This article is an excerpt from the 2020 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its May 2019 report entitled Modernising Army Command and Control — the Land 200 Program, Australia’s Auditor-General found that weak specifications led to cost overruns and scope cuts in the military’s “Land 200” acquisition of a tactical communications network for a digital command and control system. The Auditor General determined that the cause of the procurement failure could be attributed to the inadequate definition of requirements and poor co-ordination between project offices, which resulted in the protracted post-bid refinement of the system’s technical specifications after the initial scoping exceeded the project budget:
Inadequate requirements definition and poor coordination between the two responsible project offices contributed to an ineffective 2015 procurement for the Army’s Tactical Communications Network, which required a lengthy post-tender refinement process to bring the acquisition within the approved budget. The 2015 sole-source procurement process for the Army’s Battle Management System was ultimately effective, but the procurement was delayed pending resolution of affordability issues affecting Land 200 Tranche 2 as a whole. Defence addressed affordability issues by adopting a ‘design to price’ strategy, significantly reducing project scope and assuming additional risk and cost by taking on the role of Prime Systems Integrator. Defence has assessed that it can achieve value-for-money outcomes following these adjustments.
The difficulties encountered in Land 200 Tranche 2 stem in large measure from one project office’s release of a Request for Tender with a scope that exceeded the approved cost and did not fully assess the budget consequences or governance and coordination arrangements at a program level. The desired outcome shifted from the procurement of radios to the procurement of a complex digital communications solution, as Army developed its understanding of how it would operate in a digital environment.
The Auditor General found that the definition of requirements resulted in only one supplier submitting a bid. The report questioned why the specifications were changed from the replacement of radio units to the replacement of the entire communications system:
By late 2016, Defence had assessed the single tender received from Harris for the Tactical Communications Network as offering value for money but as unaffordable (both in terms of project budget and total Land 200 Tranche 2 budget) despite significant reductions in scope. The effectiveness of the procurement of the Tactical Communications Network was impacted by the significant disconnect between the funding allocated to JP 2072 Phase 3 in 2013 and the scope included in the 2015 Request for Tender. Defence records indicate that a number of companies declined to bid because the Request for Tender included a network solution rather than radio equipment. There is no documented government approval for the shift in scope from a simple procurement of radios (as approved by Government at First Pass in 2013) to a complete, new network solution.
The Auditor General concluded that the flawed specifications resulted in an ineffective procurement process, since they caused a year-long post-tender refinement process that resulted in significant scope cuts to bring the contract within budget:
Defence’s 2015 procurement process for the Army’s Tactical Communications Network was not effective. Weaknesses in the project office’s requirements process resulted in surprises during the tender process and necessitated a lengthy post-tender refinement process to attempt to bring the acquisition within budget.
By late 2016, Defence had assessed the single tender received from Harris for the Tactical Communications Network as offering value for money but as unaffordable (both in terms of project budget and total Land 200 Tranche 2 budget) despite significant reductions in scope. The effectiveness of the procurement of the Tactical Communications Network was impacted by the significant disconnect between the funding allocated to JP 2072 Phase 3 in 2013 and the scope included in the 2015 Request for Tender. Defence records indicate that a number of companies declined to bid because the Request for Tender included a network solution rather than radio equipment. There is no documented government approval for the shift in scope from a simple procurement of radios (as approved by Government at First Pass in 2013) to a complete, new network solution.
Tender refinement
Defence’s efforts to refine the tender so as to make it affordable lasted from September 2015 to September 2016, and involved:
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three stages of Offer Definition and Improvement Activity, including five technical Risk Reduction Activities; and
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significant scope reductions by Defence.
There were two initial stages of Offer Definition and Improvement Activity, under an October 2015 deed between Defence and Harris:
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Stage 1: Financial, September–October 2015. Harris provided explanations of its financial data and level of effort that would enable Defence to estimate the impacts of changes to the tendered quantities and capabilities sought. Defence found that the tendered pricing structures were not unreasonable.
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Stage 2: Technical workshops and technical demonstrations, October 2015– February 2016. Defence signed the deed change for this stage after the fact, in March 2016, and once incurred expenditure for technical activities without prior approval under financial management legislation.
By the end of Stage 2, Defence considered that the tendered solution from Harris provided value for money, but was still unaffordable within the approved funding allocation. In March 2016, Defence’s senior governance body for Land 200, the Land Enhanced Command and Control Capability Council, approved a way forward that would undertake a third stage of Offer Definition and Improvement Activity (five Risk Reduction Activities) in parallel with the issue of a tender clarification request to Harris.
In fact, the Auditor General found that even with the significant scope cuts, the contract costs continued to exceed the project budget:
Defence advised Harris in April 2016 that it was the preferred tenderer. Shortly afterwards, Defence released a tender clarification request to Harris, seeking a solution that would be more affordable to Defence, by reducing the number of dismounted systems required from over 12,000 to some 700, and the number of vehicles to have equipment installed from over 1000 to some 300. In the refined Request for Tender, Defence retained the network aspects of the original Request for Tender, thus avoiding any need to re-tender the procurement.
While awaiting Harris’s response, Defence conducted the five Risk Reduction Activities to understand the technical viability of Harris’s proof of concept. The activities were conducted from June to September 2016, at a cost of $1.8 million, using contingency funding transferred from Land 75 Phase 4. The studies included:
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interoperability between Land 200 Tranche 1 and Land 200 Tranche 2 equipment;
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network performance simulation;
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routing;
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waveform; and
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range.
Overall, Defence found that the Risk Reduction Activities gave it a much clearer understanding of the tendered solution and provided a significant amount of evidence of the effectiveness of the solution.
Defence received Harris’s tender clarification response in August 2016. Harris described the main scope changes as a transition to an open-standards networking solution, with the main impact of that change being increased development by Harris. Despite the significant scope reductions, Harris’s tendered price was still well above Defence’s budget expectations. Defence conducted a financial investigation, comparing the revised tender with the previous tender. A number of areas — such as labour rates, travel costs and risk costs — were identified for negotiation with Harris.
Defence finalised its evaluation of Harris’s tender (comprising Harris’s August 2015 tender together with Harris’s August 2016 tender clarification) in September 2016. The evaluation concluded that Harris’s tender represented value for money — but was still unaffordable — on the basis that:
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an open tender process had been undertaken; and
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the solution offered by Harris would provide state-of-the-art radios and waveforms to support a modern digital army; and
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the radio equipment costs were aligned with current standing offers and what was known of costs associated with dual-channel radios from other vendors.
The evaluation recommended that Defence should proceed to negotiations after the overall affordability of Land 200 Tranche 2 was addressed by the Land Enhanced Command and Control Capability Council.
In summary, the government failed to realistically align its scoping of requirements with its project budget, scoped a system that restricted competition to a single bidder, and then engaged in procedurally suspect post-bid changes to its requirements that resulted in a significantly reduced project scope that continued to exceed its project budget. This report serves as a useful case study in illustrating how flawed specifications result in flawed procurement processes.
