The BAE tender evidence
56 Leaving aside the documentary evidence, the main evidence about the BAE tender was given by Mr Klappers. He provided useful general information about Ezy-Fit's experience and the nature of the tender process. For example, he explained that the periscope work was the largest tender that it had sought at that time and was a shift in focus for the companies; although Ezy-Fit had undertaken some work in the naval sector, it had been its standard hydraulic cylinders type work; it was a massive investment for Ezy-Fit to undertake the periscope work; defence work requires considerable skill, precise measurements, technical requirements and more complex equipment; as at 2017 Ezy-Fit was a smaller player and was trying to grow and establish that part of its business and to develop their understanding of the defence market; the defence sector is highly competitive with high and exacting standards; and that the periscope project was worth a lot of money, but if things went wrong 'it could be the opposite' and could be very costly.
57 Another Ezy-Fit employee, Mr Haydn Powell, undertook most of the negotiations and quoting for the periscope project. Mr Powell did not give evidence. Despite Mr Powell's role, Mr Klappers said he was kept in the loop. Further, Mr Klappers was one of four people from Ezy-Fit who attended meetings with BAE throughout 2014, 2015 and 2016.
58 As noted, the first invitation to quote was received by Ezy-Fit on 11 August 2014. It was addressed to Mr Powell. The original request related to the supply of five attack and five search periscope tubes, with an anticipated execution of a contract with the successful bidder in November 2014. That timeline was clearly extended at some point.
59 The first quote provided by Ezy-Fit, being the quote dated 20 November 2014, was addressed to Mr Kevin Harness, the project manager for the periscope project at BAE. It was for a price of $3,245,000 and included the following 'clarifications and exclusions':
1) [Ezy-Fit Marine] intends, at our own cost, to increase the scope of our manufacturing premises to allow the installation of additional equipment to ensure successful manufacture of the periscope tubes. This will include installation of a new CNC lathe capable of high accuracy and close tolerance machining, a new CNC milling machine and machine tooling, and Coordinate Measuring Machine (CMM) Quality Control Station. The CMM will be housed in its own climate controlled clean room. The time factor for such building improvements, which would include a climate controlled purpose built premises to house the long turning and milling equipment, and installation of the related equipment is approximately 1 year but subject to extension of that time if impractical.
2) This quote is subject to The Ezy-Fit Group achieving a successful outcome of an application for funding through the Australian Governments' Next Generation Manufacturing Investment Programme. If the grant application fails to achieve the necessary level of funding EFM reserves the right to withdraw this quote without penalty.
60 Mr Klappers confirmed in his evidence that as at 20 November 2014 Ezy-Fit was looking to complete the building works and acquire new machinery by about November 2015.
61 According to Mr Green, there was a meeting on 28 November 2014 which he attended with Mr Powell and Mr Harness at which there were 'advanced' discussions about Ezy-Fit manufacturing the periscope tubes.
62 On 4 December 2014 Mr Powell provided a further periscope tubes quote, offering to present it to BAE.
63 This was followed up by a meeting with Ms Sharon Wilson and Mr Adam Watson of BAE at Ezy-Fit's premises on 15 December 2014. Mr Green prepared a note of the meeting, stating that the visit was 'highly informative and encouraging' and that Ezy-Fit informed BAE of its history, capabilities, future potential, and aspirations. Case histories were provided and Mr Green stated that Ezy-Fit was encouraged to add those 'achievements' into a revised presentation.
64 Meanwhile, and as discussed further below, on 22 December 2014 Mr Green submitted Ezy-Fit's application for a Commonwealth Government grant to assist in the purchase of machinery for the periscope project.
65 A further quote, dated 27 February 2015, was provided by Mr Powell to Mr Harness in similar terms to that of November 2014. Mr Klappers did not recall the reason why the revised quote was provided but was aware that matters did 'drag out' and that there had been 'toing and froing' between BAE and Mr Powell. According to Mr Klappers, as at 27 February 2015 it was the position that it would be another year for the building work to be undertaken and for machinery to be acquired, as those tasks had not by then commenced.
66 A further revised quote was provided in March 2015, but nothing significant arises from the revisions.
67 According to Mr Green, on 3 August 2015 he attended a meeting with Mr Harness in order to try and obtain some indication of whether Ezy-Fit might be successful in its tender. He said that Mr Harness told him he (Mr Harness) couldn't say anything - but that he indicated the Government's preference was that the products be made in Australia and that only Ezy-Fit was preparing its quotation on this basis. Mr Green took from the conversation that Ezy-Fit Marine was in a good position to win the periscope work, but that Mr Harness would not be held to any obligation.
68 On 4 August 2015 Mr Green provided the information required by the Government in order to accept the Government grant.
69 During October 2015 Ezy-Fit ordered the FTM1000 from Ron Mack, and Ron Mack estimated that the machine would leave Poland in approximately mid- January 2017.
70 In November 2015 Mr Kerin, Mr Green, Mr Powell and Mr Klappers attended an Ezy-Fit management meeting. The minutes reflect that Ezy-Fit was unsure whether it should continue to bid on two machines for the periscope work because of financial conditions, but it decided to do so. Mr Klappers' evidence was that the two machines referred to in the minutes were the FAT HACO lathe and the DMF600 (defined below).
71 From 1 April 2016 Ezy-Fit made a number of inquiries with Ron Mack about the estimated delivery time for the FTM1000 (discussed further below).
72 On 5 May 2016 Mr Powell provided a further quote, addressed to Mr Andrew Prettejohn at BAE. The quote was for a reduced number of periscope tubes (four) and was in the sum of $1.5 million. The quote stated that 'the equipment has been ordered and is due … at the very end of 2016', and that 'the time factor for such building improvements … and installation of related equipment is approximately 1 year but subject to extension of that time if impractical'. Mr Klappers confirmed that at that point the time frame for completion of the machine installation and building works was May 2017.
73 On 30 June 2016 Mr Powell sent an email to Mr Prettejohn of BAE, seeking an update on the project and stating relevantly:
… Could you please give me an update of the current status of the periscope poles requirement.
Just to fill you in, we have ordered 2 machines from Europe that we would use to manufacture the poles. Our investment in these machines is several millions, and we are now about to embark on the building of the factory to house them which will be purpose built with the poles in mind. We are expecting the first of the machines to arrive around Christmas and it would be greatly appreciated to know where we stand with the project.
If at all possible, I'd like to pay you a visit and discuss the project, this will help me to make some projections.
74 In September 2016 Ms Wilson gave a speech in which the periscope project was apparently mentioned. Neither the date of the speech nor its audience is clear. However, the document evidencing the speech is an online news article published by 'Defence Connect' dated 22 September 2016. Mr Kerin gave evidence that he was 'buoyed' by the speech (although he dated it as being published in December 2016 and this date is likely an error on his part). The article provided a transcript of the speech, which included the following:
A local supplier was integral to our success on this program - Ezy Fit marine, based in SA, has invested in a new CNC machine to produce tubes, a CMM measurement machine in a environmentally controlled room and a new facility. I know Thales is looking at the company to make tubes for other customers.
75 Also in about September 2016, according to Mr Kerin, BAE representatives attended on site to conduct an audit of the building works. Mr Kerin said that the auditors noted an absence of marked lines and the presence of storage on walkways. Mr Kerin told them that Ezy-Fit was in the process of construction, and that the building would be ready between December 2016 and January 2017. He said the auditors made comments to the effect that Ezy-Fit had a long way to go, and he assured them with words to the effect that 'we would get it done'.
76 On 25 October 2016 Ezy-Fit submitted a further quote to BAE for the complete set of 10 periscope tubes for a total sum of $9,685,430. This quote was in a different form, with various subcategories, but it was accepted by Mr Klappers that it reflected a significant increase in price. Mr Klappers also said it was his understanding that BAE had spoken to Mr Powell and had asked for a quote to be re-submitted because previous offers were 'a little bit low'.
77 A version of this quote with marked-up comments, apparently made by BAE, was in evidence. By those comments it was apparent that there were issues regarding the level of any downpayment to Ezy-Fit. Further, Ezy-Fit set out in the quote that:
Initial delivery of the first tube is expected to be approximately 9 months … but is subject to change should there be any supply delays beyond the control of Ezy-Fit Marine.
78 By its comment in response, BAE said that it required Ezy-Fit to commit to a definitive schedule and so (according to Mr Klappers) put the risk of delays in the supply of materials onto Ezy-Fit. Mr Klappers accepted that in general if Ezy-Fit was let down by suppliers, there could be significant issues, including penalties.
79 At about this time Mr Prettejohn informed Ezy-Fit that Ezy-Fit was third in the list of tenderers after Thales and Hoffman (as later confirmed by Mr Kerin in an email exchange with Ms Taylor of 17 March 2017).
80 On 10 November 2016 Mr Powell emailed Mr Prettejohn, apparently responding on behalf of Ezy-Fit to the BAE comments. Mr Powell's comments included the following:
I will provide a Manufacturing Plan but I can only offer what the raw material supplier can provide and this means at least 29 weeks for manufacture and then another 6 weeks for freight, 35 weeks in all. We then have to complete manufacture of the tubes, qualify welding procedures as we will not have access to equivalent strength materials until the billets are forged, and this will take some time. I've spoken with the provider, and they will not promise early delivery so therefore I can't offer something that is unreasonable. I will provide the quote with a reasonable delivery date but I already know this will not be to the liking of BAE or the CoA, but we warned about this several times over the last couple of years. Undue delays to the project have been out of our control and it will be difficult to deliver in an unreasonable time frame.
…
Considering the outlay we have already invested in this project, approximately $6 million, and given a further $4 million would need to be spent on materials, weld procedure qualifications and other costs, Ezy-Fit does not believe to ask a down payment of $4 million is unreasonable. We are willing to negotiate this but we would believe it unreasonable of BAE to attempt to reduce the down payment to a much lesser figure. Additionally, we are being asked for financials which due to our expenditure puts us at a disadvantage when the money we have spent was spent in good faith that we would eventually receive an order for this job. To reduce the down payment will also reduce our financial viability which of course exacerbates any negatives that may result due to our high expenditure. We have set this up to be able to offer the best manufacturing facility on the planet for manufacture of these tubes, and in comparison any competitor using manual equipment will have a high risk of failure in comparison to a pre-tested sample manufactured and proven on a CNC Lathe of the capacity we are installing. Additionally we have one of the world's finest tube hones to guarantee internal tolerances can be achieved. I was quite taken aback the other day when I was told our quote is not looking the best currently, when we above all other companies worldwide have invested so much to deliver the lowest risk and most accurate and repeatable results BAE and CoA could ask for.
However, this takes time and money but there is no competitor that could match our facilities and capabilities in one house. Even our manual 12m lathe, being only around 6 years old, is arguably superior to the much older lathes our competitors are offering. This gives us current capacity to produce the tubes, and the installation of the CNC lathe will increase our capability enormously whilst reducing our risk by a like amount.
…
In summary, it seems that now the CoA needs these items quick smart the pressure is being put on the supply chain to improve a reasonable delivery schedule to one that is unreasonable. We cannot promise what we don't think is achievable, however much the CoA would like us to do this. Also delivering a fixed price with a quote validity until February poses a challenge, especially as the money markets are now experiencing the most volatility we've seen in quite a while.
81 Mr Powell's comment in this extract to the effect that he had been told Ezy-Fit's quote 'was not looking the best currently' is consistent with Mr Klappers' evidence about a meeting in November 2016 with BAE which he attended, where the various BAE comments were discussed. Mr Klappers' evidence was that the question of the price was discussed at length because BAE had previously told Ezy-Fit to put its price up, and was now being told that it looked 'a little bit dear'. Mr Klappers said that the goalposts continued to change at about this time; that BAE and the Commonwealth seemed to be 'toing and froing' and that things 'just seemed to be changing all the time'; and that things had 'dragged on for three years and then all of a sudden the Commonwealth wanted new submarine periscope tubes in nine months, which was highly unlikely to happen with anyone'. Mr Klappers agreed that the driving force for the BAE tenders at that time appeared to be time and costs. Mr Klappers also said that BAE mentioned that Ezy-Fit did not at that time have the equipment to perform the work, but that Ezy-Fit kept telling them that the machine was on order.
82 Separately, I note that at around this time (relevantly on 15 November 2016) the information provided to Ezy-Fit by Mr Walker was that the estimated ex-factory date for the FTM1000 was 'mid-end February', being a month later than estimated in the 15 October 2015 contract.
83 On 18 November 2016 Ezy-Fit provided its final quote to BAE, 'splitting' the tubes as requested by BAE and quoting separately for attack tubes and search tubes The clarifications and exclusions stated that initial delivery of the first tube was expected to be 12 months after placement of the order and subsequent ordering of raw materials in accordance with the production schedule.
84 Separately, as at 23 January 2017, Mr Green had estimated that based on information provided by Ron Mack, delivery of the FTM1000 to Ezy-Fit's factory was likely to be in the week commencing 29 May 2017. Mr Green did not go back to BAE at this time seeking to amend the clarification or exclusions, or indicating that the initial delivery date needed to be extended. I infer that Mr Green did not consider the 29 May 2017 delivery estimate required him to alter the tender quote and did not consider that the delivery estimate would prevent Ezy-Fit meeting the BAE timeline indications.
85 On 28 February 2017 Ezy-Fit received a letter from BAE confirming that it was unsuccessful in its bid for the periscope project. The letter relevantly read:
RE: TENDER OPPORTUNITY FOR THE MANUFACTURE OF PERISCOPE TUBES
Dear Haydn,
The purpose of this letter is to inform Ezy-Fit Marine Pty Ltd (Ezy-Fit) that another party has been identified as the preferred tenderer for the abovementioned opportunity with whom we intend to enter into final contract negotiations.
BAE Systems Australia Limited … would like to thank Ezy-Fit for its participation to date in the tendering process. We are happy to provide Ezy-Fit with a debrief in due course should Ezy-Fit request this.