Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum by the Department of the Environment, Transport and the Regions (NATS 03)

  The Transport Sub-Committee is conducting an enquiry into National Air Traffic Services Ltd (NATS), in particular into the new air traffic control centres at Swanwick and Prestwick, and the failure of systems at the West Drayton air traffic control centre.


  NATS announced in July 2000 that the New En Route Centre at Swanwick is targeted to come into operation on 27 January 2002. The last major milestone before this operational date is Technical Handover, when the centre's systems will be ready for operation. Technical Handover will be achieved by December this year, and will be followed by a year of training of controllers on the new systems. Controllers have already received training schedules covering the period up to the operational date.

  In October 1998 John Reid, the then Minister of Transport, announced to the Transport Sub-Committee that the operational date for the Swanwick centre would be in early 2002. Since then the project has achieved all of the milestones necessary to achieve the scheduled operational date. Previous delays to the centre resulted from over-optimistic timetabling and ongoing technical problems.

  Following the recommendations of the Sub-Committee's report into air traffic control published in April 1998, the Government commissioned two audits of the Swanwick project. The first, by the Defence Evaluation and Research Agency (DERA) confirmed the viability of the centre's computer system, proposed a new operational date of winter 2001-2, and made a number of suggestions on improving NATS' project management. One of the two major proposals on project management was the introduction of external project management expertise, and this has been done through the introduction of Bechtel. The other major DERA recommendation on project management was the separation of the "supplier" and "customer" groups within NATS—this was also taken up.

  The DERA report also found "no merit" (including on the question of safety) in the proposal that the Swanwick and New Scottish Centre systems should use different systems.

  The second report commissioned by the Government was carried out by Arthur D Little Ltd, and looked at the cost of the centre and the management of the project. The report concluded that the centre was likely to cost around £625 million (not including NATS internal costs), which exceeded the original budget estimate by around £150 million. There were a large number of recommendations on project management, many of which have been adopted by NATS, including the development of a more open management culture.

  The report also looked at the Government's handling of the project. Although the report concluded that the Government's role in overseeing the project was generally appropriate, it also made several recommendations designed to improve Government oversight of NATS projects, most of which have been adopted by the Government. These include preparing project-specific oversight plans, revision of project progress reports, and holding of regular meetings with NATS and other interested parties on major projects.

  On the question of whether or not the Swanwick and New Scottish Centre should use a single system, the Arthur D Little report found that "the commercial advantages of a single system far outweigh the disadvantages".


  Approval for the NSC project was given in 1993. The centre was to replace the existing centre at Prestwick, and also provide contingency back-up in the event of the Swanwick centre going out of action. The original target date for the NSC to come into operation was 2000. In the 1993 Budget, the then Government announced that the NSC would be taken forward under the Private Finance Initiative (PFI). Under the PFI, the contractor would design, build and maintain the centre under a 25 year contract, although NATS would continue to operate.

  NATS had concerns about the PFI from the outset. They feared that not having direct control over one of their two major en route centres could lead to problems in introducing new technology at the NSC. NATS also had concerns about ensuring compatibility between systems at the two centres.

  Progress on finding a contractor was slow. Invitations to tender were issued in September 1995, and tenders were received from two bidders in May 1996. It was not until March 1997 that Sky Solutions was declared the preferred bidder. Sky Solutions was a consortium comprising Lockheed Martin (systems) and Bovis (construction).

  Discussions continued between NATS and Sky Solutions in an attempt to find a mutually acceptable contract, but it was not until December 1998 that NATS submitted a draft PFI agreement for approval by the Government. However it was soon apparent that the proposals were not acceptable—insufficient commercial risk was being transferred to the contractors. The Government's financial advisers for NATS PPP, Credit Suisse First Boston, also expressed reservations about the desirability of the proposed PFI project in the context of a PPP for NATS. Following further discussions between DETR, the Treasury Task Force and NATS, it was decided in early 1999 that it was no longer appropriate to pursue the contract under PFI.

  Following this step, and learning lessons from the Swanwick project, NATS and DETR held a competition for an external project manager for the NSC, and Bechtel Inc were chosen. Following that appointment, Bechtel, with NATS, reviewed the contracting strategy for the entire NSC project. They concluded that, rather than continue with Sky Solutions under a conventional procurement, there would be significant advantages to contracting directly with Lockheed Martin for the systems, and retendering the building contract. In February this year an agreement was signed with Lockheed Martin, and a building design competition is currently being held between two selected firms. The winning designers will be chosen in December this year, and following a future competition the building contractors will be chosen. Construction is due to start early next year. Although it is too early to be precise, this new contracting strategy is expected to save up to £100 million when compared with the original post-PFI estimates. NATS now expect the centre to become operational in 2007-08.


  The Oceanic Air Traffic Control Centre at Prestwick handles aircraft flying across the area of the north Atlantic to the west of the UK and Ireland, known as the Shanwick region. Under international agreement, the UK provides the air traffic control services, and Ireland provides radio communication.

  The centrepiece of the Oceanic centre is the flight data processing system (FDPS) which processes information on air traffic crossing the Shanwick region. The need for a new Oceanic FDPS has been identified, which will have a much greater capacity than the current system. It will enable NATS to allow reduced separation between aircraft in this sector, and thereby meet the new international standards on aircraft separation that the International Civil Aviation Organisation (ICAO) plan to introduce. It is planned to house the FDPS in the New Scottish Centre.

  In November 1994, a competition was announced for the selection of a supplier for the new FDPS under the Private Finance Initiative. In July 1997 the contract was awarded to EDS Ltd—the term of the concession agreement was 13 years, including a period for design and installation. Unfortunately problems set in at the project definition phase, and the project was delayed by two years until 2002.

  NATS and EDS experienced a number of difficulties with the contract. Following a number of unsuccessful attempts to resolve these including a renegotiation of a number of the contract terms, NATS terminated the contract in August 2000, citing EDS' failure to deliver a "Contract Design Review" to the scope and extent required by the contract. NATS, with the assistance of Bechtel, are currently deciding how to take the project forward. The existing system is capable of functioning for some years into the future; and ICAO standards on aircraft separation will not now be introduced until some time after 2005.


  The TSC will be aware of a number of computer failures at LATCC over the last few months. These were failures of the National Flight Data Processing System (NAS), at LATCC, which handles all flights in UK controlled airspace and provides controllers with the information crucial to ensuring a safe and smooth flow of traffic.

  There were four failures of NAS between June and August this year, mainly due to software faults which had lain dormant for a number of years. One of these, on 17 June, caused serious delays to aircraft flights. These problems have now been identified, and measures have been put in place to prevent further failures due to the same causes. At no time during these recent failures was the safety of air traffic impaired. It was regrettable but necessary to impose delays, and for a short period in some cases an embargo on flights entering the system, as a means of ensuring the safety of flights already airborne and to prevent the risk of overloading the system.

  NATS has no requirement to replace its NAS until 2005 and considers it best to utilise NAS as the source of flight data at Swanwick when it opens in 2002, rather than introduce a further view system at that time.


  The Sub-Committee's report on NATS in 1998 contained a number of constructive criticisms of the handling of NATS' major projects. Most of its recommendations, and those of the audits it engendered, have been implemented by NATS and the DETR. Two years on the Government is pleased to report that NATS management of major projects has significantly improved.

  The improvement in NATS management can be seen at Swanwick, where for the last two years the project has proceeded on schedule, and is still on schedule to open in 2002. The contractual framework for the New Scottish Centre has been reworked, and considerable cost savings are anticipated.

  There are still important tasks facing NATS in the area of major projects, for example the progressing of the Oceanic FDPS project following the termination of the contract with EDS. But the process of updating and replacing its air traffic control infrastructure is a constant and never-ending task for NATS, and one they are now better equipped to carry out.

  The Government's proposed PPP for NATS will further enhance NATS' capabilities through access to private sector financial markets and management expertise.

September 2000

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