Chris Evans (WA, Australian Labor Party, Leader of the Government in the Senate) Share this | Link to this | Hansard source

Mr President, I seek leave to incorporate an answer to a question asked by Senator Johnston of me in my capacity representing Mr Smith, the Minister for Defence, yesterday. I have a response, which is in the form of a letter to Senator Johnston.

Leave granted.

The document read as follows—

Senator the Hon D Johnston

Shadow Minister for Defence

Parliament House

CANBERRA ACT 2600

Middle East Area of Operations (MEAO) Air Sustainment Services Contract

I refer to the questions you asked yesterday in the Senate of my colleague, Senator Evans, regarding the Middle East Area of Operations (MEAD) Air Sustainment Services contract.

The Department of Defence (Defence) entered into a contract with Adagold Aviation for MEAD Air Sustainment Services on 22 October 2010. This contract takes effect on 23 November 2010. The value is estimated to be $96m over the two year period of the contract.

Adagold Aviation was selected as the preferred tenderer based on a superior Value for Money assessment and its bid met all of the Commonwealth commercial, technical and airworthiness requirements. This includes meeting the requirements of the Civil Aviation Safety Authority and Defence for Regular Public Transport (RPT) operations.

As you know, this issue was raised by you in the most recent Senate Estimates hearings. The questions you asked at Estimates were answered at length. You have since placed other similar questions on notice which are in the process of being answered.

In the Senate yesterday, you raised specific issues in relation to the aircraft available to Adagold, namely the employment of Australians, whether or not the Portuguese charter operator, HiFly, has a regular Australian passenger operator licence, and the cost and purpose of the Deloitte Touche Tohmatsu (Deloitte) review. Each of these is addressed below on the basis of advice I have received today from Defence.

In relation to access to aircraft, the tenderers for the MEAD contract, which were selected from an existing Defence standing offer panel, comprised a mix of aircraft owner-operators, operators and broker companies. Adagold Aviation is a broker utilising the Portuguese based company, HiFly, as its air operator. The tender panel conducted a thorough risk assessment including investigation of the financial viability of Adagold and HiFly as well as assessments to confirm that both companies are ‘fit and proper’ entities. The tender panel confirmed that all the tenderers were able to deliver the services required.

In relation to the employment of Australians, under the terms of the contract, HiFly is required to provide Australian crew within six months of the contract commencement. I am advised it is not expected that there will be a significant loss of Australian based jobs in the transition from Strategic Aviation to Adagold. Tenders for provision of services to the Australian Government or the Department of Defence are determined on the basis of value to the taxpayers’ dollars, not just on the basis of local employment.

In relation to the question about a regular Australian operator passenger licence, it is not necessary for HiFly to have such a licence. It holds an equivalent certification to a Civil Aviation Safety Authority (CASA) issued Air Operator’s Certificate (AOC). This certification is issued by the Portuguese aviation authorities. The certification gives the authority to conduct “scheduled and unscheduled services for both passengers and cargo”.

CASA has provided HiFly a foreign AOC which endorses the certification issued by the Portuguese authorities. Accordingly, HiFly is not required to obtain an Australian RPT certification. Regarding Adagold certifications, Defence has advised that no further certifications or licences beyond those obtained by HiFly, as the aircraft operator, are required.

This tender has been subject to extensive review by Defence. In response to concerns raised by Strategic Aviation (the then operator under the contract), the Defence Chief Audit Executive conducted an independent probity review of the tender process which was completed in August 2010. The Chief Audit Executive’s review concluded that the tender process was fair and complied with Commonwealth and Defence procurement policy. PricewaterhouseCoopers independently reviewed Defence’s probity review process and concluded that the review was carried out in a complete and impartial manner.

As you know, Defence subsequently engaged Deloitte and the Australian Government Solicitor to conduct additional independent assessments to address specific concerns raised by you regarding the financial viability of the preferred tenderer, Adagold Aviation (and its partner Hi Fly Aviation), and the overall selection process. The Terms of Reference were agreed with both the then Minister for Defence and with you during the caretaker period.

The Deloitte review took place over the period 2 to 10 September 2010 inclusive and the report was finalised and provided to Defence on 15 September 2010. You were fully briefed on this by Defence and Deloitte on 15 October 2010.

The final cost of the Deloitte review was $597,000. Deloitte was cognisant of Defence’s desire to complete their review as expeditiously as possible in order to avoid disruption to critical air sustainment services and to minimise the additional costs associated with an interim solution. In response to these concerns, Deloitte deployed a large team, which included a significant number of Partners and Directors, to undertake the review. Their fee represented virtually 1,000 direct man hours of effort and significant on-costs.

Deloitte were aware that their report would have an audience beyond Defence and therefore appreciated the need to very clearly differentiate between what they were requested to do in the Terms of Reference and what was out of their scope. Accordingly, the caveats attached to the review clarify that their work was not to duplicate work already done by the Defence Chief Audit Executive or the Australian Government Solicitor. These caveats in no way affected the completeness or thoroughness of their work as outlined in the Terms of Reference.

Defence’s view is that the expenditure on the reviews conducted by Defence, PricewaterhouseCoopers, Deloitte and the Australian Government Solicitor is justified considering the serious nature of the matters raised, the operational criticality of the contract, the cost of the contract and the extent of public comment and criticism (however unfounded) made about this tender.

The external reviews all supported the conclusions of the Chief Audit Executive’s probity review.

I am satisfied that Defence has taken appropriate action to review the concerns that have been raised in regard to the MEAD Air Sustainment Services Contract.