McGowan Government to pay $6.6 million termination fee over dumped rail contract with Chinese telco Huawei

Taxpayers will shell out $6.6 million as part of a termination settlement after the McGowan Government was forced to dump a railway communications contract controversially awarded to a consortium that included Chinese telco Huawei. The deal inked in 2018 would have seen a joint venture between UGL and Huawei deliver a new digital radio system across Perth’s rail network at a cost of $205 million. The agreement was made despite Huawei having been banned by the Federal Government from participating in the NBN rollout over security concerns, with the company facing accusations of corporate espionage and enabling spying by the Chinese government. The contract quickly began unravelling after the US slapped trade restrictions on Huawei in 2019, which the telco claimed created a “force majeure event” that neither it nor the McGowan Government could overcome. It was abandoned altogether in 2020 and Transport Minister Rita Saffioti told Parliament on Tuesday a settlement had been reached. She also blamed the costly saga on a “trade dispute” between the US and China. “In 2019, the US Government placed severe restrictions on Huawei which resulted in Huawei ultimately being unable to deliver the project,” Ms Saffioti said. “After significant negotiation, both parties agreed Huawei could not fulfil their contractual obligations and the contract was terminated in September 2020. “The (Public Transport Authority) has recently reached a termination settlement with the Huawei UGL consortium of $6.6 million.” “It is extremely unfortunate that the State Government’s project, which is effectively a local radio network for train drivers and transit guards, was caught up in the wake of a trade dispute between the United States and China.” Ms Saffioti also revealed a replacement contract for a digital radio network had been awarded to Nokia Solutions and Systems Australia at a cost of $327 million. The big increase in cost was blamed on the technical expertise required for the work, with Ms Saffioti saying there was a limited pool of contractors to draw from. “As a result there is less competition and little downward pressure on prices,” she said. “Additional factors that have impacted the overall cost of the contract include extending the duration of the contract, and price and material escalations over time.” Opposition Metronet spokesman Tjorn Sibma called on Ms Saffioti to apologise “for this extraordinarily expensive bungle which has left taxpayers on the hook for an additional $100 million”. “This outcome was utterly avoidable, Minister Saffioti was warned in 2017 about the potential for the Huawei-UGL procurement to fail in light of US-China trade battle, nevertheless the government carried on as if it could operate outside of market reality,” he said. “They found out to their embarrassment, and to the enormous cost of Western Australian taxpayers, that you can only deny reality for so long.” The new digital network is a key component of a broader high capacity signalling program, estimated to cost around $1 billion in total, that will allow trains to run more frequently across the network to keep pace with forecast demand. “The full program of works includes the radio systems replacement, the public transport operations control centre and the train control and signalling projects,” Ms Saffioti said. “The new digital radio system is expected to enter service in phases during 2025.”

McGowan Government to pay $6.6 million termination fee over dumped rail contract with Chinese telco Huawei

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