Airwave Solutions Limited v Secretary of State for the Home Department

This matter raises issues of construction between Airwave Solutions Limited (Airwave) and the Secretary of State for the Home Department (SoS). Although it was formally a trial, no witnesses were called. The issue between the parties relates to the indexation provisions relevant to payment.

British Telecommunications plc agreed with the Police Information Technology Organisation (the PITO) to provide Services as defined in the Framework Agreement in respect of the Airwave Network pursuant to an agreement dated 29 February 2000 and entitled ‘PFI Framework Arrangement for the Public Safety Radio Communications Service.’ The parties to the Framework Agreement are now Airwave and the SoS.

The Services included the Network Services, which include the Core Service (such as radio services and network services) and Menu Services (being either additional units of Core Service or other services) as set out in Schedules 3 (Core Service) and 4 (Menu Services) to the Framework Agreement.

Pursuant to clause 5.3 of the Framework Agreement, BT was to enter into Services Contracts with the PITO and Eligible Customers (individual police forces or authorities) to provide the Network Services. Services Contracts were entered into pursuant to those provisions.

Pursuant to clause 8.1 of the Framework Agreement, in consideration of the provision of Network Services in accordance with the terms of the Services Contracts, the PITO, and now SoS, and each Customer is obliged to pay their respective portions of the charges which are to be calculated in accordance with the Charging Structure set out in Schedule 8 to the Framework Agreement.

The Core Service Charges are calculated as follows:

The Indexation Multiplier is calculated by reference to a table at Annex 4 of Schedule 8 to the Framework Agreement, which breaks down Airwave’s cost base into three Elements, as defined in the Framework Agreement, and states their relative proportions for each Contract Year (the “Indexation Weightings”). The three Elements are referred to in paragraph 26.1 of Schedule 8:

The table at Annex 4 fixed the relative proportions of each Element from 1998/1999 for each Contract Year to Contract Year 20, being 1 April 2019 to 31 March 2020 (CY20). Paragraph 26.2 of Schedule 8 provides that they “are fixed.”

The index used for Elements A and B is RPI. Whilst the index used for Element A was more complex in the original Framework Agreement, the parties changed this to RPI in a confidential agreement. Element C costs are not subject to indexation (see the calculation of the Indexation Multiplier in paragraph 26.5 of Schedule 8 which sets out that the Indexation Weighting for Element C is always to be multiplied by zero percent).

The Indexation Multiplier is then calculated using the formula in paragraph 26.5 of Schedule 8, pursuant to which each Element is multiplied by its Indexation Weighting for the relevant Contract Year as set out in Annex 4 of Schedule 8.

The Framework Agreement permitted changes to its terms by way of the “Change Control Procedure” which results in a “Change Control Note” or “CCN”. Pursuant to various CCNs, certain additional charges have been incorporated into the Core Service Charges.

On 17 February 2016, the SoS and Airwave agreed Heads of Terms Regarding Extensions. This led to the “Blue Light Contracts Umbrella Change Control Note” dated August 2016 (UCCN1), which contained agreed amendments to the Framework Agreement.

Change Control Note 174 (CCN 174), one of the CCNs within UCCN 1, replaced clause 2 of the Framework Agreement as follows:

By Change Control Note No 188 agreed in December 2018 as part of the Blue Lights Contracts Umbrella Change Control Note 2 (CCN 188), SoS and Airwave agreed to amend the National Shut Down Target Date to 31 December 2022, or such later date as SoS specified in accordance with UCCN 1 .

Change Control Note No 187 (CCN 187) was agreed between SoS and Airwave in 2018 at the same time as CCN 188. Paragraphs 3 and 4 of CCN 187 are at the heart of this dispute and I consider them in detail below.

On 20 December 2021, in exercise of the power granted to SoS by CCN 174, SoS issued a National Shut Down Notice to Airwave to extend the National Shut Down Target Date to 31 December 2026. On receipt of this National Shut Down Notice, Airwave was contractually obliged to target the shutdown of the Airwave Network on a national basis on 31 December 2026. There was no CCN process in connection with this Notice, and the remaining contractual terms as agreed between the parties and in force as of the date of the National Shut Down Notice remained in force unamended.

On 13 March 2024, the Home Office issued a Deferred National Shut Down Notice extending the National Shut Down Target Date to 31 December 2029. There has been no CCN process in connection with the Deferred National Shut Down Notice, and the remaining contractual terms as agreed between the parties and in force as at March 2024 (the date of the Deferred National Shut Down Notice) remain in force unamended.

The issue of construction for the Court concerns how the Core Service Charges are to be indexed from 1 April 2020 onwards after the end of CY20.

In 2018, when the parties agreed to extend the Airwave Network to at least 31 December 2022, they also agreed the Core Service Charges for those services from January 2020 to December 2022.

On 13 January 2025, the Court ordered a split trial by consent. At this trial, the Court is to determine the issues of construction described as Key Issues 1 to 4:

The only relevance of Key Issue 4 is that Airwave say what they contend is a lack of entitlement to access and inspect documents militates against SoS construction as set out at Key Issue 2.

The heart of the issue before me is the proper construction of the provisions of CCN 187 relevant to indexation.

Appendix 1 then set out monthly payments for each month from January 2020 to December 2022. A note below each table stated:

“Charges exclude Indexation/Variation of Price which will be applied at existing contractual rates.”

On the Claimant’s case the indexation calculation is carried out as follows:

The Claimant explained to me the precise means by which RPI was applied to the calculation. A note provided on the second day of the hearing applied the RPI part of the calculation in a different way to that which I had originally understood and the way in which it had originally been opened. Counsel for the Defendant, perfectly fairly, said she was not in a position to deal with this on her feet as it was not one of the Key Issues for determination. The parties need to correspond on this point to see whether, on reflection, there is anything between them on this, because if there is, the point will need to be determined at a future hearing.

Airwave’s case is as follows:

SoS’ case is as follows:

The Defendant’s pleaded case sought a declaration that:

“on the true and proper construction of Schedule 8 of the Framework Agreement, the Indexation Weightings for each year after CY20 should reflect the actual costs incurred by Airwave for each respective CY.”

In oral argument counsel moved somewhat from this and said that the basis for the calculation could depend on when the assessment was done: it could, for example, be done after judgment through a combination of actual costs (reflecting costs already incurred by Airwave) and prospective costs for the future (that is, an estimate of costs which would be incurred after the date of assessment).

This issue has peripheral relevance. The primary case of SoS is that the indexing is to be effected using actual costs. They say they cannot do the calculation now because they do not have the information as to Airwave’s actual costs. Airwave says this could never have been the proper way of calculating indexation because (among other reasons) SoS have no right under the Framework Agreement to information as to Airwave’s actual costs.

If Airwave is correct on access rights, this seems to me merely one pointer in favour of Airwave and no more than that. If the Framework Agreement on its proper construction made clear that the basis of indexation was Airwave’s actual costs, it would be necessary to fashion a means for the actual costs to be determined, whatever the rights of access under Schedule 12. Calling this point a Key Issue flatters it.

Clause 23 provides that the parties shall comply with Schedule 12. Schedule 12 sets out the Home Office’s entitlement to inspect Airwave’s documents:

“1.1

The CONTRACTOR [Airwave] shall keep full and accurate Relevant Records relating to its performance of the Services (including but not limited to records relating to its compliance or otherwise with the Service Levels but excluding information regarding the composition of the Contract Charges: i.e., financial information relating to research and development costs, overheads and profits). This obligation shall subsist throughout the term of this Framework Arrangement and, in any event, for a period of 7 (seven) years after the date of creation of each Relevant Record. The CONTRACTOR shall require all Sub-contractors to comply with the obligations under this Schedule 12.

1.2

In this Framework Arrangement, the term "Relevant Records" means information, data, service performance records, records relating to the CONTRACTOR'S provision of the Services and use of the Spectrum, supporting documents and materials held, controlled or available for access by the CONTRACTOR relating to the supply of the Services by the CONTRACTOR and the use of materials and sites in connection therewith. "Relevant Records" includes:

1.2.1

the CONTRACTOR'S "Service Records", meaning: (a) documents reasonably necessary to evidence the CONTRACTOR'S entitlement to be paid any out-of-pocket expenditure outside the scope of the Contract Charges which is required by this Framework Arrangement to be reimbursed to the CONTRACTOR by the AUTHORITY; (b) information, data and service performance records relating to the provision and level of performance of the Services by the CONTRACTOR and the achievement (or otherwise) of Service Levels, and the CONTRACTOR'S billing records; and (c) any other documents and information necessary to substantiate the CONTRACTOR'S invoices to the Customers and which is of a type which is sufficient to demonstrate the correct basis of calculation of the Contract Charges based upon the Charging Structure;

1.2.2

information sufficient to identify the allocation of the Contract Charges to the various component resource types comprising or necessary to delivery the Network Services but without demonstrating the allocation of cost and profit within those component resource types.

2.1

Subject to the provisions of paragraphs 2.3, 2.4 and 3.2, the CONTRACTOR grants to the AUTHORITY, and to any statutory or regulatory auditors of the AUTHORITY, the right of reasonable access to (and, if necessary, to copy) the Relevant Records during normal business hours solely for the purposes set out in this Schedule 12.

…

2.4

The AUTHORITY'S rights of access and inspection under this Schedule 12 shall not apply to any "Financial Records", being any parts of the Relevant Records which identify the financial cost to the CONTRACTOR of the materials, sites and resources used by the CONTRACTOR in the provision of the Services.

…

3.1

The AUTHORITY shall be entitled to inspect the Relevant Records and obtain from the CONTRACTOR such other information as is reasonably necessary to fulfil the AUTHORITY’s obligations to supply information for parliamentary, governmental judicial or other administrative purposes.”

Airwave drew attention to the exclusion in the obligation to keep Relevant Records in 1.1 and the limitation on access in 2.4. The SoS relied on the right of access for “other administrative purposes” under 3.1 but submitted that even if I was against SoS on Key Issue 4 it did not undermine SoS’ submissions as to the appropriate construction of the indexation provisions.

I was not persuaded that this issue took matters any further.

Neither side put in any evidence as to the matrix or background to the Framework Agreement or to the agreement represented by CCN 187. Thus there was no evidence as to why the apparently random figures for each year for Elements A, B and C were agreed as they were, other than one can surmise that in the light of the explanation of each element at Paragraph 26.1 of Schedule 8 they reflected in some way estimates of various types of costs that Airwave or its predecessors would spend in performing the contract. Equally there was no explanation as to why Element C had no indexation uplift.

It is striking that the last year, CY20, contains a much lower figure for Element C than any other year (5%). Thus for CY20, Elements A and B totalled 95% and fell to be indexed. It is obviously beneficial for Airwave (and disadvantageous for SoS) that the CY20 figure should be used for subsequent years, which is no doubt why this dispute has arisen. One suspects that the reason for the low Element C in CY20 is that there were anticipated to be some sort of decommissioning costs in the last expected year of the Framework Agreement, but I simply do not have the evidence to reach that conclusion, which would be speculation.

The starting point is that the parties anticipated when entering into the Framework Agreement that it would come to an end in 2020. The Claimant correctly points out that this was not necessarily the case (see Clause 2) and there were circumstances known when it was entered into whereby it might not end in 2020, but the parties have agreed the proportions for Elements A, B and C up to CY20 with no provision for what happens thereafter, so it is a reasonable inference that they anticipated it would come to an end by then (and no doubt if it did not they would have expected to negotiate the indexation position further).

That assumption did not prove correct and a series of CCNs have the effect that the Framework Agreement is likely to continue until 2029 and possibly longer.

It was the Claimant’s position that when the parties agreed CCN 187 in December 2018 they expressly agreed that the indexation provisions should use CY20 for indexation in subsequent years. I do not accept that. They rely on the wording of Paragraphs 3 and 4 of CCN 187 and the footnote to Appendix 1 of CCN 187. It seems to me that if the parties had actually intended such a result they would have said so in very much clearer terms. After all, given the uniquely low Element C percentage for CY20, it would be a surprising result for that same percentage to be used for every subsequent year.

To that extent, I have some sympathy for SoS in seeking to find a different construction which could, on one view, be said more accurately to reflect the assumed intention of the parties. But there are serious problems with their alternative constructions.

Dealing first with actual costs (Key Issue 2), there was no basis for using actual costs in the Framework Agreement itself, as the percentages for the various elements for each CY were set out. Nor is there anything in CCN 187 which suggests that the parties envisaged using actual costs.

But the problem is worse than that. Because Schedule 8 Paragraph 26.1 does not envisage the use of actual costs, the description of what falls within each of Element A, B and C is vague in the extreme. How would one decide what fell into what category? How would one do the calculation? The problem is that Paragraph 26.1 was never intended to be used to determine what actual costs fell into each category, because that exercise had been done by the parties in Appendix 4. It was intended to provide a (very) high level description and nothing more.

In oral argument, as I have explained, SoS submitted that in fact the calculation could be done through a combination of actual costs (to the extent that costs had been incurred at the date of the calculation) and estimated prospective costs (where costs had not been incurred at the date of the calculation). I have already pointed out that this is a different case from that pleaded. But it illustrates the problem. Either of these possibilities would have been a perfectly logical agreement for the parties to have made. But there is nothing to suggest that the parties did in fact reach such an agreement.

I was shown the well-known authorities Arnold v Britton [2015] AC 1619 and Parker v Roberts [2019] EWCA Civ 121 at [88] per Lewison LJ. These provide a reminder that the court is required to look at what the parties agreed, not what it might be said they should have agreed.

The same problems arise in relation to the alternative case put forward by SoS, based on averaging the Elements for the first 19 or 20 years of the Framework Agreement. This does not involve using any actual costs, and thus the calculation can be done using the material which the parties agreed under the Framework Agreement. But again, whilst it would be perfectly sensible for the parties to have reached such an agreement, it is impossible to find any provisions to support the contention that they did in fact agree it.

It is in a sense easier to conclude that SoS’ case is wrong than to conclude that Airwave’s case is correct. However, there is some support for their contentions.

Firstly, it is apparent that indexation was to continue for the remaining years of the contract.

Secondly, no new information was provided or to be provided in order to assess the indexation after CY20. So the materials available to the parties must have been those previously available to the parties.

Thirdly, Clause 4 of CCN 187 provides that:

“indexation will apply to the invoices amounts in the table in Appendix 1 in line with the Indexation Variation of Price (VOP) as set out in Parts D and I of Schedule 8 (charging Structure).”

This therefore incorporates what has gone before, namely Parts D and I of Schedule 8.

Fourthly, Appendix 1 provides:

“Charges exclude Indexation/Variation of Price-which will be applied at existing rates.”

The expression “existing rates” suggests a continuation from the rates that have gone before. It may be that this is the strongest point in favour of Airwave’s construction. A slightly ambiguous footnote to a table in an Appendix is hardly the most auspicious place to find the answer to the present dispute. But it does provide some measure of support for Airwave’s position.

None of this seems completely convincing. The reality is that the parties did not in my view think about the consequences of how CCN 187 would affect indexation. But I can find no support at all in the contractual documents for either construction put forward by SoS, whereas it seems to me that Airwave’s construction, whilst not straightforward, does have the advantage that there is some support for it in CCN 187 and I find that is the correct construction.

It follows that I will grant a declaration in favour of Airwave in relation to Key Issue 1 and dismiss the application for declarations in favour of SoS in relation to Key Issue 2 and 3 (Answers: Yes, no and no). Given my findings, it does not seem to me appropriate or necessary deal with Key Issue 4 and I will not grant declarations in favour of either party on that issue (not applicable).

I will give judgment remotely and deal with consequential matters on paper unless either party requests an oral hearing. One of the consequential matters is how the RPI issue which arose in the course of argument should be dealt with and I would expect the parties to correspond so I can give directions to the extent there is any dispute in that regard.