interest in relation to the 2010 tender process
2.54
On 31 March 2010, following the release of the RFT on 29 March 2010, Major
Charlton declared a potential conflict of interest to the OC JMCO Brisbane,
Major Lara Bullpitt-Troy. He was directed to cease parading at JMCO Brisbane,
effective from 1 April 2010. On 13 April 2010, Major Charlton
commenced parading as a visitor at the Directorate of Army Safety Assurance,
followed by Headquarters, 11 Brigade while awaiting further instructions.[114]
2.55
Major Charlton made the following declarations:
- He had no contact with members of HQ1JMOVGP involved in the 2010
tender process prior to or after the release of the RFT.
- He does not have a professional or social relationship with any
member of HQ1JMOVGP involved in the MEAO contract.
- At no stage was he provided with information or advice from any
source in relation to Defence's intention to re-tender the MEAO contract.
- At no stage prior to 29 March 2010 was he provided with
information or advice from any source in relation to the requirements or
specifications for the 2010 RFT.
- At no stage prior to 29 March 2010 did he have access to
information relating to the requirements or specifications for the 2010 RFT.
- At no stage did he communicate with any tenderer or prospective
tenderer prior to the release of the RFT on 29 March 2010 about the tender
requirements, because he had no knowledge of them or the imminent release of
the RFT.[115]
2.56
The committee examines Major Charlton's connection to the 2010 tendering
process in detail in chapters 3–7 of this report.
Relationship between Mr Aisen and Major
Charlton
2.57
A number of media articles published in September 2010 reported on allegations
of serious impropriety relating to the 2005 tender process.[116]
It was alleged that Major Charlton and another member of 1JMOVGP, Warrant
Officer John Davies, provided privileged information to directors of Strategic prior
to the release of the 2005 RFT.[117]
2.58
As noted earlier, Major Charlton worked for Strategic in 2006 before
establishing Sky Air World. In his statutory declaration, Major Charlton stated
that his relationship with Strategic 'soured' following his departure from the
company in 2006, because a number of Strategic staff resigned to take up
employment at Sky Air World.[118]
2.59
According to Mr Aisen, Mr Charlton was the former Strategic employee who
appeared on the 7.30 Report in 2007 under the pseudonym 'Charlie' and 'specifically
derided' Strategic in relation to its compliance with aviation safety
requirements.[119]
Mr Aisen made further allegations to Defence and in his evidence to the committee,
that Major Charlton, or Adagold, approached Strategic employees to offer them
employment with Adagold in preparation for its response to the 2010 RFT.[120]
Major Charlton denied these allegations in his statutory declaration, and
stated that he had no recollection of speaking with officers from Strategic
since leaving its employ.[121]
2.60
It should be noted that Group Captain Robert Barnes, Commander 1st
Joint Movement Group, stated that around August-September 2009 he became aware
of Major Charlton's work with 1JMOVGP in 2005 and his subsequent involvement in
the aviation industry. He noted that Major Charlton 'had worked for Strategic
Aviation and had departed there, I am told—it is hearsay—under unfavourable
circumstances'.[122]
Group Captain Barnes further understood that Major Charlton 'took a number of
Strategic Aviation people with him' when he established Sky Air World.[123]
2.61
Mr Aisen informed the committee that from June 2009 Strategic became
concerned about an ongoing relationship between Mr Charlton and Adagold while
he was employed as a reservist in a group which oversaw tender specifications,
tender documentation and contract. He indicated that during the later part of
2009, Strategic had 'spoken with Defence by phone on many occasions
highlighting its concern that "Mr Charlton was back"'.[124]
Mr Mark Clark, Adagold
2.62
Mr Mark Clark is the Executive Director and Chief Executive Officer of
Adagold.[125]
He made a statutory declaration on 7 September 2010 addressing his work with
Adagold, his association with Major Charlton, the company's involvement in the
2010 tender process, and allegations of the company's links to suspected tender
irregularities in certain procurements conducted by the South African
Government.[126]
Relationship with Major Charlton
2.63
Mr Clark stated that he had known Major Charlton since 2003–2004 from
his role in 1JMOVGP when Adagold provided MEAO sustainment services in the
period of or about 2002–2005. Mr Clark also spoke to Major Charlton on a number
of occasions in his capacity as a Sky Air World employee with a view to
exploring opportunities unrelated to any possible Defence work.[127]
2.64
During February–March 2009, Mr Clark spoke to Major Charlton about
aviation related matters including an Exxon project in Papua New Guinea but
stated that at no time was Major Charlton engaged as a consultant in 2009. In
2010, they again spoke about opportunities for Exxon in Papua New Guinea.[128]
Contact with Defence prior to the
release of the 2010 RFT
2.65
Mr Clark stated that on 4 September 2009, he and Adagold General Manager
Mr Jeff Eager attended Headquarters, Joint Operations Command, Bungendore. They
met with members of 1JMOVGP, including Group Captain Robert Barnes and
Lieutenant Colonel Andrew Hall, Staff Officer, 1JMOVGP. According to Mr Clark, the
meeting canvassed 'a general introduction and broad discussion about aircraft
logistics requirements'. He indicated that the Joint Movements Team 'provided
limited responses in relation to current arrangements, other than to confirm
that they were always open to receiving general information about options that
might provide better value to the Commonwealth'.[129]
2.66
Mr Clark undertook to provide Defence with an unsolicited written proposal,
which was submitted on 10 February 2010. He stated that Adagold did not receive
any feedback from Defence other than an acknowledgement of receipt and that
Major Charlton was not involved in the development of the unsolicited proposal.[130]
Involvement in the 2010 tender
process
2.67
In his statutory declaration, Mr Clark stated that following the release
of the RFT for the 2010 tender process on 29 March 2010, Adagold approached AIS
and requested the services of Mr Charlton, whom it regarded as 'very good at
conducting exact analysis on each aircraft'.[131]
2.68
According to Mr Clark, at no stage prior to the release of the RFT:
- was he, or any other representative of Adagold, made aware of the
tender specifications;[132]
- did he, or any other representative of Adagold, know of the
Commonwealth's intention to re-tender the MEAO contract or receive any
information regarding re-tender requirements;[133]
- did he, or any other representative of Adagold, communicate with
Major Charlton about the tender specifications or the Commonwealth's
requirements for the RFT;[134]
- did he, or any other representative of Adagold, communicate with
any member of Defence about the tender specifications or the Commonwealth's
requirements for the RFT.[135]
2.69
Mr Clark stated that at no stage did Adagold request Hi Fly to approach
CASA to upgrade its FAAOC to include the Airbus 340-300 aircraft.[136]
Conclusion
2.70
In this chapter, the committee has highlighted a number of important characteristics
of the commercial air charter industry, which were known to Defence prior to
the commencement of the 2010 tender process. These characteristics include:
- the small and extremely competitive nature of the industry, evidenced
by
- the active market monitoring and lobbying activities of suppliers,
including an unsolicited proposal;
- a history of personal animosity between some companies;
- proponent grievances about previous tender processes;
- the movement of Major Charlton between civilian employment in the
industry and an area of Defence (Joint Movement Control Office, Brisbane) that
was a sub unit of 1JMOVGP responsible for conducting the 2010 tender for air
sustainment services;[137]
- the concerns expressed by the incumbent contractor, Strategic,
about Major Charlton's re-engagement in 1JMOVGP;
- the movement of staff between suppliers; and
- Major Charlton's acrimonious relationship with Strategic.
2.71
Probity risk management is a key theme in the committee's inquiry. These
industry characteristics arguably provided signs of the probity risks inherent
in the procurement—in particular, the risks of:
- perceived conflicts of interest and breaches of confidentiality
arising from personnel movement; and
- proponent grievances about these matters, based on the highly competitive
nature of the industry and complaints made about previous tender processes.
2.72
Clearly, there were warning signs for Defence indicating that it should
approach this tender with extra care and diligence. Defence's identification
and management of the probity risks associated with this tender process is
examined in subsequent chapters. In the following chapters, the committee outlines
the factual narrative of events occurring in the lead-up to, during and
following the 2010 tender process.
Part II
Factual narrative of events
Chapters 3–7 provide a factual account of the events and
procedures of the tender process from its inception to its conclusion. They
examine the lead-up to the tender, the approach to market, the tender
evaluation and the awarding of the contract.
This part of the report covers the concerns raised about the
integrity of the process and the four subsequent reviews that were conducted
during the tender process. It provides the evidentiary basis for the
committee's findings and recommendations produced in Part III on specific
matters of concern identified in the tender process.
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