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Joseph Brookes

ANAO asks for procurement rules rethink after damning audits

The federal watchdog has asked Parliament to consider if the rules at the heart of the government’s $80 billion procurement framework remain “fit for purpose” after its series of scathing audits uncovered non-compliance and unethical behaviour.

A joint committee is currently examining Commonwealth procurement after five concerning reports from the Australian National Audit Office (ANAO) that covered billions of dollars in government spending on technology, defence assets, infrastructure, and grant programs.

The recent audits found evidence of conflicts of interest, bias towards certain suppliers, above market rates, duplicate payments, poor management of contracts, and proper tender processes being bypassed.

The contract management process – to ensure suppliers are delivering on their commitments once the contract is signed – is also “not systematically monitored” across government, while there are significant gaps in capability across the Australian Public Service, the ANAO said.

Federal procurement gets a Made in Australia makeover

The Audit Office has asked the inquiry to consider if the procurement framework, including Commonwealth Procurement Rules (CPRs), is still effective and to seek an update on the latest changes it formally recommended to the Finance department in September.

It should also consider recommending new reporting requirements for tenders, and a new procurement professional stream to drive capability.

The committee may also wish to examine the “true rate” of open tenders and the use of panel arrangements in its inquiry, the watchdog urged, warning the competition tools are having limited impact.

“There would be merit in the committee considering whether the reporting and assurance frameworks for internal regulation, such as the CPRs, are fit-for-purpose to effectively manage risk,” the ANAO’s written submission said.

The inquiry has been sparked by scathing reports of the procurement processes at the Industry department, Digital Transformation Agency, Home Affairs, the National Capital Authority, and, to a lesser extent, Defence.

The ANAO noted the self-regulatory model meant the issues likely would not have been uncovered without the ANAO, which conducts only a select number of audits each year.

“There are no formal mechanisms in these frameworks to provide assurance on compliance and whether the framework is having the intended impact,” it said.

“Often, the ANAO provides the only source of compliance reporting within the framework.”

The watchdog backed the CPRs’ intent to mitigate the risks identified in the audits, but warned the application of the rules was too often either not followed or seen as a compliance exercise.

“Often minimum compliance has the appearance of creating convenience for the entity and the provider rather than seeking the fundamental outcomes contemplated in the CPRs, including value for money for the taxpayer,” the ANAO said.

“While examples of good practice can be found, there are also many instances where implementation of procurement arrangements falls short of reasonable standards and are primarily an exercise in ‘form over substance’.”

The precursor to the rules has existed since the late 1990s, when government outsourcing began to take off. The current CPR framework have existed for almost a decade with the rules tweaked several times, most recently by Labor in July.

The CPRs are designed to help government buyers achieve value for money while acting fairly and ethically when conducting procurements, which now total more than $80 billion annually.

They apply to all non-corporate government entities and a select group of the corporate entities which have been designated by the Finance minister.

This exemption for corporate entities should be reconsidered, the ANAO submission said, instead suggesting the rule apply by default and making the entities seek exemptions.

The ANAO also urged the committee to take a closer look at purportedly “open tender” procurements and panel arrangements.

The CPRs emphasise the benefits of open tenders, but limited tenders are still used nearly half the time by government entities, the ANAO said. While the rate is improving, the ANAO questioned just how open some of the tenders are. Standing offer panel arrangements are recorded as an open tender even if only one supplier on the panel is approached.

“This means that the limited competitive pressure on the tenderer arising from a sole source approach is not transparent to the public,” the ANAO said. “A requirement to more accurately report these procurements would support entities to choose competitive processes more often.”

The ANAO recommended the Finance department institute the new reporting requirement that would disclose if a tender was genuinely open to all suppliers and, if not, how many suppliers were approached.

In July, the Finance department made a change to the CPRs that required buyers to approach multiple suppliers on a standing offer arrangement to encourage genuine competition in the panel arrangements. But the specific reporting recommendation from the ANAO remains under consideration for a future AusTender update.

“The committee may wish to ask the Department of Finance for an update on progress towards a revised reporting requirement and what form it might take,” the ANAO submission said.

The watchdog also cast doubt on just how much competition the panel arrangements have led to, and suggested increased scrutiny of the arrangement through more monitoring and reporting.

“It remains common for a relatively small proportion of suppliers on a panel to be awarded the majority of contract value when the panel is accessed,” it said.

“For example, for eight of the top ten panel arrangements by total committed value over the ten years analysed, at least 80 per cent of the total committed value of contracts and amendments associated with the panel arrangement were reported to be supplied by less than a third of suppliers represented on the panel.”

The ANAO also directed the inquiry to the issue of contract amendments, which accounted for $29.8 billion of procurement last financial year, compared to around $50.9 billion of parent contracts.

The watchdog’s audits showed these amendments to extend or vary contracts “might be driven by convenience for entities and officials” rather than the “best results for the Australian community”.

This was on show in a particularly scathing audit of the Digital Transformation Agency’s technology procurement, which included a contract that was amended ten times, increasing its original value from $121,000 to nearly $5 million and significantly expanding its scope.

Another contract, for outsourced IT services at the Department of Agriculture, Fisheries and Forestry, was signed 13 years ago for $96 million. It has since been amended 237 times and risen 517 per cent to $496 million.

“The reasons provided for contract amendments range from descriptions of specific services to descriptions containing only work order numbers or generic statements such as ‘additional project costs’,” the ANAO told the procurement inquiry.

At the heart of many of the procurement failings are the individual officials, the ANAO said, warning for many the process is “an infrequent or secondary responsibility”.

“There is strong evidence that there are shortcomings in the Australian Public Service’s institutional capacity and capability for procurement and contract management,” the submission said.

Officials are often at an information disadvantage on what they are buying from a seller, and it is important they have guidance and training to draw on as well as relevant expertise to effectively manage the procurement and contract process, the ANAO said, recommending the Committee consider a new professional stream as has been done for human resources, digital and data.

“The committee may wish to investigate whether a procurement professional stream could help to promote procurement as a strategic function critical to government service delivery, develop the commercial capabilities of officials, and improve procurement and contract management practices and outcomes in the [Australian Public Service],” the ANAO said.

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