CAA Reform A Double Edged Sword

Micro economic reform is the current economic rationalist shibboleth. In introducing such measures in 1987, Peter Walsh said their purpose was “to achieve the highest levels of operational and financial efficiency in (and) to improve (the) accountability of. . . Commonwealth business enterprises”.

But the application of such measures to the Civil Aviation Authority (CAA), does not always endorse such rosy outcomes. Here two fundamental problems arise at the very outset because the CAA performance cannot be monitored simply by the bottom line. First, this is a totally inappropriate measure for what the CAA’s 1990/91 annual report says is its “major responsibility-the safety of aviation in Australia”. Second, it ignores the intrinsic conflict between the CAA’s commercial and regulatory functions.

Thus in the case of the CAA, the micro economic reform rhetoric and the reality are literally poles apart.

The trauma of the micro economic reform treatment has brought the CAA to a crisis point. This and the associated major economic, political and social consequences have been extensively articulated in the press since early 1991; a process which ultimately led to the Macphee inquiry into the CAA’s tendering process for its $300m Advanced Australian Air Traf- fic System (TAAATS), which when completed will now prob- ably cost more than $450m in current dollar values.

The ramifications of this inquiry can be expected to be far reaching, both for the CAA and for other government business enterprises (GBEs). Already the chief executive, Frank Baldwin has resigned and Rob Edwards, the projects general manager, was sacked. The CAA board was temporarily saved by the bell of the federal election announcement. But that is another story.

The object here is limited to questioning the central claim of micro economic reform by testing the CAA’s profuse rhetoric that it has already achieved considerable efficiencies. Though significantly, it has shied away from the specifics. So lets examine some efficiency issues.

What Efficiencies?

Reduced Functions: The transfer of CAA functions to the industry and the reduction of the scope or total elimination of others, has made many staff redundant. Thus, the CAA was able to proudly announce in April 1992 that it was reducing charges to the aviation industry by $69m. But now it is trying to convince the non airline components of the industry to accept increased CAA charges.

A simple calculation on the basis of staff retrenched suggests that the Authority was less than forthright when it stated that “Savings from cost reduction. . . have been passed on to the aviation industry”. It appears the industry is to be credited with much less than the total “savings” thus achieved.

But how real are these savings? Transferring CAA functions to the industry clearly transfers costs as well. And reducing or eliminating functions should not ignore what may be significant implications for the industry and the community.

For instance, the CAA proposed to reduce airport inspectors from 37 to 3, and so limit inspections to the large airports. The balance of some 400 aerodromes, which are the very ones in most need of regular inspection, would be deprived of this service.

The Northern Territory Government challenged this proposal. After all, gullies from soil erosion can appear overnight on aerodromes in tropical areas. And some trees can grow a metre a week. Both of these can compromise safe aircraft operations.

As a result of this challenge, the CAA is to retain 12 airport inspectors for a transitional period. Thus owners of aerodromes that would have been deprived of regular inspection, can now continue to receive this service to the end of 1994.

Curiously, the agents of change in the CAA claim they are copying US practice. But according to the Association of Professional Engineers and Scientists (APESA), “In this instance, the fact is that US practice is moving towards greater surveillance, not less”. Yet the CAA persists in its bland claim that “safety levels will be maintained”.

Multiplication of Executives: When the CAA was established in mid 1988, there were 33 Senior Executive Services (SES) officers servicing the CAA functions, 12 of whom also serviced policy and other functions of the then Department of Aviation. By mid 1992 the SES level positions in the CAA had increased to an estimated 61, almost doubled or trebled, depending on which initial number you adopt.

The escalation of CAA senior management costs also involves greatly enhanced remuneration packages. But contrary to sound commercial practice, the contracts of top CAA have no performance clauses, according to reports on the TAAATS fiasco.

The result of all this will be that when the euphemistically called downsizing of the CAA is complete, a management group that has doubled or trebled in size will be supervising half the original number of staff.

Project Management: The defective practices associated with the TAAATS project are typical of the CAA’s changing culture. They are well documented by the Parliamentary Standing Committee on Public Works (PWC) inquiry into the buildings required to house the system, and the consequent Macphee independent review.

Four factors contributed to this untenable situation. They are the CAA’s gung ho approach to major projects, the can do mentality encouraged in its project managers, the understandable euphoria of being freed from public service red tape, and a priority on putting runs on the board.

Thus projects were often undertaken outside a framework of sound and proven management practice. Short cuts being the order of the day, and inadequate consideration was given to the effective management of the consequent risks thus introduced. Those that advised a return to more prudent practices were viewed with disdain as yesterday’s men, and ignored. Thus typically, the proponents of micro economic reform did not factor the human element into their equation. So what fundamental practices are we talking about? First, no cost benefit analysis of the air traffic control re-equipment options was undertaken. The CAA thus failed to demonstrate that its TAAATS proposal represented the most cost effective solution. Of this, Clive Davidson, the then general manager for major projects, expressed to the CAA board his “grave concern (that) the rush to find a new direction has failed to address the most fundamental of issues. . . the complete absence of any sort of rigorous analysis”.

Second, Davidson also said that “if there has been one lesson that should have been learnt from our existing process, it is that we did not do enough front end planning (sic)”. In the case of TAAATS, “the whole planning process has been abandoned”.

An example is the Flight Data Processing project, where inadequate planning with a wandering scope resulted in its estimated cost escalating dramatically. It was then put on hold while first one consultant and then another reviewed it. Finally it was cancelled.

Third, a turnkey or hands off approach was proposed for the implementation phase of TAAATS. The APESA assessment, supported by US Federal Aviation Administration (FAA) experience, was that such a course of action “is fraught with risk” and “is inappropriate for a high technology project like TAAATS”. APESA said that making the prime contractor the monitor of its own work “is contrary to all that is generally accepted as good engineering and contractual practice”. And the fact is that performance guarantees on which the CAA placed its confidence, no matter how they are couched, are no substitute for client vigilance and quality audit.

Fourth, having to terminate a number of contracts to implement the alternative TAAATS solution to the air traffic control problem, involved unnecessary wastage of resources. The CAA states that the written off costs of the cancelled projects was $26. Im. Another source estimated the cost at $48m. But as the Professional Radio and Electronics Institute said, whatever the exact figure, it is “a gross waste of. . . industry and public funds. . . in abandoned and ill conceived projects”.

Fifth, the awarding of a contract for the buildings and road access works of the $128m Radar Sensor Procurement Project (RASPP) without proper specification and documentation. Probably a first in the history of modern contractual practice! The environmental impact assessment process was still in progress when the contract was let. A warning from in house specialists that this process was not being taken seriously enough was ignored. As a result, three preferred radar sites in Queensland did not get environmental clearance. And consult- ants had to repeat the site selection process. Thus the actual length of the access roads, their exact location and the scope of work involved were unknown. The result was major work variations.

Questions arising include: how has this affected the contract price? What road standard was actually provided? And what recurrent maintenance costs the CAA will be liable for in the future? The case of one access road illustrates possible consequences.

Here two vehicles were wrecked because of poor alignment. It was fortunate that no one was killed. Also, as a result of using inadequate material, the pavement sunk into the sub-base. And there is no evidence that the drainage structures will be capa- ble of withstanding any significant interval of local flooding. So much for the requirement of uninterrupted access to radar facilities! Significantly, the concerns raised about this project by in-house specialists were independently endorsed by the Australian Government Solicitor. Both were ignored! A subsequent risk management review of selected contracts by consultants, confirmed the potential consequences predicted.

Leaping before you look and dealing with the consequences later is hardly a cost effective approach or good project management.

Sixth, project managers ignored advice from in house civil engineering and buildings specialists. Some examples have already been given. A significant case was the location of the Cairns airport control tower.

This specialist group advised that the selected site would necessitate a control tower with an eye height estimated at 65m to provide a clear view of all aircraft movements on the international apron, and that an alternative site would require a significantly lower eye height than the 41. 5m proposed. But the tower was located in the vicinity of the first site. While an improvement, the eye height of 41. 5m still does not provide a clear view to all parts of the international apron.

Thus the quantum cost savings available to the CAA through the provision of a lower control tower were lost. And in the siting of the control tower, the CAA abrogated any responsibil- ity for airport master planning by allowing the Cairns Port Authority to give priority to its commercial interests over operational requirements.

The Contracting Out Furphy: This is another generalised grab all of micro economic reformers. But they forget Murphy’s orbital law of generalisations. This says that as a generalisation tends to the global, to that extent it is on an orbit away from the real world. Take the decision of the CAA to dispense with its civil engineering and buildings specialist group.

In contrast, the Royal Australian Institute of Architects strongly advocated the retention of such expertise in evidence to the PWC relating to the $50m TAAATS buildings. It said that “the optimum design solution for any building. . . comes from a dose working relationship between the organisation. . . and the designers”. It supported this with a statement from the guidelines for UK government buildings that “One message s that stands out above all is the absolute requirement for a well informed client, without whom even the most effective design team is directionless”.

Some 18 months ago, an international conference on ‘asset management in tough times’ gave unqualified support to this position. For instance, a representative of the AMP Society said that in their experience, the use of in house versus external resources was not a black and white issue.

Further, the conference consensus was that the efficient management of assets would become increasingly more significant. And to achieve such efficiencies would require sophisticated tools and in house specialised skills. The Victorian Ministry of Housing and Construction gave evidence that for the 12,000 houses on their register, such tools and specialists was enabling them to achieve savings of some $60m pa, which were expected to rise to about $90m by 1994/95.

Additional evidence against the indiscriminate practice of contracting out is provided by the Evatt Research Centre. It says in ‘Breach of Contract’, that following “the most extensive survey of local government service ever undertaken (the Centre) shows that, in a majority of cases, the hoped for savings of contracting out have not eventuated” As a conse- quence, “Councils have been left with unplanned expenses or problems resulting from lack of accountability, quality con- trol and reliability on the part of private contractors”. Thus, “The efficiency and productivity gains which in some instances could result from using private experts and specialist firms have not been realised. . . ” CAA’s small civil engineering and buildings specialist group demonstrated that such gains were achievable. Its short record was impressive. Its three projects were completed on time, within budget and with significant savings, notwithstanding a fast tracking process and unusual political, functional, technical, cost and time constraints.

Initiatives taken achieved savings of $185,000 for the Centre for Aviation Studies building($3. 8m) at the Tasmanian University of Technology. The cost of the complex Melbourne airport smokehouse was reduced from the $1. 2m estimate to $0. 7m. Here deliberate simulation of danger and risk was required, while adhering to the safety standards of the building code. And savings of $85,000 were achieved for the Central Briefing Unit building at Melbourne Airport.

But in the end, the evidence of the real world and these achievements apparently counted for nothing in the CAA’s decision to eliminate this group! Even though it cost the CAA a paltry $250,000 pa to retain its services! These outcomes are hardly what Peter Walsh and his micro economic reformers had in mind. If anything, they are totally contradictory to their objectives of greater efficiency and accountability for GBEs like the CAA.

Unless of course, by efficiency gains, economists mean simply the reduction of costs irrespective of the way they are achieved and of their consequences. But, that’s not how Peter Walsh explained it! John Legge, a consultant and former academic, summed up such claims beautifully, in a letter to the Australian Financial Review in mid 1992. He said that “there is no pragmatic evidence to justify economic rationalist’ policies. . . The onus is on the economic rationalists’ to prove that by repeating their incantations, one can bypass the laws of logic and reverse the rules of evidence”.

Following the electorate’s recent rejection of the more radical aspects of such policies, it would be prudent perhaps for the government to take into consideration the issues raised in their application of micro economic reform to GBES.

Tony Tsipouras is a freelance consultant involved in airport and airways analysis.