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Bridge to nowhere: Government loses big in punt on untried technology

By Patrick Hatch

.Credit:Stephen Kiprilis

The Victorian government wasted at least $20 million on a commercial joint venture, run by the chief executive of the state’s rail authority, selling bridge safety monitors that did not work as they should have.

Senior employees at the government-backed enterprise Eloque told The Age the company continued to install sensors on bridges across the state with the approval of rail authority VicTrack and the Department of Transport despite engineers and technology experts warning their bosses the devices could not accurately monitor bridges for structural problems.

The idea was supposed to revolutionise infrastructure management globally and become a lucrative moneymaker for the state, with sensors that constantly monitored bridges for signs of corrosion, strain, damage or imminent collapse.

The Victorian government committed a total of $82.5 million to the project, that aimed to commercialise FiBridge sensor technology touted as being “to bridges, as the ECG is to the heart”. By the time Eloque shut down in August, the Victorian government had spent at least $20 million of taxpayers’ money.

The Age can also reveal the Queensland government rejected a proposal to buy Eloque’s technology after it commissioned an independent review that found it was unviable. The review, obtained by The Age, raises questions about the adequacy of due diligence conducted by the Andrews government before it poured taxpayers’ money into the technology.

“We were deploying on bridges, funded by the Victorian state government, knowing that we would probably have to go back at the government’s expense and replace it,” said a former senior manager.

Transport officials have begun removing the sensors from 30 bridges around the state and laid off the last of its 46 employees – just 15 months after the Victorian government announced it was investing in the joint venture with US printing giant Xerox.

The Age interviewed seven senior Eloque employees who were closely involved with its engineering, design, operational and commercial operations. The former employees spoke on the condition of anonymity to discuss matters that remain commercially sensitive to Xerox and because they feared career repercussions.

Campbell Rose, chief executive and driving force behind the joint-venture’s ambitious business plans, was also the chief executive of the state rail authority VicTrack, which was Eloque’s only paying customer. A former chief executive of the Western Bulldogs AFL club, Rose was in charge of both VicTrack and Eloque for a period of about 10 months.

Eloque monitors were installed on the tram bridge at St Kilda Junction.Credit:Justin McManus

Rose’s former colleagues say he “disappeared off the face of the earth” in March, with no announcement or explanation from VicTrack about why he had stopped going to work, and the rail authority confirmed last week he was on “extended leave”. Rose declined to comment when contacted by The Age.

In February 2021, Transport Infrastructure Minister Jacinta Allan directed VicTrack to proceed with the joint venture, and approved the appointment of Rose as dual chief executive with “appropriate financial and commercial governance arrangements” in place to avoid conflicts of interest.

VicTrack obtained legal advice from law firm Corrs Chambers Westgarth about managing potential conflicts of interest with a “management strategy” that meant Rose and others with dual duties to the agency and Eloque would not receive board papers or other information about their commercial agreements.

VicTrack promoted Chris Olds to the new role of “deputy chief executive” to manage the day-to-day running of the agency while Rose focused on Eloque. But Rose remained Olds’ boss and the “accountable officer” reporting to the minister.

A VicTrack spokesman said the “employment arrangement was an interim one to enable the start-up of Eloque whilst the recruitment of a new CEO for Eloque was undertaken”. There is no suggestion Rose acted contrary to the management strategy that was in place. He was paid only one salary, from VicTrack.

Eloque’s sudden collapse contrasts with the grand hopes on display when Allan – who is now also deputy premier – and Treasurer Tim Pallas announced the partnership with Xerox in May 2021.

They said Victoria would invest up to $50 million installing its technology on state bridges and setting up the commercial company to “rapidly expand” around the world.

As it turned out, the state lost less than half that: $7 million in capital for its 37.5 per cent shareholding, $9.85 million for bridge installations and $2.3 million on its early trials. It poured in another $1.12 million on September 2 to cover wind-down costs. Xerox invested $7 million of funding and $8 million worth of intellectual property.

As well as being chief executive of Eloque and VicTrack, Rose was a director of the Australian trading entity, Eloque Pty Ltd, and was named in internal documents as “vice president and secretary” of the US parent company, Eloque LLC. He was also appointed secretary of the company the Department of Transport set up to manage its 37.5 per cent shareholding in Eloque.

VicTrack briefed Allan on the executive arrangement in early 2021, in a document that explained Rose would be Eloque’s “inaugural and interim chief executive” while retaining “the substantive role of VicTrack CE (chief executive)“.

The recommendation to Allan to support this arrangement came from VicTrack’s head of government relations, James O’Brien. He joined VicTrack in April 2020 after a stint as Allan’s chief of staff, replacing Diana Tremigliozzi, who then took his role in Allan’s office.

Victoria’s public service code of conduct says public officials should “avoid any real or apparent conflicts of interest”, which it says may involve outside “professional interests” or “closely associated” commercial ventures.

It began with a problem…

Eloque grew out of VicTrack’s attempts to decide how best to spend limited funds maintaining billions of dollars worth of ageing bridge infrastructure. Seventy per cent of Australia’s bridges are more than 50 years old and manual inspections are expensive and time-consuming.

In 2017 VicTrack obtained a $500,000 grant from the Department of Premier and Cabinet to run a trial with Xerox’s Palo Alto Research Centre (PARC) to see if its miniature optic fibres could measure the structural condition of four bridges.

VicTrack deemed the trial a success and commissioned the consultancy firm McKinsey & Company to examine the potential to commercialise the technology. McKinsey found that within a decade, FiBridge could be installed on 14,000 bridges and be earning annual revenue of $422 million and profits of $167 million.

The McKinsey report said “the technology works … as proven by extensive piloting done on five bridges in Victoria in 2019”.

Leaked VicTrack board papers show that in June 2020, Allan and Pallas successfully pitched the joint venture investment to the state government’s COVID “crisis cabinet”, which included Premier Daniel Andrews and his most senior ministers, securing the $32.5 million government commitment it needed to get off the ground.

In November that year, the government doubled down and accepted VicTrack’s “budget bid” for $50 million to further support the project by installing Eloque’s technology on “priority transport assets”, the board minutes show.

Those documents reveal for the first time that the government was willing to spend up to $82.5 million on Eloque – significantly more than the $50 million announced when the state launched the project in 2021.

Leaked company documents show Eloque’s management predicted astonishing growth: in nine years, they claimed FiBridge could be installed on 17,000 assets across the world, earning it revenue of $1 billion – a windfall for its investors, Xerox and the Victorian government.

When Rose went on a whirlwind tour of the US and Europe in late 2021 to woo new customers, he gave them an even brighter picture of Eloque’s outlook. Briefing documents prepared for government agencies, obtained by The Age, claimed the technology was “currently rolling out” on 100 at-risk bridges in Victoria and would be on 300 bridges over the next 18 months. At the time, FiBridge was installed on fewer than 13 Victorian bridges.

Eloque insiders said that soon after the company was established, experienced structural and product engineers, technology experts and other professionals working at its Docklands office and at PARC in California started to warn that, despite promising early testing, the technology was not ready to be sold.

Optic fibre used in the sensors snapped, came unstuck from bridges or was picked out by birds and vermin, former employees said.

Even when the sensors worked, there was no confidence the data collected was accurate. Insiders said the company never developed an analytics system that could use that data to reliably diagnose a bridge’s structural health and nobody at Eloque was building the “artificial intelligence” and machine learning capability it talked about publicly.

In late 2021, an experienced structural engineer resigned from Eloque after claiming that management refused to listen to his grave concerns that the technology was giving inaccurate readings, according to four former employees with direct knowledge of the event. The engineer declined to comment when contacted.

A number of those involved in Eloque believe the core technology held genuine potential and may have become a valuable tool to save money and even lives. But an aggressive commercial strategy took priority over ensuring its product was ready.

One senior employee said designers and engineers working at Eloque’s offices in Docklands and California made it “very clear” to executives that the technology needed at least two more years of research and development before it could be widely deployed.

Three employees who were in meetings where the matters were discussed said they believed Eloque management pushed ahead with installations despite objections from technical staff because of the imperative to keep cash flowing in from VicTrack.

“I heard in more than one meeting: if we don’t implement ‘X’ amount of bridges, we’re out of business. That was constant,” said one.

Failed examination

Staff concerns about the technology were confirmed in a damning independent report prepared on behalf of Queensland’s Department of Transport and Main Roads in mid-2021, when it considered becoming Eloque’s first customer outside Victoria.

The technical due diligence assessment by the Australian Road Research Board (ARRB), a leading independent expert body, found FiBridge was “in its infancy” and that Eloque could not demonstrate “the viability of the technology”.

Two experienced ARRB structural engineers reviewed Eloque’s technical background documents, the findings of its pilot program, and conducted interviews with its executive project team and other staff before finalising their report on October 14.

The confidential report, obtained by The Age, says Eloque did not have enough “verification and validation” to be confident its sensor data was accurate, and found no evidence it had a system that automatically tuned such data into observations of structural health.

The extent of the “limitations and challenges” on display demanded “significant efforts from Eloque to demonstrate that FiBridge is a viable bridge monitoring system”, the report says. It recommended Queensland revisit FiBridge in “a couple of years” when the product was “fully developed”.

All seven former employees said it was widely known at Eloque by late 2021 that the first sensors installed in Victoria did not work as expected.

But on February 22 this year, Xerox published a press release that stunned employees.

Rather than slow down installations, Xerox trumpeted that Eloque would “triple the number of bridges” in Australia using its technology, from 12 to 36, by the middle of the year. The release claimed Eloque was “already seeing success with the installations in Australia” and was now talking to possible customers in the US and Europe.

The targets were never hit.

Eloque quickly unravelled following Rose’s absence from late March, according to company insiders, who said Eloque and VicTrack never announced or explained his absence to staff.

Collapse

Just before his departure, Rose took a group of senior employees to lunch at the RACV Club on Bourke Street, Melbourne, and told them VicTrack had ordered him to cease contact with current and former staff.

About the same time, Department of Transport officials co-ordinating Eloque’s sensor installations suddenly changed their attitude towards the company, according to four sources familiar with discussions, and by April the rollout was halted until they could be satisfied the devices worked as expected.

With funding cut off, a sudden round of redundancies in June stripped Eloque back to a skeleton staff. In late August the remaining employees on both sides of the Pacific were told the company was shutting down.

The Andrews government first confirmed to Melbourne radio station 3AW on August 25 that it had pulled the pin on Eloque. But the government and Xerox have never explained why its venture failed so spectacularly, just 16 months after they claimed it had a functioning technology that would “rapidly expand” around the world.

A spokeswoman for Xerox said it decided with VicTrack to shut Eloque when it realised developing it into a commercial product “would require more efforts than initially expected”.

Campbell Rose was previously the chief executive of the Western Bulldogs.Credit:Andrew De la Rue

Ministers Allan and Pallas did not respond to questions. A VicTrack spokeswoman said the FiBridge idea went through “through extensive research and testing” which showed potential to improve how it managed its bridges.

But despite its “promising earlier development… it became clear that the level of resourcing required to further develop the technology to a workable state” could not be supported, the spokeswoman said.

The deputy premier and the treasurer declined to answer questions about Eloque, including what independent due diligence the government did on the viability of its technology and its business model before committing up to $82.5 million of state funds to the project, of which $20 million has been lost.

A government spokesman said: “All appropriate due diligence processes were followed”.

Contact the reporter: [email protected]

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