GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd
[2003] FCA 50
•12 FEBRUARY 2003
FEDERAL COURT OF AUSTRALIA
GEC Marconi Systems Pty Limited v BHP Information
Technology Pty Limited [2003] FCA 50CONTRACT – Government procurement – outsourced contract for provision of a secure communications network for Department of Foreign Affairs and Trade – back-to-back IT contracts – claims and cross-claims of breach of contract or repudiation by subcontractor, head contractor and customer.
CONTRACT – Termination for breach – non-provision by customer of boundary security devices – termination provision invoked – customer (head contractor) defences of contract variation, affirmation by election, estoppel and waiver.
CONTRACT – Variation – oral contract – effect of oral contract – variation or discharge – formation of an oral contract in relational contract settings – difficulties with traditional analysis.
CONTRACT – Affirmation by election – principles governing – significance of an optional contract termination procedure – continued performance consistent with the contract remaining on foot.
CONTRACT – Estoppel – representations and conventional understanding that contract had been varied to remove the obligations alleged to have been breached – reliance.
CONTRACT – Express provision for termination – construction – “failure of performance” – interpretation that accords with business commonsense.
CONTRACT – Damages after termination for breach – losing contract – quantum meruit claim – unjust enrichment and contention that no benefit received from subcontractors performance – valuation of services.
CONTRACT – Financial Securities – form of security prescribed by contract – payable on demand – provision governing call on securities – demand made for payment – call made on an erroneous ground.
CONTRACT – Entire obligation – recovery of milestone payments made in advance – principles to be applied in construction of progress payment provisions.
CONTRACT – Termination of a Standing Offer to sub-contractor to be a member of a panel having the opportunity to participate in tenders to Department of Defence – incorrect termination under the Agreement – efficacy of later reliance on a “termination for convenience” provision to justify termination.
CONTRACT – Repudiation – subcontractor’s purported termination for breach repudiatory – improvident contract – acceptance.
CONTRACT – Duty of good faith and fair dealing – exercise of a power to terminate governed by.
CONTRACT – Damages – back-to-back contracts – Hadley v Baxendale – head contractor performing work “from scratch” that the subcontractor was obliged to perform – recoverable heads of damages.
CONTRACT – Damages – effect of subsequent agreement between customer and head contractor varying the original head contract.
CONTRACT – Damages – repudiation by subcontractor – claim for loss of benefit of head contract – actual costs incurred – saved costs of performance – anticipated profits.
CONTRACT – Damages – head contractor’s costs of performing the work the subcontractor failed to do – claim for loss of return on labour and resources that had to be diverted to this use – whether a recoverable head of damages – proof of loss – applicable principles – claim for unprovided for overhead costs – whether a recoverable head of damages – proof of loss – applicable principles – dispute management costs – proof of loss – applicable principles – loss of use of money – weighted average cost of capital – proof of loss.
CONTRACT – Performance Guarantee by third party – subcontractor’s parent company – conditional performance guarantee coupled with an indemnity for “costs and expenses” – construction – scope of conditional guarantee – scope of indemnity – “costs and expenses directly incurred”.
CONTRACT – Claim by head contractor against Commonwealth mirroring claims against it by the subcontractor – independent claims as well of breach of contract arising from alleged decisions taken, misrepresentations and non-disclosure – failure by the Commonwealth to disclose its actual intentions in relation to provision of boundary security devices.
TRADE PRACTICES ACT – Claim against the Commonwealth – denial that it was “carrying on a business” – significance of evidence of business activity – DFAT’s purposes in acquiring a secure communication system and its associated intellectual property rights.
CONTRACT – Delay claims – claim by Commonwealth for losses suffered in consequence of delayed performance by head contractor – effect on delay damages of later variation agreement.
CONTRACT – Delay claims – heads of claim – additional project management costs incurred – extent to which, if at al, costs attributable to the breach – provision by Commonwealth of accommodation and facilities for an extended time in Commonwealth buildings – whether an actual loss – applicable principles – quantification of loss – use of a default measure.
CASES
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Chitty on Contracts, vol 2, (28th ed, 1999)
Halsbury’s Laws of Australia, vol 3(2)
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STATUTES
Federal Court of Australia Act 1976 (Cth), s 51A
Trade Practices Act 1974 (Cth), ss 52, 2A, 2C(1)(c)(i)
Uniform Commercial Code (US), §2-209(2), §1-207, §2-209(5), §1-102(3)GEC MARCONI SYSTEMS PTY LIMITED trading as EASAMS AUSTRALIA v BHP INFORMATION TECHNOLOGY PTY LIMITED and OTHERS
NG733 of 1997FINN J
12 FEBRUARY 2003
CANBERRA
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG733 OF 1997
BETWEEN:
GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
APPLICANTAND:
BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
RESPONDENTBHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FIRST CROSS-CLAIMANTGEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
FIRST CROSS-RESPONDENTGEC MARCONI AUSTRALIA PTY LIMITED
(ACN 000 287 614)
SECOND CROSS-RESPONDENTTHE COMMONWEALTH OF AUSTRALIA
THIRD CROSS-RESPONDENTTHE COMMONWEALTH OF AUSTRALIA
SECOND CROSS-CLAIMANTBHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FOURTH CROSS-RESPONDENTJUDGE:
FINN J
DATE OF ORDER:
12 FEBRUARY 2003
WHERE MADE:
CANBERRA
THE COURT ORDERS THAT:
- The parties bring in short minutes of orders to give effect to these reasons.
- Further hearing to consider the question of costs is adjourned to a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG733 OF 1997
BETWEEN:
GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
APPLICANTAND:
BHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
RESPONDENTBHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FIRST CROSS-CLAIMANTGEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA
FIRST CROSS-RESPONDENTGEC MARCONI AUSTRALIA PTY LIMITED
(ACN 000 287 614)
SECOND CROSS-RESPONDENTTHE COMMONWEALTH OF AUSTRALIA
THIRD CROSS-RESPONDENTTHE COMMONWEALTH OF AUSTRALIA
SECOND CROSS-CLAIMANTBHP INFORMATION TECHNOLOGY PTY LIMITED
(ACN 006 476 213)
FOURTH CROSS-RESPONDENT
JUDGE:
FINN J
DATE:
12 FEBRUARY 2003
PLACE:
CANBERRA
REASONS FOR JUDGMENT
TABLE OF CONTENTS
INTRODUCTION
The Language and Processes of Software Development
PART I:
A THE ADCNET CONTRACTS
B An Introductory Overview
(1) The Principal Actors
(2) A General Chronology
PART II: GEC MARCONI’S CLAIM
A GEC Marconi’s Claims and BHP-IT Defences: an Overview
(1) The Primary Complaints and Defences
(2) The Subsidiary Complaints
(3) The Non-Provision of STUBS
1. THE EMULATION VARIATION AGREEMENT
(a) Additional Factual Material
(i) The ADCNET project to November 1995
(ii) The 23 and 25 October letters
(b) Relevant Sub-Contract Provisions
(c) Applicable Principles(i) Was writing a prerequisite?
(ii) Formation of a contract of variation
(d) Findings and Conclusions
(e) GEC Marconi’s Attack on the Agreement(i) Non-compliance with the cl 45.1 writing requirement
(ii) The contract contains inconsistent provisions
(iii) The contract was inherently uncertain
(iv) A contingent agreement
(f) Post-November 1995
(i) The November correspondence concerning the emulator
(ii) Sub-Contract Amendment 30
(iii) GEC Marconi’s 14 December risk report
(iv) Change Request 3060/Contract Amendment 31
(v) Change Request 3015: Acceptance Test Plan
(g) Additional Observations
2. AFFIRMATION BY ELECTION
(a) Additional Factual Material
(b) Relevant Sub-Contract Provisions
(c) Applicable Principles
(d) Submissions and Conclusions3. ESTOPPEL
(1) Estoppel and Clause 45
(2) Estoppel and the Obligation to Provide STUBS
(a) Additional Factual Material
(b) Applicable Principles
(c) Submissions and Conclusions: Representation/Understanding and Reliance
(d) Findings and Conclusions: Detriment4. WAIVER
5. THE PROPER CONSTRUCTION AND THE APPLICABILITY OF SUB-CLAUSES 40.8 and 40.9
(a) The Issue of Interpretation
(b) The Applicability of Cl 40.8 and Cl 40.96. NON-PAYMENT FOR MILESTONE 4000
(1) The Construction Issues
(a) Relevant Sub-Contract Provisions
(b) Additional Factual Material
(c) Submissions and Conclusions(2) The Factual Issues
(a) Additional Factual Material(i) The ATD
(ii) The TASDD
(b) Submissions and Conclusions
(i) The ATD
(ii) The TASDD
(c) GEC Marconi’s Reply: Estoppel
(3) Outcome
7. MILESTONE 4000: ADDITIONAL DEFENCES
(1) The SDP Defence
(2) The Invoice Defence
(3) The cl 40.8 Defence/The cl 16.1 Reasonable Grounds Defence
(4) The Affirmation Defence
8. GENERAL DEFENCE
9. PECUNIARY RELIEF/DAMAGES
(1) The Nature of the Claim Made
(i) Was quantum meruit an available remedy?
(ii) The Limits of Quantum Meruit
(2) The cl 38 “Damages” Cap
(i) The quantum meruit claim
(ii) The calls on the bank guarantees
10. THE SUBSIDIARY CLAIMS
11. The call on FINANCIAL SECURITIES
(a) The Contractual Setting
(b) Applicable Principles: an Entire Contract/Entire Obligation
(c) The Obligation to Achieve Milestone 5000
(d) The Call on the Financial Securities: Principles and Conclusions12. The Conversion of the STUBS emulator
13. The termination of the Standing Offer Agreement
(a) The construction and interrelationship of sub-clauses 4.3 and 4.4
(b) “Constructive Termination for Convenience”: Applicable Principles
(c) Additional Factual Material
(d) Submissions and Conclusions on Liability
(e) Other matters16. The Delay and Prolongation Claim
(a) The Contractual Setting
(b) The Basis of the Claims Made
(c) The Defences(i) Non-compliance with cl 46 and cl 47: The Diary Entries
(ii) Non-compliance with cl 46 and cl 47: Estoppel
(iii) The Integration Defence
(iv) The “Entire Obligation” Defence
(d) Conclusion
PART III: BHP-IT’s FIRST CROSS-CLAIM
1. THE REPUDIATION CLAIM
(a) The Factual Setting
(b) Applicable Principles
(c) Submissions and Conclusions
(d) Breach of the Implied Term (“Good Faith and Fair Dealing”)2. DAMAGES
(a) A Brief Chronology
(b) Applicable Principles3. THE HEADS OF CLAIM
(i) The recording of costs
(ii) BHP-IT’s Internal Margin
4. lost benefit of the sub-contract
5. LOST BENEFIT OF THE HEAD CONTRACT
6. COSTS INCURRED BETWEEN JUNE 1995 AND DECEMBER 1996.
7. costs of performing the variation agreement
(a) Additional Factual Material
(b) Submissions and Conclusions(i) The claims for the lost benefit of the Head Contract/costs incurred until December 1996.
(ii) Costs of Performing the Variation Agreement
8 project costs incurred from january-may 1997
9 DISPUTE MANAGEMENT COSTS
10 MONEYS OWING FOR PERSONNEL PROVIDED
(a) Background Setting
(b) Submissions and Conclusions11 LOSS OF USE OF MONEYS
12 third party liability costs
13. THE INDEMNITY CLAIM
14. THE PERFORMANCE GUARANTEE
15 CONCLUSION ON DAMAGES
PART IV: BHP-IT’s SECOND CROSS-CLAIM
(1) Introduction
The principal actors and bodies
Matters of weight and credit(2) Factual Setting
8. 1993 – end of 1994
10. Exploring alternative strategies
(iii) Decision Making in DFAT
(iv) Communicating decisions to BHP-IT and GEC Marconi
1. the contract claim
(a) Relevant contractual provisions
(b) Factual findings
(c) Conclusions: Contract Claim2. the trade practices ACT claim
(1) “Carrying on a Business”
(a) Applicable Principles
(b) Factual Setting
(c) Findings and Conclusions
(d) Other MattersPART V: THE COMMONWEALTH’S CROSS-CLAIM
1. The 1997 Variation Agreement
(a) Background
(b) The Terms of the Variation Agreement
(c) The Construction Dispute
(d) Applicable Principles
(e) Conclusions2. THE INDIVIDUAL HEADS OF CLAIM
(1) Retention of the IBM Classified Message Switch System
(a) Factual Setting
(b) Findings and Conclusions(2) Project Management Costs
(a) Additional Factual Material
(b) Submissions and Conclusions(3) The Edmund Barton Building Expenses
(a) Contractual Setting
(b) Factual Setting
(c) Submissions, Findings and Conclusions(4) The RG Casey Building Expenses
(a) Additional Factual Material
(b) Findings and Conclusions(5) The Cost of Expedited Release 3 Software
(6) CONCLUSION
part vi: conclusion
SCHEDULE 1: Table of Acronyms/Glossary
SCHEDULE 2: Principal Actors
SCHEDULE 3: Figure........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 471
SCHEDULE 4: principal Committees and Groups
INTRODUCTION
The title of Allan Farnsworth’s recent book, Changing Your Mind: The Law of Regretted Decisions, encapsulates the burden of this proceeding and the issues it raises. Two of the principal actors, GEC Marconi Systems Pty Ltd (“GEC Marconi”) and the Commonwealth, made contractual commitments and then sought to resile from them. This litigation reflects the consequences of their actions.
On 14 September 1994 the Commonwealth and BHP Information Technology Pty Ltd (“BHP-IT”), and then BHP-IT and EASAMS (Australia) Ltd (“EASAMS”) – a predecessor of GEC Marconi – entered into back-to-back fixed price contracts for software development and systems integration in Phase 2 of the Australian Diplomatic Communications Network Project (“ADCNET”). The Diplomatic Communications Network was a secure network for communication to and from Australia’s overseas missions. It was operated from Canberra through the Department of Foreign Affairs and Trade (“DFAT”) as a service to all Australian Government agencies.
The ADCNET project had several facets. One involved upgrading and enhancing the security of that Network using new technologies. A security element envisaged in the project required the use of boundary security devices which prevented classified data being sent from ADCNET computers to less secure networks as a result of errors in computing software or equipment, or because of successful attacks on ADCNET computers. The actual boundary security devices to be used in implementing the back-to-back contracts (“the STUBS devices”) were to be supplied by the Commonwealth to BHP-IT, which in turn would supply those devices to GEC Marconi for integration with the ADCNET software being developed by GEC Marconi. Each contract at the time of its execution had provisions to this effect.
GEC Marconi took over EASAMS in about October 1994. The EASAMS contract with BHP-IT was then novated to substitute GEC Marconi for EASAMS as the contractor.
The failure of the Commonwealth, hence of BHP-IT, to supply the STUBS devices provided one of two alleged breaches of the BHP-IT/GEC Marconi contract relied upon by GEC Marconi to justify its termination of the contract. The other alleged breach related to the non-payment of a contractual milestone (“Milestone 4000”).
The ensuing legal proceeding initiated by GEC Marconi against BHP-IT led to cross-claims, first, by BHP-IT against GEC Marconi, GEC Marconi Australia Pty Ltd and the Commonwealth and, secondly, by the Commonwealth against BHP-IT. The various disputes raised by the parties relate, in the main, to alleged breaches of one or other of the two fixed price contracts (“the ADCNET contracts”). The matter is a complex one and its complexity has been exaggerated by the number of discrete claims made (and defences raised) both in GEC Marconi’s original claim and in the cross-claims made by BHP-IT and by the Commonwealth. A further cause of complication is that, because of the back-to-back nature of the two ADCNET contracts, contractual claims arising out of one contract can have flow - on effects into the other.
The hearing of the matter ran over many weeks. That, coupled with the number of claims made and the time span of the events examined in the proceeding, has necessitated the preparation of reasons for judgment of no little length. I have resorted to several expedients to render as intelligible as I can the voluminous, often technical, material to which I must refer.
There are four schedules to these reasons. The first contains a lengthy glossary of terms, abbreviations and acronyms (of which there are many). The language of software engineers, if sometimes evocative, is not always accessible to persons otherwise reasonably competent in the English language. While several of the descriptions given are themselves contentious, I should emphasise that the descriptions are intended to be no more than aids to understanding. They do not purport to embody findings on disputed matters. The second schedule is a list of the principal actors in the events to be described in these reasons. They are identified individually by reference to the organisation or entity to which each belongs and to the respective position(s) held in that body. The third schedule reproduces a figure that described the sequence of development of the ADCNET software and the documentation that was to be produced in that process. It provides a map of sorts of the intended course of the ADCNET contracts. The final schedule contains a description of the various committees that had some part to play in the events narrated in these reasons. Some are merely in-house committees of one or other of the parties. Others are joint committees involving two or more of the parties.
The preparation of these schedules has been undertaken with the assistance of all of the parties for which I am grateful. While they have been included as reference aids, the reasons themselves will also contain the appropriate description of a person, acronym, committee, etc when reference is first made to that person, etc.
For ease in exposition I have divided these reasons into six Parts. Part I outlines the major provisions of the ADCNET contracts. It describes the principal persons and bodies who participated in the events to be considered. And it gives a brief general chronology of the circumstances giving rise to GEC Marconi’s claims. Part II deals with GEC Marconi’s claims against BHP-IT and BHP-IT’s defences to those claims. Part III considers BHP-IT’s cross-claims against GEC Marconi and the second respondent, GEC Marconi Australia Pty Ltd. Part IV deals with BHP-IT’s cross-claims against the Commonwealth. Part V relates to the Commonwealth’s cross-claim against BHP-IT. Part VI is a brief statement of conclusions. There is an unavoidable degree of overlap between the Parts because of the back-to-back nature of the contracts.
It has been necessary to reproduce a considerable body of documentary evidence in these reasons. I have not, in the main, attempted to indicate obvious errors in spelling, grammar and syntax in passages quoted. They have been reproduced as composed.
The Language and Processes of Software Development
It is necessary at the outset to provide some necessarily brief and superficial explanation of certain of the terms and methods employed in the ADCNET software development so as to assist understanding both of documents relied upon, and of issues raised, in this proceeding.
The ADCNET software was designed, developed, integrated and tested in accordance with the requirements specified by the Commonwealth in a document described as the Functional Requirements Specification (“the FRS”). The FRS was prepared by EASAMS in conjunction with the Commonwealth during a phase of the ADCNET project that led up to the execution of the ADCNET contracts of present concern.
The procedures to be followed and processes to be employed by EASAMS/GEC Marconi in producing the ADCNET software as a contract deliverable were detailed in what was known as the IPD Software Development Plan (“the SDP”), again a document prepared by EASAMS. Both the FRS and the SDP were amended and updated, each going through several versions.
The methodology employed in the development of the software in accordance with the FRS required the following steps to be taken sequentially: (i) Preliminary Design; (ii) Detailed Design; (iii) Coding and CSU Testing; (iv) CSC Testing; (v) Integration Testing; and (vi) Formal Qualification Testing. This sequence is represented diagrammatically in the figure in Schedule 3 to these reasons. Some parts of the development methodology require explanation.
A “CSU” was a Computer Software Unit. A “CSC” was a Computer Software Component. A CSU was the smallest element of software that could be tested. A CSC was made up of several CSUs. The purpose of CSC Testing was to test (a) the CSUs developed; (b) their integration to produce a CSC; and (c) the integration of CSCs (if necessary) to produce a “Build” for integration testing.
A “Build” was an installable subset of the system. “Integration Testing” was of each build using tests specified in a previously developed document, the Integration Test Description (“the ITD”), the build being tested against the software requirements specified in the Software Requirements Specification (“the SRS”). As with the FRS, the SRS was prepared by EASAMS in the earlier phase of the ADCNET project.
“Formal Qualification Testing” or “Acceptance Testing” was conducted to demonstrate that every testable requirement in the FRS (and supporting documents) had been met by the ADCNET software that was to be delivered under the contracts. The testable requirements of the FRS were each expressed using the mandatory word “shall”. The Acceptance Tests used had to conform to the Acceptance Test Plan (“the ATP”) and were to be conducted according to the Acceptance Test Description (“the ATD”), both the ATP and ATD being documents agreed with DFAT.
The terminology of “integration” is of importance in this proceeding. When used in relation to software development, it served two purposes. The first was to describe the process of bolting together CSUs to produce CSCs, CSCs to produce Builds, and ultimately Builds to produce the completed ADCNET software. The second was to describe one of the forms of test, ie Integration Testing, that was performed on Developed Software. The term was used as well in the ADCNET contracts to describe amongst other things the integration of the ADCNET software with hardware and software items supplied by the Commonwealth. This usage is what is described in the documentation as “integrating the System”.
Those points at which the ADCNET software interacted with items supplied by the Commonwealth are described in the documentation as “interfaces”. This again is a term that recurs in the documentation and other evidence.
A distinct concept of no little importance in this proceeding is that of “surface emulation”. As the experts called in this matter were in agreement concerning the concept, I refer for convenience to the description given of surface (or interface) emulation by Professor Raymond Offen, a Professor of Information Technology at Macquarie University, who was called by GEC Marconi:
“One commonly practiced form of emulation is interface emulation, used where one hardware/software sub-system (A), which interacts, inter alia, with another (B), needs, for whatever reason, to be fully tested before B is available. A can still be tested, before B is available, if one develops an interface emulator for B, which mimics some or all of the interactions between A and B, as defined in an interface specification, but has none of the functionality required of B itself. From A’s point of view, an interface is all it ever sees of B and if this behaves correctly then A can be fully tested. For example, if A has to send a signal to B, initiating a particular B-mediated event and then pause until it receives an acknowledging signal back from B – indicating that the B-mediated event, however complex, has taken place and is satisfactorily completed – before it (A) can proceed further, all the interface emulator has to do is mimic the acknowledgment. From the point of view of testing A’s functionality it is irrelevant as to whether or not the B-mediated event actually took place.”
The term “test harness” is used in the contractual documentation in a way which is synonymous with emulation.
PART I:
A THE ADCNET CONTRACTS
Save as to parties the Commonwealth/BHP-IT contract (“the Head Contract”) and the BHP-IT/GEC Marconi contract (“the Sub-Contract”) were at the time of their execution relevantly identical save where I indicate to the contrary. As the principal claims made in the proceeding relate to the latter agreement, reference here will be made to its provisions alone. As some provisions of the contract are relevant only to a particular claim I will defer detailed reference to those provisions until that claim is considered.
In the Sub-Contract BHP-IT was referred to as “the Customer” and GEC Marconi as “the Contractor”. The contract recitals stated that:
“1.The Customer wishes to procure the supply of software development services and the integration of the System in accordance with this Contract; and
2.The Contractor has agreed to supply the software development services and integrate the System in accordance with the provisions of this Contract.”
The “System” so referred to was defined in cl 1.1 to mean “the working system which complies with this Contract and comprises the CSE and CSI”. The same clause defined “CSE” to mean Contractor supplied equipment. “CSI”, a subject matter important to GEC Marconi’s claim, was defined to mean “the Customer supplied items to be supplied by the Customer under this Contract and referred to in clause 7”.
Clause 7, insofar as presently relevant, imposed the obligation on the Customer to supply the CSI: cl 7.1; and then provided in cl 7.2 that:
“CSI specified in Schedule 6 shall at the time of its supply by the Customer to the Contractor comply with the specifications, if any, set out in Schedule 6.”
Schedule 6, which was one of sixteen schedules to the contract, listed and provided for the provision of the CSI. The “Stubs devices and related equipment and software” were identified in cl 1.4(b) of the Schedule to be part of the “Test and Integration/Acceptance Test System”. I would note in passing that cl 1.2 of the same Schedule provided in part that:
“CSI shall include the equipment and non-Developed Software as defined in subclause 1.4 below … [s]uch equipment and non-Developed Software may be subject to change as a result of revising the Preliminary Architecture Design Document for the purposes of preparing the Final Architecture Design Document”:emphasis added.
Further reference will be made to the Architecture Design Document (“the ADD”) below.
Clause 1.1 of the Contract defined “Integration” in respect of the System to include the integration services set out in Schedule 4. That Schedule listed “Contractor Supplied Services and Charges”. Clause 1.1 of the Schedule provided:
“The Contractor shall provide the following services.
…
(c)Integration of the Developed Software with the following CSI operating on Hewlett-Packard’s UX BLS operating system (version 9.08) or Hewlett-Packard’s UX operating system (version 9.04):
…
(iv) Security Equipment
The Security Equipment shall consist of Stubs devices, designed and manufactured in accordance with the Stubs Requirements Specification (reference 1403.01.004).”
The “Developed Software” referred to in cl 1.1(c) was defined in cl 1.1 of the Contract to mean “the software that is to be developed and supplied in accordance with this Contract and includes any associated integration services”. Further reference will be made to this software below.
Clauses 4 and 5 of the Contract stipulated particular obligations of the Contractor and Customer respectively. Clause 5 provided (inter alia):
“5.1 The Customer shall take all reasonable measures to maintain the processing environment as constituted by the elements of the CSI.
…
5.3The Customer shall supply the CSI in accordance with clause 7 and shall perform its obligations specified in the Project Plan and the Implementation Plan pursuant to subclause 10.1.
…
5.6Except where otherwise provided for in the Contract, the Customer, Delegate, Project Officer and Supervisor agree that in the exercise of any obligation, function or power imposed or conferred on them under this Contract they will:
(a)act in a fair and reasonable manner; and
(b)act within the time prescribed under this Contract or, where no time is prescribed, within a reasonable time.”
I would note in passing of cl 5.6, first, that all of the persons referred to there other than the Customer are defined to be officers of the Customer in cl 1.1 of the Contract; and, secondly, that the Contract did not expressly impose a like obligation on the Contractor in exercising its obligations etc under the Contract.
The “Project Plan” and “Implementation Plan” referred to in cl 5.3 of the Contract were each defined in cl 1.1. “Project Plan” meant the project plan set out in Schedule 7. That Schedule summarised the responsibilities of the Commonwealth, the Customer and the Contractor in Table 7.1 which itself designated the “Supply and maintenance of all hardware (including STUBS) and COTS software” to be the responsibility of the Commonwealth. I would note in passing that “COTS software” was Commercial Off The Shelf software. Clause 1.1 of the Schedule – incorrectly described as cl 2.1 in the Schedule – concluded with the observation in the BHP-IT/GEC Marconi contract (though not in the Commonwealth-BHP-IT contract) that:
“Any responsibility identified in Table 7.1 as Commonwealth shall be assumed by the Customer [ie by BHP-IT].”
Table 7.2 of the same Schedule provided a timetable for the delivery of CSI items. Insofar as it related to STUBS, it provided:
Reference CSI Description Date required to be provided to Contractor … 3 Detailed Software Interface Specification for Stubs Untrusted Workstation/Server Software
Note: The Detailed Software Specification for Stubs Untrusted Workstation/Server Software shall be in accordance with the Interface Design Criteria for the Detailed Software Interface Specification for Stubs as set out in Attachment A to Schedule 7.
1/12/94 4 Stubs Untrusted Workstation and Server Software 01/04/95 … 10 Stubs equipment and associated software 01/08/95 It is unnecessary at this point to explain what was comprehended by the various items described in the Table.
Two other responsibilities of the contractor set out in the Project Plan which are of relevance were:
“WP2100 Requirements and Design Maintenance
Updating of the Customer’s Functional Specifications, CSCI Software Requirements Specification and the Architecture Design Document to incorporate approved Contract Amendments. This work involves the preparation of the changes to the Document, internal review and approval of the changes with the Customer and the incorporation of the changes.
WP4500 Development of any Test Harnesses required for CSCI and acceptance testing.”
The “Implementation Plan” referred to in cl 5.3 of the Contract was defined to mean “the time schedule for the performance of this Contract set out in Schedule 8”. Reference will be made to that Schedule in detail when considering the specific GEC Marconi claim that BHP-IT failed to pay Milestone 4000.
Clause 7.1 of the Contract provided that after delivery of the CSI at the times and places stated in the Project Plan:
“the Contractor shall incorporate the CSI into the System or utilise the CSI in the integration of the System in accordance with the Customer’s Functional Specifications.”
The “Customer’s Functional Specifications” were defined in cl 1.1 of the Contract to mean the specifications “set out or identified in Schedule 1”. That Schedule indicated that the relevant specifications were:
“(a) Functional Requirements Specification (Version 3.0);
(b) Preliminary Architecture Design Document (Version 1.0).”
The Functional Requirements Specification (“the FRS”) to which it will be necessary to refer on a number of occasions in these reasons is of central importance in GEC Marconi’s claim based on the non-provision of STUBS. I have referred already to the purpose of the FRS: see “The Language and Processes of Software Development”. The Architecture Design Document (“the ADD”) described the architecture of Release 3 of the ADCNET system. It identified the hardware and software components of the system and described how they were to be configured to meet the requirements set out in the FRS.
Clause 9 of the Contract dealt with “Supply and Integration of the System”. Five sub-clauses require mention. They are:
“9.1The Contractor shall, if necessary with the assistance of the Customer, prepare a specification known as the Final Architecture Design Document for all parts of, and the whole of, the System before the Developed Software is supplied.
9.2The specification referred to in subclause 9.1 shall be submitted to the Customer for review and subsequent acceptance or otherwise in accordance with the dates specified in the Implementation Plan.
9.3The Customer’s assistance in preparation of any specifications under this Contract, or giving approval of any specifications prepared by the Contractor, shall not vary or limit in any way whatsoever the Contractor’s obligations under this clause or the Contract to supply the Developed Software or integrate the System in accordance with the Contract.
9.4The System shall be integrated in stages in accordance with the Contract, including the Project Plan and the Implementation Plan.
…
9.6The Contractor shall integrate the System in accordance with the Contract Specifications.”
Clauses 9A to 9D provided for the development, delivery and installation of the Developed Software. Reference need only be made to cl 9B and this for the purpose of indicating the documentary hierarchy it ordains. I will refer further below to the hierarchy in contractual documentation. Clause 9B provided:
“The Developed Software supplied by the Contractor shall conform to:
(a)the Customer’s Functional Specifications [ie the FRS and the ADD]; and
(b)the specifications and representations in respect thereof, including the Developed Software Detailed Design Specification, communicated specifically by the Contractor to the Customer in writing;
and to the extent that there is any inconsistency between the specifications referred to in paragraph (a) and those referred to in paragraph (b), those referred to in paragraph (a) shall, to the extent of any inconsistency, be deemed to be the specifications to which the Developed Software supplied by the Contractor must conform.”
It should be noted in passing that cl 27 of the Sub-Contract vested in the Commonwealth title to, and intellectual property rights in, the Developed Software “upon its creation”. The Sub-Contract, further, obliged the Contractor to supply Services and the Developed Software which complied with the standards set out in the SDP and any subsidiary documents to it: cl 55, Schedule 3.
After the Developed Software had been delivered and installed on the prescribed equipment (which included the “Security Equipment”: see above Schedule 4 cl 1.1), it was to undergo acceptance testing. Provision for this was made in cl 9E of the Contract. I would again note in passing that issues relating to the possible acceptance testing of the Developed Software in the absence of the STUBS devices have loomed large in this proceeding.
Clause 9E.0.1 provided in part:
“The Acceptance Tests shall be carried out in accordance with the test cases as agreed between the Customer and the Contractor and based on the Testing and Acceptance Criteria as defined in Schedule 9. The Contractor is responsible for testing the Developed Software and those aspects of the CSI with which the Developed Software interfaces, and to reasonably demonstrate that the remaining software components of the CSI are unaffected as a result of the integration of the Developed Software with the CSI.”
The Acceptance Test was to be “conducted on the System” although all that the Customer would then accept from the Contractor was the Developed Software only: cl 9E.0.2.
The Contract, it should be noted, made express provision for what courses could be taken if during a specific Acceptance Test “a failure occurs which is due to a defect in the CSI”: cl 9E.3.5A. One possible course was the Acceptance Test to be deemed to have been passed.
Clause 9E.5 dealt with the Acceptance Tests. It provided, in part, that:
“9E.5.1The Contractor shall prepare a Test Plan and Test Descriptions in accordance with the Testing and Acceptance Criteria as set out in Schedule 9 for approval by the Customer prior to commencement of the Acceptance Tests.
…
9E.5.3The System shall be tested in accordance with the relevant Test Plan and Test Descriptions. …
9E.5.4The Acceptance Tests for the Developed Software shall, unless otherwise specified in the Test Plan, be carried out by the Contractor in accordance with the Project Plan, Implementation Plan and Test Plan and shall demonstrate to the Customer and the Commonwealth that the Developed Software integrated with the CSI meets the Customer’s Functional Specifications.”
Express provision was made for what was to occur “[w]here the System [did] not meet the performance Acceptance Tests as referred to in … Schedule 9”.
Schedule 9 was entitled “Testing and Acceptance Criteria” and it specified the criteria to be used to develop an Acceptance Test Plan (“ATP”) and Test Descriptions for “acceptance of the System”: cl 1.1. Clause 2.2.1, relating to Qualification Testing provided:
“The qualification of the Developed Software shall be based on the adherence of the software development to the testing and quality provisions as defined in the Software Development Plan together with a series of Acceptance Tests which will demonstrate that the software complies with the Functional Requirements Specifications. These Acceptance Tests will be for specific test cases only and will be designed to show that the Developed Software complies with testable “shall” statements in the Functional Requirement Specification.”
Acceptance Testing was thus linked directly to what were described as the “testable ‘shall’ statements” in the FRS. The language of the FRS in describing the individual functions specified for the System used declaratory and mandatory language: “the system shall …”; “an authorised user shall be able …”; “the interface shall …”; “validation shall”; etc. Such were the “testable shalls” that the test cases were to demonstrate could be met. It is part of GEC Marconi’s case that, with the non-provision of STUBS, the testable shalls of the FRS could not all be tested fully in accordance with the Contract.
A provision of some importance in this proceeding is cl 11 of the Contract. It dealt with “Variations of Contract” and provided:
“11.1 If either Party wishes to vary the Contract, that proposing Party shall submit a copy of the proposed variations to the other Party. The receiving Party shall advise the proposing Party within 10 normal working days, or such other period as is mutually agreed between the Parties, of receipt of the variations either:
(a)that the receiving Party accepts the variations; or
(b)that the receiving Party rejects the variations, and the reasons for such rejection.
11.1AWhere the Customer requests the Contractor to assess the feasibility and cost of undertaking a proposed variation, the costs incurred by the Contractor in undertaking the assessment shall be paid for by the Customer in accordance with the time and materials rates as set out in Table 4.3 of Schedule 4. Where the Contactor proposes a variation the costs incurred by the Contractor in assessing the proposal shall be borne by the Contractor.
11.2If the receiving Party accepts the variations, the Contract Specifications shall be deemed to incorporate the accepted variations from the date upon which the receiving Party notifies the proposing Party in writing that it accepts the variations.
11.3If the receiving Party rejects the proposed variations, the Contractor and Customer shall jointly use reasonable endeavours to reach agreement on the proposed variation. Where agreement cannot be reached the Contractor shall continue to integrate the System in accordance with the unvaried Contract.”
I would draw particular attention in this to the structured process the clause envisaged and to the reasonable endeavours provision of cl 11.3.
Relatedly, cl 45 of the Contract provides:
“45.1The provisions of this Contract shall not be varied either in law or in equity except by agreement in writing signed by the Customer and the Contractor.
45.2A waiver by either Party in respect of a breach of a provision of this Contract by the other Party shall not be deemed to be a waiver in respect of any other breach and the failure of either Party to enforce at any time any of the provisions of this Contract shall in no way be interpreted as a waiver of such provision.”
The principal defence raised by BHP-IT to GEC Marconi’s claim based on the non-provision of the STUBS devices is that the Sub-Contract was varied even if this was not done in accordance with the above provisions of the Sub-Contract.
The Contract made express provision for termination for default by either party. The provisions relating to termination by the Contractor were as follows:
“40.8Where the Customer is in breach of an obligation under this Contract so that there is a failure by the Customer to perform this Contract, the Contractor may, by notice in writing to the Customer, specify that breach and where that breach is capable of being remedied require the Customer within 32 days of receiving such notice to remedy that breach or commence appropriate action to remedy that breach.
40.9Where the Customer has not:
(a)remedied the breach referred to in subclause 40.8 within 32 days of receiving a notice (including because the breach was incapable of being remedied); or
(b)commenced appropriate action to remedy that breach within 32 days of receiving a notice and remedied the breach within a reasonable time after that period has elapsed;
the Contractor may, by notice in writing to the Customer, terminate this Contract without prejudice to any right of action or remedy which has accrued or which may accrue in favour of either Party.”
Again I would emphasise the structured process ordained by the provision. GEC Marconi invoked this provision in terminating its contract with BHP-IT.
There are five clauses that individually are of significance to particular claims brought by or against GEC Marconi and of which mention should be made here. Clause 16 provided for the making of milestone payments in accordance with the payment plan provided in Schedule 8. Clause 17 required the Contractor to provide an unconditional financial undertaking from an approved guarantor. In clauses 36.1 and 36.1A each party respectively agreed to indemnify the other from designated losses. Clause 38 imposed a damages cap in respect of actions between the parties arising out of the operation of the Sub-Contract. Clause 39 was a liquidated damages clause.
Finally, as is apparent from the above, the contract is premised upon the existence of, or the creation of, a body of subordinate documents most being of a technical character. To obviate problems arising from inconsistency between the contract and those documents and between those documents themselves, cl 2 of the contract specified an order of documentary precedence. It was as follows:
“2.1In the event of any inconsistency between the clauses of this Contract, the Schedules to this Contract and the content of any other Document, the order of precedence shall be:
(a)the Clauses of this Contract;
(b)the Schedules to this Contract; and
(c)the content of any other Document.
2.2In the event of any inconsistency between:
(a)the Customer’s Functional Specifications [ie the FRS and the ADD]; and
(b)other Contract Specifications;
the Customer’s Functional Specifications shall prevail to the extent of the inconsistency.”
B An Introductory Overview
(1) The Principal Actors
There is a very large cast of persons and bodies who participated in the events to be narrated in this Part. It is useful to identify the principal participants at the outset. The evidence to be considered is overwhelmingly documentary. The persons to whom I wish to refer were often enough the authors of documents or of communications that are of central importance to the resolution of the issues with which I am concerned.
First, DFAT. The Information Technology Branch (“the ITB”) of the Department had direct responsibility for the delivery and development of the Department’s information technology requirements including the ADCNET project. The Commonwealth’s contract with BHP-IT was managed from this branch. The project manager for the Department was Leslie George Cook (“Les Cook”). He joined DFAT in 1971 with a background in computing systems and information technology. He left the Department in 1989 but was engaged by it as a consultant, first, to assist in the definition of, and then to manage, the ADCNET project. He retained the position of project manager until 25 March 2000.
The head of the ITB from 1990 to 1996 was Anthony Skinner, who was an Assistant Secretary (a public service rank in the Senior Executive Service (“the SES”)) in DFAT. A subordinate of his in the ITB was Robert Nichols. Mr Nichols had worked on the ADCNET project from 1989. He described himself as an assistant to Les Cook. He was not a member of the SES.
The ITB was one of five branches within the Corporate Services Division (“the CSD”) of DFAT. The senior officer of that Division from 1993 to 1997 was Robert Cotton, a First Assistant Secretary of the Department. One of his responsibilities was the oversight of the ITB. Mr Skinner reported to him. Mr Cotton in turn reported to Clive (Kim) Jones, a Deputy Secretary of DFAT who had the general oversight of three Divisions including the CSD.
Secondly, BHP-IT. The company’s project manager for the ADCNET contracts was Kyrill Brent. Mr Brent commenced employment with BHP-IT in July 1989 having worked in the Australian Public Service since 1966. He participated on BHP-IT’s behalf in the earlier phases of the ADCNET project that commenced in 1989 and led to the 1994 contract. He ceased to work on the ADCNET contracts in May 1997.
During 1994 and 1995 Ian Dart was BHP-IT’s National Manager for Systems Integration Services and, as such, was responsible for all systems integration including the ADCNET project. It was Mr Dart who signed the ADCNET contracts on BHP-IT’s behalf. In 1996 he was appointed Group General Manager of BHP-IT. Mr Brent reported to him indirectly in this position through his own superior.
Thirdly, GEC Marconi. It was GEC Marconi’s predecessor, EASAMS, that first participated in the ADCNET project being BHP-IT’s subcontractor for the ADCNET Release 1 contract. That contract was entered into in December 1990. Its Project Director for EASAMS from 1991 to 1994 was Roger Cooke. From 1994 to 1997 Mr Cooke was Canberra Branch Manager for GEC Marconi, a position that gave him responsibility for projects being carried out in Canberra. He was EASAMS’ signatory to the Sub-Contract in 1994 and to GEC Marconi’s contract when the Sub-Contract contract was novated shortly thereafter.
The project manager for that contract from its inception was Peter Wishart. Mr Wishart had been previously employed by EASAMS and had worked on the ADCNET project from 1991 to 1993. He ceased being project manager in January/February 1996 and ceased his employment with GEC Marconi shortly thereafter. His successor was Edward Goldsmith who in turn left the project and the company in August 1996.
The General Manager of the division of GEC Marconi responsible for software development and systems integration in the period from September 1994 to November 1995 was Lindsay Pears. He was replaced then by Ian Sharp. As General Manager Mr Pears, then Mr Sharp, were responsible for the conduct of the ADCNET project. In October 1996 Mr Sharp became managing director of GEC Marconi. It was Mr Sharp who terminated the Sub-Contract.
Fourthly, the various persons – BHP-IT and GEC Marconi – who made up the actual ADCNET project team, were physically located at DFAT’s Canberra office in the Administrative Building until their relocation to the Edmund Barton Building in September 1996. BHP-IT’s ADCNET staff was of the order of 10 people (including Mr Brent), though some additional BHP-IT staff worked on the project under GEC Marconi’s direction and control. GEC Marconi’s staff was about 50 persons (including Mr Wishart and then Mr Goldsmith), though there was significant fluctuation in the numbers involved.
Finally, a note on nomenclature. After its takeover of EASAMS, GEC Marconi continued to trade as “EASAMS Australia”. In consequence both names have been used in correspondence and in this proceeding to describe the applicant. In these reasons I will refer to the applicant as GEC Marconi save where it would be an anachronistic to do so. Quotations drawn from documents that refer to the company as EASAMS will be left in their original form.
To avoid possible confusion I have resorted to the expedient of referring to DFAT’s Mr Cook and GEC Marconi’s Mr Cooke as Les Cook and Roger Cooke respectively. This follows the course taken during the trial.
Distinctly, BHP-IT is commonly referred to in documents as the PSI. This is an acronym for the description “Prime Systems Integrator”. This usage is retained in these reasons.
(2) A General Chronology
The following is a brief chronological overview of matters relevant to the GEC Marconi/BHP-IT claims and defences. It should not be taken as making, or suggesting, findings on matters that are in issue between the parties.
From the early 1970’s DFAT embarked on the course of developing computing systems to automate many of the processes of its secure Diplomatic Communications Network. That Network at that time utilised message switching centres in Canberra, London and Washington to receive and send electronic communications to and from overseas posts and governmental agencies. In 1979 the Department commissioned its first computerised message switch system (“the IBM message switch”) that had been built by IBM.
In 1988 DFAT commenced the ADCNET project. As conceived, its first stage involved the replacement of the existing communications network (which was used to carry formal messages, informal messages, telephone, facsimile and data transmissions) with a single network; the IBM switch was to be replaced with a new security system; and secure, modern office automation was to be provided for communications staff in overseas posts, regional offices in Australia and in Canberra.
DFAT invited expressions of interest for the design and development of the ADCNET project in late 1989. In March 1990 BHP-IT entered into a teaming arrangement with EASAMS and they began work together on the preparation of a joint tender in response to a Request for Tender that had been issued by DFAT. That tender, submitted around July 1990, was successful. On 13 and 14 December 1990 the Commonwealth and BHP-IT and BHP-IT and EASAMS entered into back-to-back time and materials contracts. The objects of these contracts, as recited in the latter of the two contracts, was to specify, design, develop and implement Stage 1 of ADCNET.
It was envisaged at the time of the contracts that BHP-IT (hence EASAMS) was to design software to meet the security baseline defined for the ADCNET system. Boundary security was, apparently, a part of that baseline. The object of boundary security was to prevent classified data being sent from ADCNET computers to less secure networks as a result of errors in the software or equipment of the ADCNET computers or of successful attacks on the ADCNET computers being made via electronic connections to less secure networks. This security was required in addition to ‘need to know’ security mechanisms which would control access to data stored in the ADCNET computers by persons with direct access to terminals connected to those computers.
The approach that was to be taken to boundary security resulted, apparently, from an agreement reached between DFAT and the Defence Signals Directorate (“DSD”), a unit within the Department of Defence (“Defence”). It required the development of a security “gateway” to allow the interconnection of networks. That gateway involved, first, the use of an encrypted seal which would be added to the document to be exported by the person who created or modified that document, and then the checking of that seal by a gateway computer before allowing the export of the document.
In mid-1992, DSD advised DFAT that the Defence Science and Technology Organisation (“DSTO”), another unit within Defence, had built a prototype version of what became known as the STUBS devices and that these devices were likely to offer the most secure means of providing boundary security for ADCNET. DFAT was subsequently informed that the STUBS devices were to be developed as a commercial product by AWA Defence Industries Pty Ltd (“AWADI”). It then commenced discussions with AWADI concerning the possible use of STUBS for ADCNET. BHP-IT and GEC Marconi became aware of this development in early 1993.
In the course of the time and materials contract, EASAMS designed and developed what became known as Release 1 of the ADCNET software. Originally intended to fall within Stage 2 of the ADCNET project, this Release was of computer software for ADCNET systems to be installed at overseas posts. This appears to have been an accelerated security measure. The process of installation abroad commenced in 1992.
As part of its work EASAMS also prepared design documents that were to be used in the next phase of the ADCNET project. Importantly, in conjunction with the Commonwealth, it developed the FRS, this being the document that would govern the requirements for the work to be done in that phase.
In 1993 discussions commenced between the Commonwealth, BHP-IT and EASAMS concerning the contractual arrangements that were to obtain for the next phase of the project. This phase involved the development of what was known as the Release 3 software and its integration with the ADCNET system. DFAT advised BHP-IT and EASAMS that the STUBS devices were the preferred choice for boundary security. The 1994 contracts were prepared on the basis the Commonwealth would supply and be responsible for the functionality of STUBS related hardware and software and that BHP-IT’s (hence GEC-Marconi’s) responsibility would be to integrate the STUBS devices with the Release 3 software. A schedule to the resultant contracts (Schedule 7) provided a timetable for the Commonwealth’s delivery of (inter alia) STUBS related items, the first element of which was to be provided by 1 December 1994.
On 14 September 1994 the Commonwealth, BHP-IT and EASAMS executed the back-to-back contracts that are the subjects of this proceeding. The contract price fixed for the Head Contract was $9,609,569 and for the Sub-Contract, $6,218,260. Contemporary internal BHP-IT documentation projected a gross profit on its contract of $835,912.
At the time of execution of the ADCNET contracts the Commonwealth had not concluded an agreement with AWADI for the supply to it of STUBS hardware and software, though negotiations to this end were in train. On 1 December 1994 the Commonwealth failed to deliver to BHP-IT (which in turn failed to deliver to GEC Marconi) the first contractually scheduled STUBS related deliverable. This was the STUBS Software Interface Specification (“the STUBS SIS”). That document was later purchased by the Commonwealth from AWADI and supplied directly to GEC Marconi on 6 January 1995 though its adequacy was questioned thereafter.
On 22 December Les Cook sent a minute to Tim Harris, GEC Marconi’s Systems Engineering Manager, whose principal responsibility was the integration and acceptance testing of the ADCNET software. That minute was aimed at initiating discussion on whether additional software might be provided to emulate the STUBS devices and software, the same question having previously been raised with BHP-IT. The emulation of STUBS is a matter that looms large in this proceeding. It is appropriate to indicate here that the concept of “surface emulation” has earlier been described: “Introduction: the Language and Processes of Software Development”.
From early in the performance of the contracts GEC Marconi found itself unable to meet the contracted milestone dates for delivery of project “deliverables”. It was over a month late in completing the second milestone (Milestone 2000) scheduled for 8 November 1994. By late March it was apparent to GEC Marconi that it would be four weeks late in meeting Milestone 3000 and that a project schedule slippage of 13 weeks was forecast. By late April that slippage had grown to 17 weeks.
DFAT had contracted to supply STUBS Untrusted Workstation and Server Software by 1 April 1995. It failed to do so. This software was in fact never supplied. By 12 April Mr Brent in correspondence was seeking Les Cook’s “formal advise (sic) on the status of STUBS so that DFAT and the PSI can adopt appropriate contingency measures”.
On 18 May Mr Brent again wrote to Les Cook that letter suggesting amongst other things that “it would be prudent to examine alternatives to STUBS”.
As will become apparent when the circumstances giving rise to BHP-IT’s cross-claims against the Commonwealth are narrated, Les Cook and the ITB had been considering from at least January 1995 what options there were should STUBS not be available. In March 1995 he prepared two option papers in which he recommended that STUBS be abandoned and that another option (“Option C”) be adopted, that option having a design based on sealing and gateways as was the option suggested to Mr Cook by Mr Brent in his 18 May letter.
From July onwards the parties’ correspondence focussed increasingly on surface emulation of the STUBS devices. This correspondence is set out in detail later in these reasons. Here it will be referred to in very general terms.
On 20 July 1995 Mr Brent inquired of Mr Wishart of GEC Marconi’s capacity to design and develop an emulator for STUBS. Mr Wishart confirmed it possessed that capacity by letter of 3 August 1995.
On 25 July Les Cook wrote a letter to Mr Brent (which was forwarded to GEC Marconi on 4 August 1995) that indicated that:
“it is not possible to provide sufficient STUBS devices to meet the requirements of the Acceptance Test Plan. In order to allow the testing to complete, it will be necessary to emulate the STUBS devices. A change request will be raised for this work as soon as agreement has been reached on the use of emulation and the means of achieving it.”
It should be noted in passing that 1 August 1995 was the day on which the Commonwealth, hence BHP-IT, had contracted to provide the STUBS equipment and associated software. On 10 August and again on 24 August Les Cook wrote to Mr Brent concerning the emulation of the STUBS devices, the latter letter disputing the contention that the need to emulate STUBS would result in significant delays to the ADCNET development schedule. Both letters were forwarded to GEC Marconi the day after they were written.
On 6 September 1995 DFAT raised a change request (CR 3049) under its contract with BHP-IT seeking the development of STUBS emulation software. CR 3049 was forwarded to GEC Marconi on 8 September with a request for a quotation for undertaking the scoping of the change request. The emulation envisaged by CR 3049 was a full surface emulation of the STUBS devices. Less than a week later, on 13 or 14 September Mr Brent and Roger Cooke were advised by Les Cook that STUBS had been cancelled and would not be provided as CSI under the ADCNET contracts. Les Cook also made known around this time that DFAT had an alternative strategy.
On 26 September Les Cook wrote to Mr Brent and e-mailed Mr Wishart confirming that STUBS would not be supplied for acceptance testing. This letter is central to BHP-IT’s defence of GEC Marconi’s claim and is considered in detail later in these reasons.
On the same day DFAT raised CR 3052 to have investigated “the feasibility of the STUBS replacement strategy outlined in the attached minute”. The minute referred to was a document sent by Les Cook to Mr Harris of GEC Marconi that outlined design principles for the STUBS replacement. It noted that “[b]oundary security will continue to be based on the concept of sealing and gateways”.
Sometime in September 1995 Mr Wishart contacted a self-employed software consultant, Peter Newton, and invited him to scope an emulator for STUBS. On 3 October Mr Newton provided Mr Wishart with a preliminary paper titled “STUBS Emulation” the purpose of which was to enable Mr Wishart to consider whether the emulator Newton was proposing would meet Wishart’s requirements. Two further versions of the paper were produced, one on 9 October, the other on 30 October.
On 5 October Mr Wishart signed GEC Marconi’s quote for scoping CR 3049. It was forwarded by BHP-IT to DFAT for approval the following day. And on 11 October that approval was given and a request was made by DFAT for a quote for implementing CR 3049. On 23 October and 25 October Mr Wishart wrote separate letters each of which attached GEC Marconi’s costing to implement CR 3049. It was in the order of $31,507. As will be seen, the relationship of these two letters and the status of the first is a matter in issue in this proceeding.
By mid-October it was apparent within GEC Marconi that the company faced a potential loss of $1 million or greater on the ADCNET contract. On 18 October Mr Pears instructed Roger Cooke to hire or contract a new project manager but to retain Mr Wishart as a Technical Manager. Pears indicated to Cooke that “[t]he bottom line is that the company is not prepared to carry a potential loss of $1M or greater”.
On 26 October Les Cook signed the Contract Amendment to give effect to CR 3049. It was CA 23 in the Head Contract. Mr Brent signed the amendment for BHP-IT on 1 November. No like amendment was formally signed for the Sub-Contract though on 1 November Mr Brent notified Mr Wishart that formal approval had been given by DFAT for GEC Marconi to develop the STUBS emulation software.
The questions raised by this are, first, whether having so to commit its resources is properly to be characterised as a loss for the purposes of an award of damages for breach of contract; and, secondly, if it is, how are those damages to be assessed.
As to the first of these questions, I am satisfied that a compensable loss was suffered. The Commonwealth had to continue performing obligations owed to BHP-IT requiring a continuing commitment of resources because, and only because, of BHP-IT’s breach. This involved a loss of use of property, not because of some wrong or injury to the property itself: cf The Mediana, above; Anthanasopoulos v Moseley [2001] NSWCA 266; Nauru Local Government Council v New Zealand Seamen’s Industrial Union of Workers [1986] 1 NZLR 466; and see generally McGregor on Damages, para 1349ff (16th ed); Tilbury, Civil Remedies, vol 2, [12028]; nor because it was actually kept out of that property by reason of delay in the other party’s performance: cf Restatement of Contracts, Second §348 and Comment (b); Dobbs, Law of Remedies, vol 3, 443ff (2nd ed); but because of the continuing need to commit its property in consequence of the other party’s breach. In the immediate circumstances it is more than coincidental that BHP-IT, because of its breach, obtained the advantage of an extended performance at the Commonwealth’s expense. In saying this I am not suggesting that the Commonwealth’s loss is the benefit derived by BHP-IT as such: Alucraft Pty Ltd (In liq) v Grocon Ltd (No 2) [1996] 2 VR 386 at 400-4001; or for that matter, that a claim in restitution independent of contract was available to the Commonwealth (such being clearly not the case: see Trimis v Mina [1999] NSWCA 140 at [55]). I am merely emphasising that the benefit or advantage provided to BHP-IT was a manifestation of the loss suffered by the Commonwealth.
When one turns to the quantification of that loss, problems become immediately apparent. The present case is not one of an actual expenditure made by the Commonwealth in providing accommodation. Nor is it one in which there is any evidence of an opportunity otherwise to use the Edmund Barton Building profitably which was lost to the Commonwealth. And the Commonwealth was not, on the evidence, using this building for income earning purposes. Can it be said, then, that it suffered no pecuniary loss?
I referred above to Lord Halsbury’s statement of principle in The Mediana that establishes loss of use of property from a wrongful act as being itself a ground for damages. Where such property is not income producing or for that matter is not capable of being used for income producing purposes, or where a substitute is not hired, leased etc during a period of repair, a like problem in quantification of loss can arise for reasons similar to those I have noted above. This, no doubt, explains the Commonwealth’s resort to The Mediana principle in this setting as that principle has been used to justify the award of general damages for loss of use of non-profit earning property: see generally McGregor on Damages, para 1349 (16th ed); see also Westwood v Cordell [1983] Qd R 276 at 278-279.
The Mediana principle is clearly part of Australian law: see Tilbury, above, at 205 and the cases there referred to; Price v Commissioner of Highways [1960] SASR 329; Commissioner for Railways v Luya, Julius Ltd [1977] Qd R 395. Nonetheless, it has been commented fairly that there is uncertainty about the appropriate method of calculation of damages in cases to which it applies: see Waddams, The Law of Damages, §1.2050 (3rd ed). A variety of methods have been used in different contexts and include the rental value of the property concerned; the costs of maintenance and the depreciation of the property for the period in question; and interest upon capital value. These different methods are probably justified, as Professor Waddams suggests, “on the basis of convenience of assessment”: above, at §1.2140. I do not consider it necessary to enlarge upon them here.
I was not taken to, and I have not been able to discover, a decided case similar to the present. Such reported loss of use of property cases as there are, are of two general varieties: the first, where the loss arises from a tort occasioning damage to the property itself; the second, where a breach of contract delays the use of property (eg because of delay in completion of a building on the innocent party’s land). It has been said of English law in the latter class of case that the delay damages should, in principle, generally be the rental value for the use of the premises for the period of delay: see McGregor on Damages, para 1146 (16th ed).
In American jurisdictions the rule commonly adopted in breach of contract cases where the damage caused by a delay in performance takes the form of loss of use of an item of property, is that the damages are generally measured by the rental value of the property involved: 22 Am Jur 2d, “Damages”, §70. Restatement of Contracts, Second, §348(1) and Comment (a); for the parallel tort law measure, see 22 Am Jur 2d, above, §444, §447; Dobbs, above, §5.15; see also Westwood v Cordell, above. In Dobbs, Law of Remedies, the operation of the rental value approach in a building contract setting has been described in the following way: (vol 3, 443):
“When the contractor breaches by delay in delivering the completed work, the owner is entitled to damages for the delay. Those damages are usually measured by the rental value of the land during the period of delay. The rental value is the value of the land with the building in its completed state as contracted for, not the value of the unimproved or partly improved lot. Rental value is the proper measure even though the owner would not in fact have rented the land and did not in fact need the building on the date called for. Like many other damages awards, the rental value measure may be considered a “default” measure, a kind of liquidated damages to be used unless the parties provide something they prefer. It is close enough to accurate compensation, easy to use, and far preferable to an unlimited award based on subjective guesses about the worth of delay to particular plaintiffs.”
In the present case resort to a “default measure” is inescapable. In the circumstances, I consider a variant on the fair rental measure is appropriate. In saying this I recognise (a) that the contractual principle referred to above was not designed to deal explicitly with the unusual circumstances of a case such as the present; and (b) that the Edmund Barton Building, as Commonwealth property, may not have had a rental value as such, but it did have a usable value to the Commonwealth.
If the Commonwealth had accommodated the BHP-IT project team in commercially rented premises, it would have been entitled to claim the rental paid as damages: cf United States v Wyckoff Co 271 US 263 at 267 (1926). It had its own offices instead. Those offices clearly had a usable value to the Commonwealth. Both before and after their occupation by BHP-IT, they were used by the Government departments.
The decision to use the Edmund Barton Building was taken after evaluating other options including a commercial option. An aspect of that evaluation related to the actual rental charged for commercial accommodation and the “notional rentals” the Commonwealth charged itself for its use of its own buildings. Where the Commonwealth has taken the step of placing a cost to itself upon its use of its own premises – a cost which is apparently comparable to rentals charged in the private sector (and it has not been suggested otherwise in this proceeding) and which I infer is related to the efficient use of public resources – that cost (not having been challenged in its amount) can properly be taken to represent usable value of that property to the Commonwealth. As such, it provides an appropriate measure of the damages that are recoverable by the Commonwealth.
I am satisfied then that the sum of $104,238 is recoverable by the Commonwealth on account of its having to provide accommodation and the TIF to BHP-IT in the Edmund Barton Building. That sum is recoverable, not on account of rental actually paid for that accommodation, but as damages for the loss of use of the premises concerned because it was obliged to provide such accommodation by reason, and only by reason, of BHP-IT’s breach of contract.
I am similarly satisfied that the relocation costs for fitout etc of the Edmund Barton Building of $180,287.00 would not have been incurred but for BHP-IT’s breach, even though the need to make that expenditure was necessary if the Commonwealth was to perform its continuing obligation to BHP-IT.
(4) The RG Casey Building Expenses
Given my conclusion in relation to the effect of the Variation Agreement, damages under this head could only run from May 1997 (when the BHP-IT project was relocated from the Edmund Barton Building) until 19 December 1997 (the date of the Variation Agreement).
(a) Additional Factual Material
The “Core Occupancy Agreement” between Australian Estate Management (a part of the Department of Administrative Services) and DFAT for the RG Casey Building was, on Graeme Nichols’ evidence, executed on 14 June 1996. That document was not in evidence, though an agreement purporting to be a “Core Occupancy Agreement” that was signed by the Secretary of DFAT on 18 December 1995 was tendered. The latter document does not have annexed to it the Schedule that dealt with rents payable.
The evidence concerning the “rental” paid is in a less than satisfactory state. I have no actual document before me prescribing either the rent to be paid for the building itself, or that which was attributable to the BHP-IT project team’s accommodation and to the TIF. The “invoices” for the rent were not put in evidence. I imply no criticism in this as to have required that all relevant invoices for all claims be tendered would have been both burdensome and profligate given the volume in question. At best I have hearsay evidence of the rentals although there is accurate evidence of the areas occupied by the BHP-IT project team and the TIF and of their locations. The rate said to have been charged was $388 per square metre. This may well have been less than the actual rate for the period in question but I am prepared to accept that such was the rate for present purposes.
The space in respect of which DFAT was paying rent was an area for which it would have had to pay rent in any event.
(b) Findings and Conclusions
In light of my conclusion in relation to the Edmund Barton Building rental claim, a like conclusion follows in relation to this claim for the period May to December 1997. The actual amount paid for the period in question is still to be calculated in respect of the areas occupied by the BHP-IT project team.
I note that in its submissions BHP-IT has contested whether the area in respect of which the claim was made was occupied solely by members of the BHP-IT (or ADCNET) project team. There is no evidence that such was not the case and I allow no offset on account of it.
(5) The Cost of Expedited Release 3 Software
This head of claim is for the $509,796 paid to BHP-IT under CR007 for the development of the ER3 software. CR007 was entered into after the 1997 Variation Agreement. For that reason alone the claim is not maintainable.
(6) CONCLUSION
I find that the Commonwealth is entitled to an award of damages under the following heads and in the amounts indicated:
(i)project management costs - $150,000
(ii)Edmund Barton Building expenses - $284,525
(iii)R G Casey Building expenses – still to be calculated.
part vi: conclusion
The burden of this proceeding cannot be encapsulated satisfactorily in précis form. Accordingly, I will do no more than record here the outcomes of the various claims and cross-claims. First, I have rejected all of the claims made by GEC Marconi save that relating to delay and prolongation which will be stood over for further hearing on a date to be fixed.
Secondly, I have found that BHP-IT has made out its claim that GEC Marconi repudiated its contract with BHP-IT. However, I have not accepted significant parts of the damages claims advanced by BHP-IT. I also have found that BHP-IT is entitled to call upon the performance guarantee given it by GEC Marconi’s parent company, GEC Marconi Australia.
Thirdly, BHP-IT has made out a claim of breach of contract by the Commonwealth, though not to the extent that it has claimed. I have not been asked and have not attempted to assess damages for the breach found. I have rejected its claim against the Commonwealth based on the Trade Practices Act 1974 on technical grounds, though I am satisfied that the Commonwealth did engage in misleading and deceptive conduct in an aspect of its dealing with BHP-IT.
Fourthly, I have found that the Commonwealth is entitled to claim damages from BHP-IT on account of its failure to perform its contract on time. Those damages, though, are claimable only for a limited period and are relatively small in amount.
The only order I propose to make at this stage is to direct the parties to bring in short minutes of order to give effect to these reasons. I will adjourn to a date to be fixed consideration of the question of costs.
I certify that the preceding one thousand five hundred and ninety-two (1592) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate:
Dated: 10 February 2003
Counsel for the Applicant, First Cross-Respondent, Second Cross-Respondent: Mr J B Simpkins SC, Mr N A Nicholls Solicitor for the Applicant, First Cross-Respondent, Second Cross-Respondent: Colin Biggers & Paisley Counsel for the Respondent, First Cross-Claimant, Fourth Cross-Respondent: Mr N J Young QC, Mr S E Marks, Mr R J Harris Solicitor for the Respondent, First Cross-Claimant, Fourth Cross-Respondent: Corrs Chambers Westgarth Counsel for the Third Cross-Respondent, Second Cross-Claimant: Mr J S Hilton SC, Mr R Vivekananda Solicitor for the Third Cross-Respondent, Second Cross-Claimant: Australian Government Solicitor Dates of Hearing: 18-21 June, 25-28 June, 2-6 July, 23-26 July, 30 July-2 August, 6-10 August, 13-17 August, 20-21 August, 23 August, 22-25 October, 1-2 November, 5-8 November, 21-23 November, 26-30 November, 3-7 December, 10-13 December 2001; 18-19 March, 25-26 March, 9-12 April, 26 April, 30 April, 22 November 2002. Date of Judgment: 12 February 2003 SCHEDULE 1
Table of Acronyms/Glossary
A Acceptance Testing Process to determine whether a configuration item of computer software complies with its allocated requirements in the Functional Requirements Specification. In the case of ADCNET, also referred to as Formal Qualification Testing. ADCNET Australian Diplomatic Communications Network
The communications network used by DFAT to transmit and disseminate classified and unclassified inter-governmental information.
ADD Architecture Design Document
Sets out hardware and software components of a computer system.
API Application Program Interface API Specifications Specifications for the Cut-down STUBS Emulator. Applixware COTS software package. ATD 1. Acceptance Test Data
Data required to undertake acceptance tests, prepared in accordance with clause 9E.4 of the Head and Sub-Contracts.
2. Acceptance Test Description
Document used to set out and describe the test cases that would be used to acceptance test the software developed under the Head Contract and Sub-Contract.
ATP Acceptance Test Plan
Contractor-prepared document describing the tests used to ensure that operative software meets capability and capacity requirements.
AWADI AWA Defence Industries Pty Ltd
Licence-holder for the commercial exploitation of the DSTO-developed STUBS technology.
AWADI Untrusted Software STUBS software component. B BHP-IT BHP Information Technology Pty Ltd BTM Base Team Member Build Installable subset of software, usually at CSC or CSCI level, that can be separately developed and tested. C CA Contract Amendment Form CDR Critical Design Review
Second tier of formal review process – after PDR.
CFS Customer’s Functional Specifications
Specifications set out in Schedule 1 of the Head and Sub-Contracts; includes the FRS and the ADD.
Contractor In the ADCNET Contracts, GEC Marconi was the Contractor in the Sub-Contract, and BHP-IT was the Contractor in the Head Contract (cf Customer) COTS Commercial Off The Shelf CR Change Request
Document used to initiate changes to the Head Contract and/or Sub-Contract.
CR001; CR3049 etc Particular change requests identified sequentially by number. CSC Computer Software Component
Distinct part of a CSCI, made up of several CSUs.
CSCI Computer Software Configuration Item
Top-level sub-component of a software application, normally comprises several CSCs.
CSE Contractor Supplied Equipment
Products and services to be supplied by the nominated Contractor under the Head and Sub-Contracts.
CSD Corporate Services Division of DFAT (see Schedule 4). CSI Customer Supplied Items
As referred to in clause 7 and schedule 6 of the Head and Sub-Contracts.
CSU Computer Software Unit
Smallest element of software that can be independently tested. Several CSUs in a CSC.
Customer In the ADCNET Contracts, the Commonwealth was the Customer in the Head Contract, and BHP-IT was the Customer in the Sub-Contract (cf Contractor). CUT Code and Unit Test Cut-down STUBS Emulator Partial Surface Emulation that was ultimately developed under CR 3049 Cutover Process of progressively switching from an old computer system to a new computer system while maintaining contact with the external environment. D Deep Emulation Emulation that represents the full functionality of the emulated hardware or software (cf Emulation; Surface Emulation). Deliverable Product or document to be supplied by the Contractor under the Head or Sub-Contract. DFAT Department of Foreign Affairs and Trade DoD Department of Defence DPSI Defence Preferred Systems Integrator DSB Diplomatic Security & Countermeasures Branch of DFAT (see Schedule 4). DSD Defence Signals Directorate
Australia's national authority for signals intelligence and information security.
DSTO Defence Science and Technology Organisation
Part of the Department of Defence. Role is to apply science and technology to the defence of Australia and its national interests.
E EASAMS Australia The original sub-contractor on the ADCNET project; subsequently taken over by GEC Marconi. E2/E3/E5/E6 etc Scale of ITSEC Evaluation/Accreditation (see ITSEC Evaluation). Emulation Hardware and/or software that imitates the functional capability of other hardware/software. ER3 Expedited Release 3
Subset of software to be developed under the Head Contract as amended in December 1997. The ER3 software subset was to provide the message switch functions required to replace the IBM message switch as defined in CR007.
F Fixed Price Contracts The Head Contract and Sub-Contract signed in September 1994 providing for the development and integration of Release 3. FQT Formal Qualification Testing
Final acceptance of Release 3 software – see Acceptance Testing.
FRS Functional Requirements Specification
Detailed list of requirements for the ADCNET software. Various versions of the FRS were made over time as the project evolved.
Full Surface Emulation Emulation that represents all functionality at the interface of a piece of software or hardware. Distinct from Partial Surface Emulation which represents only a subset of interface functionality, and Deep Emulation which represents all functionality. Function Point Analysis Software estimation model. G Gateway (Trusted) Equipment and/or software processes that allow computers or networks with dissimilar characteristics to exchange information. In the case of ADCNET, trusted gateways allow (a) information exchange between ADCNET subsystems processing differently classified material and (b) between ADCNET subsystems and external systems. GEC Marconi Systems Pty Ltd Company that took over EASAMS Australia. GEC Marconi Australia Pty Ltd Parent company of GEC Marconi Systems Pty Ltd. GMS GEC Marconi Systems Pty Ltd H Head Contract Contract ITB/002 between BHP-IT and the Commonwealth; one of the back-to-back fixed-price contracts signed on 14 September 1994 for the development and integration of Release 3. HP Hewlett Packard
Company that provided workstation computers, operating systems and other hardware and software components for the ADCNET System.
I IBM message switch Computer System located in DFAT, Canberra, that performed tasks of transmitting, queuing and disseminating diplomatic ‘cables’. Original IBM message switch was implemented in 1979 and replaced by the ER3 message switch in June 2000. The system controlled the dissemination of cables according to attributes such as addressee, classification and subject identifiers. IMB Information Management Branch of STUBS (see Schedule 4) Interface Emulation See Surface Emulation. Integration Testing The phase in which all constituents of the IPD deliverable are brought together for integration, along with the BND component. IPD Information Processing Domain
The components of ADCNET which were to provide formal and informal message processing, information retrieval and office automation facilities.
ITB Information Technology Branch of STUBS (see Schedule 4). ITB/002 Head Contract between BHP-IT and the Commonwealth. ITD Integration Test Description ITSEC Information Technology Security Evaluation Criteria
DSD-endorsed criteria used to assess the security of a system.
K KDC Key Distribution Centre
A STUBS component
KG84 A military-standard encryption device. KIV-7 A military-standard encryption device; part of the STUBS replacement proposal under CR 3057. L, M, O LAN Local Area Network
A network of computers in a geographically limited area connected by cables or radio signals. Distinct from Wide Area Network.
Milestone A contractually designated stage in the performance of the contracted work, on the achievement of which a progress payment was made. There were 7 such Milestones in the Head and Sub-Contracts. Operating System Master control program that manages a computer’s internal functions, such as accepting keyboard input, and that provides a means to control the computer’s operations and file system. P Partial Surface Emulation Emulation that represents only a subset of the interface functionality of a piece of software/hardware. PDR Preliminary Design Review
First stage of formal review process – before CDR.
PMT Project Management Team PMR Project Management Report PSI Prime Systems Integrator
BHP-IT was the PSI for Release 3.
R Release 1 The original release of ADCNET software, which predated the Fixed Price Contracts. R3 Release 3
Software the subject of the Fixed Price Contracts.
ROM rough order of magnitude S SATIN Secure Australian Telecommunications Information Network SDD Software Design Document Systems Design Document SDP Software Development Plan SDSDD Software Development System Design Document Sealing A trusted process which converts an unsealed object into a sealed object. Senior Executive See Schedule 4. SIS Software Interface Specification SMOG Single Message Outgoing Gateway SO Standing Offer Agreement SPC Systems Policy Committee (see Schedule 4) SPME STUBS Project Management Executive (see Schedule 4) SRS Software Requirements Specification STARLIGHT Security technology developed by DSTO after STUBS. STD Software Test Description STUBS Electronic security gateway devices invented by DSTO and licensed for commercial exploitation by AWADI. Hardware components of the STUBS Technology include Sealers, Gateways and Key Distribution Centres. The technology also included Trusted and Untrusted software components. Sub-Contract Contract ADC/001 between GEC Marconi and BHP-IT; one of the back-to-back fixed-price contracts signed on 14 September 1994 for the development and integration of Release 3. Surface Emulation Emulation of that part of a piece of software or hardware which interfaces with other elements of a system. System All components of ADCNET, including computers, network equipment, software and procedures processing all levels of classified and unclassified information. System Security Policy A top level statement of the risks faced by an electronic information system or collection of systems, the counter measures to be applied within and outside of the systems, and the responsibility for those measures. T TASDD Test & Acceptance System Design Document TDP Test Description Procedure Test Harness A type of emulation, being a set of scripts/short programs that exercise various files or calls from a database to act as input to, and collect output from, the software being tested – see Contract Schedule 9 Cl 2.2.4.1. Testable ‘Shall’ Requirement defined in the FRS which must be demonstrated for completion of Formal Qualification Testing. TIF Test & Integration Facility TRR Test Readiness Review
Third tier of review process – after Critical Design Review.
Trusted Any component of the system that was ‘trusted’ could be relied upon to uphold the System Security Policy. U Unit Test Test of a CSU to determine whether it meets the capability requirements established in the SDD. UNCLGUARD Unclassified Guard
Part of the system developed to replace IBM message switch in conjunction with ER3.
W WACC Weighted Average Cost of Capital WAN Wide Area Network
Data communication network operating over a commercial infrastructure, eg telephone lines.
SCHEDULE 2
Principal Actors
Note: An asterisk (*) denotes persons who gave evidence at the hearing.
GEC Marconi
*Roger Cooke GEC Marconi Project Manager; originally in charge of the ADCNET project team prior to Release 3; later became Canberra Branch Manager of GEC Marconi Systems from 1994 to 1997. *Tim Harris GEC Marconi Systems Engineering Manager and Integration & Acceptance Test Manager; a software engineer whose principal responsibility was the integration and acceptance testing of the ADCNET Software. *MuraliVaratharajan GEC Marconi Systems Engineer and later IPD Development Manager; a software engineer whose principal role in the development of the ADCNET Software was to manage of a team of GEC Marconi software engineers/programmers. *Peter Wishart GEC Marconi Project Manager for the ADCNET project from September 1994 until January/February 1996. Also Technical Manager. *Ron Becker General Manager (Commercial) of GEC Marconi from April 1990 to March 1999. *Ian Sharp GEC Marconi General Manager, appointed in November 1995 (replacing Lindsay Pears); subsequently Managing Director of GEC Marconi from July 1996. *Howard Breden Commercial Manager of GEC MARCONI and then Commercial Manager for C3I Division of GEC Marconi Systems. *Peter Newton Consultant engaged by GEC Marconi to develop and build the STUBS Emulation Software pursuant to Change Request 3049. Edward Goldsmith GEC Marconi Project Manager for the ADCNET project; succeeded Peter Wishart in January/February 1996 and left the project in August 1996. Samy Software engineer/programmer involved in the costing of Change Request 3057 for the development of an alternative security gateway mechanism for ADCNET. *Professor Raymond Offen Expert in software development called by GEC Marconi to give expert opinion and to comment on Dr Lewis’ report. Lindsay Pears GEC Marconi General Manager up to November 1995 (replaced by Ian Sharp). Chris Skinner Managing Director of GEC Marconi from April 1996 to June 1996 (replaced by Ian Sharp). Ian Otto GEC Marconi Systems Architect *Daryl Dorfan Accountant retained by GEC Marconi. BHP Information Technology
*Kyrill Brent BHP-IT’s ADCNET Project Manager from pre-1994 to May 1997. *Ian Dart National Manager for Systems Integration Services (SIS) from 1994 to 1995. Appointed Group General Manager of BHP-IT in 1996. Mike Haddad Senior Commercial Manager of BHP Information Technology. Glenn Vile Contract Manager for BHP Information Technology; assisted Robert Nichols of DFAT with the drafting of the proposed contract with AWA Defence Industries for the proposed purchase of the STUBS devices. Margaret Beattie BHP-IT Corporate Legal Counsel Ramanathan Vishwanathan (“Vish”) Software systems architect responsible for the development of the ADCNET software after GEC Marconi terminated the Sub-Contract with BHP-IT (Consultant to BHP-IT). *Manfred Rentz Project Manager of the ADCNET project taking over from Kyrill Brent in May 1997; with Vishwanathan was responsible for the development of the ADCNET software, in particular the Expedited Release 3 software *Ian Fenwick System Support Manager responsible for BHP-IT’s accounting systems. Nick Brazil BHP-IT testing engineer David McGregor BHP-IT test and integration engineer *Gerard Hammond BHP-IT Vice President (Finance) from June 1996 to May 2000. Commonwealth (DFAT)
*Les Cook ADCNET Project Manager contracted by DFAT to help oversee the project. *Robert (Bob) Nichols DFAT officer; Director of section responsible for the development of the ADCNET software between 1994 and 1998; conducted negotiations with AWA Defence Industries on behalf of DFAT for the proposed procurement of the STUBS devices. *Kim Jones Deputy Secretary of DFAT from 1993 to 1998; the ADCNET project fell within his sphere of departmental responsibility. Geoff Allen Assistant Secretary of the Diplomatic Security and Countermeasures Branch of DFAT – the Branch responsible for the computer security requirements of the Department, between 1993 and 1996. *Anthony Skinner Assistant Secretary of the Information Technology Branch of DFAT – the Branch responsible for the ADC Network and the development of the ADCNET software, between 1990 and 1996. *John Crighton First Assistant Secretary of the Information Management and Property Division of DFAT from 2000 to 2001. *Robert Cotton First Assistant Secretary of the Corporate Services Division of DFAT from 1993 to 1997. *Damian Farrell DFAT consultant responsible for project managing the development and implementation of the UNCLGUARD security gateway mechanisms. *Graeme Tinney DFAT officer, who in conjunction with others, conducted and oversaw the acceptance testing of the Expedited Release 3 software. *Graeme Nicholls DFAT officer who arranged for the fitout and relocation of the BHP Information Technology/GEC Marconi ADCNET project team from the Administrative (now known as the Sir John Gorton) Building to the Edmund Barton Building. *Denis Johnston DFAT officer whose prime responsibility was the continued operation and management of the IBM Classified System; also made arrangements to relocate the IBM Classified System to the RG Casey Building. *Joseph Bracher Professional accountant retained by the Commonwealth to assist in quantifying its damages claim. *John Nothdurft DFAT Officer responsible for overseeing cable analysis and producing statistics in relation to cable printing and dissemination. *Peter Sams DFAT Officer responsible for the procurement of paper and certifying invoices for payment. *Dr Edward Lewis Expert in software development called by the Commonwealth to give expert opinion and to comment on Dr Offen’s report. John Campbell Assistant Secretary of Corporate Services Division. Member of the IT Executive. Commonwealth (DoD)
Dr Don Sinnott DSTO Scientist
Chief of the Information Technology Division within DSTO.AWADI
Nick Davias AWADI STUBS Project Manager; responsible for the technical development and eventual manufacture of the STUBS devices. Mark Hender Marketing officer in AWADI; responsible for the sale of the STUBS devices to DoD and DFAT. SCHEDULE 4
Principal Committees and Groups
Name Parties/Description Acceptance Test Team DFAT, BHP-IT, GEC
Team of project staff responsible for preparing and conducting acceptance tests.
ADCNET Security Sub-Committee DFAT, DSD
Chaired by the head of DSB. Membership included the head of ITB, the ADCNET Project Manager, DFAT technical staff and DSD representatives.
ADCNET Steering Committee DFAT; BHP-IT
Coordinated all aspects of the ADCNET project in its early stages. GEC Marconi representatives were also on the committee in an advisory role.
CSD (Corporate Services Division) DFAT
Management division of DFAT to which the IMB reported.
DSB (Diplomatic Security and Countermeasures Branch) DFAT
Responsible for all aspects of security for the DFAT including information communication network security.
IMB (Information Management Branch) (Formerly ITB (Information Technology Branch)) DFAT
Responsible for DFAT’s data storage and communication services, as well as library and information services.
STUBS Advisory Board DoD, AWADI
Board set up to advise on various issues concerning, principally, the development and marketing of the STUBS devices.
STUBS Project Management Executive AWADI, DoD, DSTO
Principally an AWADI group that met regularly (either fortnightly or weekly) to oversee the technical development of the STUBS devices.
Systems Policy Committee DFAT
Oversaw strategic policy directions relating to information technology systems within DFAT.
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