Julian Hill (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Joint Committee of Public Accounts and Audit, I present report No. 498, entitled 'Commitment issues'An inquiry into Commonwealth procurement.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—I am pleased to present this report into Commonwealth procurement. It's been the outcome of a very wide-ranging and extensive inquiry over the last nine to 10 months. It's a major report, and I am pleased to say it has been unanimously agreed to, recommending major changes needed to procurement committing tens of billions of dollars of taxpayer funds every year across the Commonwealth.

Procurement is indeed big business—over $80 billion in 2021-22, awarding more than 90,000 contracts to more than 12,000 businesses. Yet agencies systematically fail to comply with the rules and demonstrate value for money, lack compliance with ethical requirements in many of the reports we examined, and demonstrate poor record-keeping and contract management. Put plainly—hence the title of the report—the Commonwealth has serious commitment issues, and the recommendations in the report go to both system changes, changes to the rules, but also cultural changes.

The committee secretary, Jenny Adams, who does a terrific job, was actually on leave for a few weeks in July, and I think she was horrified to come back and discover that we had in fact named the report Commitment issues. But the point of it is actually to signal that cultural change is needed, which means you need to get the attention of public servants and agencies if we are going to see a change in behaviour.

I will also put a disclaimer on this. I did receive a call yesterday afternoon from the committee secretary, saying there was a big problem with the media release which we were about to issue. I said, 'What's that?' She said, 'They're not going to put it out, because it's not in the tone of the language of the House of Representatives media.' Apparently this has never happened before, so I will just put on the record that I'm going to tweak the uncensored version after this for the public record. It is the first time it's happened. The language is indeed drawn directly from the report, but who knew there's a tone and style guide? Here you have in this tabling statement the uncensored version, which reflects the language in the report.

Action is needed to ensure that taxpayer dollars are not been wasted as a consequence of poor public sector procurement practices. Public servants need to get far more comfortable and skilled at playing the field and sharpening their pencil on suppliers, even if this leads to difficult conversations and rejection. It goes to culture. Don't just take the first quote, even if you are procuring from a panel. Ask for a better quote. Push on price. Get comfortable with rejection.

AusTender, of course, is the Commonwealth's public reporting system for tenders that are put out and for contracts that are entered into, but AusTender is no 'AusTinder', and it needs reform. When departments and agencies conduct procurements using taxpayer money, they should be able to demonstrate and prove that that money was spent effectively and appropriately. As the Auditor-General's work has made clear, just from his reports on what is available on AusTender, big winners from this limited competition include the big five, the five biggest consulting firms: Accenture, KPMG, Deloitte, PwC and Ernst & Young, which secured nearly $2 billion in government contracts in the 2021-22 financial year alone, comprising more than $1.6 billion in new contracts as well as more than $300 million in contract variations or extensions. We've heard directly and anecdotally that it's part of the business model at large consulting firms. The phrase internally is 'land and expand'. You get the small bit of work, you get it off the panel and then you milk it for variations. That's the key. As long as you land something, even if it's a loss leader and a low quote, you're on the money, because then you vary it once you've got your hooks in and you've got the inside knowledge.

There are a few systemic recommendations. There are 19 recommendations. I'm not going to go through all of them, but, just for the record, I want to go through the ones we're suggesting need to apply across the entire Commonwealth. Firstly—and it was a big call:

A growing share of procurement across the Commonwealth is conducted from suppliers that are listed on panels, yet too often now panels are limiting competition and value for money and particularly advantaging the big five consulting firms. We're saying, 'Enough!' The Auditor-General has called this out, but the behaviour hasn't changed. The trend is clear. The audit committee thinks:

The rules should be changed to make clear that: sole-sourcing is not cool—

Apparently I'm not allowed to say cool. It's not parliamentary—there you go!—

and multiple quotes should be obtained; a separate value for money assessment must still be undertaken; and panels should be refreshed more often.

To put that in plain English: panels too often now have become a club. You go through the competitive process, you get put on the list—that's the club—and it freezes out new market entrants for years, particularly SMEs or people who want to disrupt a market. It creates this club. It's also, we've discovered, too easy then for public servants to just go to one or two people, the favourite people on the panel. They might just get one quote and yet publicly it's reported on AusTender that that has been a competitive process, because, years before, the list that set up the panel was competitive. It's just not appropriate. It is locking out SMEs in particular.

The second recommendation:

It really needs to be clear publicly. Transparency and sunlight breed good behaviour. Sunlight is the best disinfectant. It needs to be clear publicly how many quotes were actually sought, even when procuring from a panel; and, secondly, why a contract was varied or amended. In too many audit reports we see variation after variation after variation.

The third recommendation:

Procurement is more than just a conveyor belt trucking goods and services into the Commonwealth and trucking taxpayer money out. Modern professional practices are needed. There's a lot we can learn from big corporates in the private sector about category management and supply chain management. Defence do this pretty well, but there are other areas, particularly IT, where we can really lift our game. More active management of key supply chains and markets can maximise value for money.

The fourth recommendation:

Sometimes things are urgent. There is clause 2.6, which everyone goes to to exempt themselves from the requirements of the rules. A couple of examples of legitimate uses include procurement of PPE during the pandemic and procurement of repatriation flights during the pandemic. But exempting yourself from processes cannot exempt an agency from a value-for-money assessment. If you're negotiating with Qantas, for instance, you still have to actually turn your mind to value for money and not just keep paying the same price for flights month after month, year after year.

The fifth recommendation:

Internal audit committees exist in every entity, and they need to increase their scrutiny of procurement controls and provide more assurance, particularly over complex, major or risky procurements. We had a public session with audit committee chairs, and it was pretty stunning to the committee that they do almost nothing on procurement. There is very little oversight of tens of billions of dollars.

The sixth recommendation:

The minister in the chair is the Minister for the National Disability Insurance Scheme. The NDIA is a good example. It's a corporate Commonwealth entity. Currently the rules are written so that corporate Commonwealth entities are not subject to the framework, to the procurement rules. We think it's time to reverse that onus: to rebaseline it and set a default presumption that all corporate Commonwealth entities are captured unless the finance minister excludes them, reversing the onus.

The seventh recommendation:

They've got to take responsibility. Finance must address the lack of procurement expertise and capability across the Australia Public Service by prioritising the development of a procurement professional stream in the APS and by updating the procurement framework to match the development of the procurement profession that we've seen outside the public sector. It was abolished years ago. It's time to bring it back.

What we saw in every agency that gets itself into trouble, every agency that gets exposed by the Auditor-General for a really bad job, whether they do it easily or slowly, was that they eventually learn the lesson and recentralise and re-professionalise procurement. We need to accept that has to happen across the public sector. I will make some very brief comments on each of the reports and dwell on one of them.

Defence's procurement of six Evolved Cape class patrol boats: overall, big compliments to Defence. It was a really good example of a well-managed sole source procurement. They got an approach from the market and they managed it pretty well. There are a couple of recs about improving their probity around tender guidelines and stuff in those circumstances but they did well.

Procurement by the National Capital Authority was sloppy. It wasn't good enough. It's a good example of an agency that's well meaning, but they broke all the rules. There was a lack of ethical procurement. But it's to their credit that they acknowledged their problems and put in place a chief procurement officer and have a reform program.

The procurement of the delivery partners for the entrepreneurs program was fundamentally unethical. It demonstrated a shocking bias towards incumbent providers along the way. Again, it's a credit to the department in how they handled themselves, acknowledged the problems and what they're doing to fix them.

The Digital Transformation Agency's procurement of IT related services was appalling. It was a cowboy culture and their word 'expediency' understates the issues. There are examples where, internally, their corporate area said, 'This is not ethical. You can't keep varying this contract,' but they kept on doing it. Their approaches to market were flawed. The variations were flawed. It felt like a club. The CEO has gone, and the committee appreciated their frankness, at least, at the committee hearings.

I want to read a bit from the report regarding the good old Department of Home Affairs. This relates to their management of the civil maritime surveillance contract. That's a really important contract. It's the contract that flies the surveillance planes off north and Western Australia looking for people smuggling, drugs, pests, illegal food imports, all sorts of really important stuff. It says:

It is unacceptable to the Committee that the audit found deficiencies in almost every aspect of the department's management of a contract intended to protect Australia's maritime zone from illicit activities.

It's not the first time. It's very similar to critical audit reports about offshore garrisons in Nauru and PNG.

Despite the serious deficiencies identified by ANAO, a month or two later—not long after—the department decided to vary the contract by another $990 million and extend it for six years. So by the end of this contract, if it runs full term, it will not have been competitively tendered for 21 years, at a value of $2.6 billion. There's no excuse. The department secretary acknowledged it's not acceptable. The committee didn't find persuasive, though, the secretary's explanation that it's because the former government wouldn't give him an integrated investment plan.

You're left scratching your head. The Auditor-General wrote back to us and said, 'This is not a capital contract. The government doesn't own the planes; it's a service contract, where the contractor owns the planes and flies them around.' Despite offers to do so and repeated requests, the secretary declined to explain how the lack of an integrated investment plan impacted the contract. We were generally interested in trying to understand it.

It's not simply a matter of value for money or compliance with the CPRs. Australia is now lumbered with way out-of-date technology compared with the rest of the world. There are better examples, where these assets fly with enhanced surveillance capabilities, and they tap back into Defence and Border Force and can perform other national security functions all with the same contract—if we only had modern technology.

The committee was unable to understand why the department didn't seek amendments to the terms of conditions, at least, to identify issues in the audit before they gave another billion dollars and a six-year extension. I encourage people interested in this to read the findings in section 5 in relation to that contract. It's a shocker. We made a series of recommendations.

In summary, I commend the report to the House. It's a mixture of individual findings but really systemic changes. Above all else, in any group of humans, in any organisation, culture is set by leaders. Whether it's a sporting team, school, business or a government department, 80 per cent or more of the behaviour of how people come to work and whether they're inclined to follow the rules, look for ways around the rules or follow the spirit and the intent of the rules is driven by leaders. You can only do so much—very little, really—by changing the rules themselves. The big message to the public sector is to take up the spirit and the intent of what we're saying, not just the rules, and actually shift behaviour to improve value for money. We could save literally billions of dollars over the next few years if we sharpened the pencil and rethought how we're procuring things across the Commonwealth.

I want to thank the other committee members, particularly the deputy chair, Senator Reynolds, for their really constructive engagement. It's pretty nerdy stuff, but it can have a real impact. I also want to thank the committee secretariat for their forbearance. Again, we're very sorry for the name, committee secretary, but hopefully it has an impact on the public sector in driving some of that cultural change. I commend the report to the House.

Ian Goodenough (Moore, Liberal Party) Share this | Link to this | Hansard source

Does the member for Bruce wish to move a motion in connection to the report?

Julian Hill (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

Ian Goodenough (Moore, Liberal Party) Share this | Link to this | Hansard source

The debate is adjourned. The resumption of the debate will be made an order of the day for the next sitting.