All the offshore processing contracts agreed to by the department fall into the procurement rules'category of"limited tender". Limited tenders,as the name suggests,lack some of the conditions required of standard"open"tenders,where submissions are called for in open competition,and"prequalified"tenders,where submissions are invited from potential suppliers preselected according to a form of open process. Limited tenders can allow an approach to only one or a few potential suppliers,without full competition. They are permitted only under certain conditions,such as the failure of an open tender process or extreme urgency that rules out an open competitive process.
The Auditor-General found the Immigration Department could not show how Transfield's contract demonstrated value for money.Credit:Eddie Jim
The department used extreme urgency as a justification for its limited tenders. Under pressure from the growing numbers of boat people and a rampant opposition,the Gillard government required the department to implement the policy of offshore processing with the utmost speed. In addition,the novelty of the policy and the difficulties associated with operating in foreign jurisdictions meant that contract details had to be drawn up on the run and were subject to constant revision.
The ANAO fully accepts the case for limited tenders on the basis of extreme urgency. But it argues that limited tenders are still subject to certain requirements that the department failed to meet. For example,there was no excuse for the paucity of record-keeping at all stages,which hampered the ANAO's task and accountability generally. More specifically,in the absence of competitive tenders,agencies must satisfy themselves that a sole supplier offers value for money. One favoured mechanism is to benchmark the proposed cost of the contract against the actual costs of other,similar services. For the initial contracts in 2012,the ANAO found no evidence of any attempt to assess value for money,beyond a judgment that the proposed suppliers were available or had the capacity to respond quickly or were simply available. Indeed,no full assessment of costs was made and the contracts were signed after operations had begun.
The issue of value for money also arose in connection with the second stage of contracting,after the change of government in 2013 and the decision to consolidate operations under one contractor. The clear rationale for consolidation,explicitly endorsed by the cabinet,was to achieve economies of scale through the use of a sole supplier. Pending an open tender process that would find the most cost-efficient contractor,the department adopted a process of limited tender to appoint Transfield as interim sole provider. This time,there could be no excuse for neglecting value-for-money considerations in determining a price,especially when the government expected immediate economies of scale. The department therefore adopted a benchmarking approach to justify the cost of the Transfield contract. However,the ANAO finds that the particular benchmark models used were inadequate and tailored carefully to justify an increase rather than a decrease in costs.
A similar disregard for savings and value for money marked the final stage,in which the department was supposedly conducting an open tender process but decided to enter into negotiations with the current sole supplier,Transfield/Broadspectrum. An external adviser,KPMG,had estimated Transfield's proposed costs at more than half a billion over its historical costs. The benchmarking process was again deficient,relying too much on Transfield's own costs,and not allowing equal treatment for other potential suppliers.
Failure to register conflicts of interest in such a context of obvious favouritism compounds the department's ethical negligence.
Another persistent fault was the failure to meet required standards of probity. For example,the procurement rules expect all officials undertaking procurement to recognise conflicts of interest,whether actual,potential or perceived. However,the ANAO could find no evidence that members of the department dealing with the contracts had made conflict of interest declarations. Potential conflict of interest also arose in connection with the employment of KPMG as an adviser on the tender,when KPMG acted for Transfield as its external auditor and provider of other financial services. KPMG's assurance that no member of the team working on the tender was involved with services for Transfield was deemed sufficient.
Probity in a tendering process also requires that all potential suppliers be treated fairly and given an equal chance of securing the contract. The ANAO notes that the department dealt unfairly with several reputable contractors,including Serco,which had indicated interest in the initial round of contracts but was left out of consideration,and GS4,the original contractor for Manus Island,which was denied the opportunity to tender for the consolidated contract,with no reason given. By implication,the department's continuing preference for Transfield/Broadspectrum breached normal expectations of probity. Failure to register conflicts of interest in such a context of obvious favouritism compounds the department's ethical negligence.
In the end,probity issues helped to sink the final tender process. The department engaged the law firm Maddocks to act as probity adviser,to help develop probity safeguards and to provide periodic sign-offs. One such progress report noted the revised negotiations with Transfield/Broadspectrum included material changes to the original tender that had been released to the market. These changes,including significant price increases,raised serious probity and process risks. At this point,the department had little option but to abort the process on the ground that it couldn't determine whether the contract offered best value for money. In the meantime,however,Broadspectrum continues to provide services on the basis of arrangements that breach Commonwealth financial standards.
In its defence,the department said the fluid policy context and the difficulty of operating offshore forced it be"agile"(a tired buzzword that has lost any capacity to impress). The argument has some force. It was politicians,not public servants,who chose the policy with all its haste,hypocrisy ("saving lives at sea") and lack of transparency. Loyal bureaucrats were obliged to implement it as best they could. In this respect,the ANAO,with its restricted focus on the department,might seem to exonerate the other players,particularly the populist politicians and greedy contractors,who have more to answer for.
But the ANAO is only one accountability agency among many,including Parliament,the media,civil society and the courts,which have had plenty to say on the merits of the policy. Its story,if limited,is an important one. It shows how procedural and ethical standards in the public service can easily slip in the absence of normal transparency and when public servants are asked to pursue dubious policy objectives at reckless speed.
The experience with offshore contracting highlights other weaknesses in the Australian Public Service,such as a general lack of capacity and experience within departments. It also illustrates the slackness in record-keeping deplored by Peter Shergold inhis report on lessons from the home-insulation program. More generally,it reveals the extent to which private consultants and contractors are taking over responsibility for both policymaking and implementing policy. Departments have left themselves without the staff to do much of their core business. In addition,they lack the skills to determine whether contracts are giving them value for money. No wonder the consulting and contracting firms flock to Canberra as bees to a honeypot.
Richard Mulgan is an emeritus professor at the ANU's Crawford School of Public Policy.richard.mulgan@anu.edu.au