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 the following three reports: Report 502: the never-ending quest for the golden thread: probity and ethics in the Australian public sector; Report 503: inquiry into the Defence major projects report 2020-21 and 2021-22 and procurement of Hunter class frigatesfinal report, incorporating a dissenting report headed 'Additional comments'; and Report 504: inquiry into procurement at Services Australia and the NDIAfinal report, incorporating a dissenting report, again headed 'Additional comments'.

Reports made parliamentary papers in accordance with standing order 39(e).

by leave—I'm going to do this in reverse order. We'll start with the inquiry into procurement at Services Australia and the NDIA. This is the final report for this inquiry, which was commenced by the committee last year to consider matters arising from the Independent Review of Services Australia and the National Disability Insurance Agency Procurement and Contracting, the Watt review.

We released an interim report for this inquiry last September that focused on the activities of the Synergy 360 consulting firm and its role as an adviser to Infosys in obtaining government IT contracts. During the inquiry, allegations were raised regarding potential links between Synergy 360 and former minister Stuart Robert. In that interim report, we raised serious questions about financial impropriety and improper relationships with parties receiving contracts from the Commonwealth, and we referred those matters to the National Anti-Corruption Commission for their consideration—a step not taken lightly.

In this final report, the committee investigated the procurement of the NDIA's new customer relationship platform, known as the PACE system, from the IT company Salesforce. I'm sorry to say that key aspects of its procurement fell well short of the Commonwealth Procurement Rules and associated ethical requirements. It was perplexing that value-for-money assessments gave no explicit weighting to price as a key factor in the scoring and ranking of tenders. In addition, the sizes of the contract variations raised eyebrows to say the least. Initially valued at $27 million, the contract was later varied a number of times to a total of $135 million currently. A substantial proportion was due to significant changes in scope along the way, which meant that no other vendor in Australia had the chance to tender for the product that was ultimately delivered.

But the most egregious issue to emerge from the evidence to the inquiry was what appeared to be clear breaches of the NDIA's gift and hospitality policies by officials over a considerable period. The NDIA gave evidence to the committee that no declarations of any hospitality relating to the PACE procurement were made by its staff. Yet Salesforce provided written evidence to us of more than 100 instances of hospitality and/or gifts, including meals, drinks and golf outings passing to NDIA officials over a period of almost five years. Indeed, the table reads like a magical mystery tour of some of Canberra and Melbourne's best restaurants. This was both before and after the awarding of the contract and throughout the period of the contract variations. This includes 50 items above $100 value per person. The premise stated by the NDIA for its hospitality policy is that none of its officials should accept gifts that could be seen to compromise their integrity. The NDIA further stated in a hearing for the inquiry:

… it would be hard to see how a contract manager could maintain their integrity whilst accepting gifts from a vendor …

The committee concurs entirely with these principles, which appear to have been ignored by a number of NDIA officials.

The committee does appreciate that the NDIA is taking these matters seriously. Further serious questions arise, though, about how widespread this sort of practice and culture may be in other Commonwealth entities by Salesforce and other major ICT vendors, particularly those with what you could politely term an aggressive sales culture. Therefore, the committee is following up with Salesforce to request information about its hospitality practices and about their so-called office of global ethics and integrity. Specifically, the committee requires a list of all hospitality provided to Commonwealth officials by Salesforce on a per-agency basis for the last three years. The industry term that they said to us was 'grooming'. For obvious reasons, we'd prefer to avoid that term in the report. But, prima facie, there is a pattern of inappropriate cultivation of Commonwealth officials, and it's a serious matter. This is big money.

The committee learned also that Synergy 360 had made an unsolicited approach to Salesforce in advance of the PACE tender process and that three meetings, previously unknown, took place before former minister Stuart Robert, Synergy 360 and Salesforce. No written records are available of what was discussed at these meetings. Two occurred with no public servants or probity advisers present. There are no indications that other potential vendors who are not Synergy 360 clients were afforded similar access. Ultimately, the record shows that Salesforce secured a major government contract and later benefitted from a series of lucrative variations. The committee makes five recommendations in its final report, three of which require the NDIA to provide updates on its own internal investigations of these matters and on its progress in implementing the PACE system and the outcomes of this, including cost savings. The committee is also recommending that the Department of Finance and the Digital Transformation Agency take appropriate action to understand the extent to which this inappropriate cultivation of Commonwealth officials may be occurring as a result of hospitality and gifts from major ICT vendors more broadly. Finally, the committee is recommending that the Australian National Audit Office consider future audits of potential gifts and hospitality issues in relation to the public sector to identify practices of concern. I thank the deputy chair and other committee members for their contributions through the inquiry. I also acknowledge the work and professionalism of the secretariat in supporting the committee.

We'll got to report 503 on the Hunter-class frigates and Defence major projects. This final report again complements the interim report we tabled in June last year. It considered the future conduct of the major projects report, which was an initiative of this parliament about 14 years ago, as well as the ANAO's audit of the Hunter-class frigate program. I'll turn my attention to that. This was a critical procurement of new frigates, then estimated to cost $35 billion. The multiple failings identified in such a procurement under the previous government are deeply disturbing. It is perplexing to the committee, unanimously, that Defence only belatedly even accepted many of the ANAO's conclusions after the committee initiated our own inquiry and Defence then completed its own internal review. I'll touch on just the most critical now.

The most astounding failure is that the previous government proceeded with a then $35 billion procurement with no value-for-money assessment. Defence mysteriously removed the value-for-money requirements from the tender evaluation plan. No-one's ever been able to explain who, how or why. And the former government then failed to do a value-for-money assessment through the cabinet process. Despite the significant pressure and risk that resulted from the then government's decision to accelerate the project, demonstrating value for money and compliance with the procurement rules is not negotiable. It's not an optional extra. It's finance law. To quote from the report—I'll just read a paragraph:

Ministers are not supposed to be rubber stamps or daleks and there are two possibilities as to how this happened: (1) either no one noticed that no value for money assessment was undertaken; or (2) they did know but didn't care and blithely decided to proceed with a (then) $35 billion procurement anyway. Ultimately as this was a Cabinet process via the National Security Committee of Cabinet no one will ever really know what happened; whether there was a conspiracy or predetermined decision that BAE win the prize, or whether it was simply shocking incompetence by this group of Ministers in the then Government.

Either no-one in cabinet noticed or they simply didn't care. Defence, through the inquiry, made it clear to us that they could not point to another example ever of a procurement of this scale, or any procurement, going through the cabinet process with no value-for-money assessment.

There's also the bizarre issue of the magic 10 per cent price discount. No rationale was provided by Defence for the decision to just knock 10 per cent off the price from all tenderers in the evaluation and advice to government. Again, this is from the report. I think the member for Fisher will quite like this one:

While the Committee would love to think the Commonwealth could just buy everything for 10 per cent less than a tendered price, it's a patently ridiculous proposition and vague claims there might be an "efficiency dividend" raise reasonable questions about the competence of the officials involved. Indeed, it is not apparent to any member of the Committee whether there has ever been an Australian shipbuilding project for such a major new capability that has run under budget.

Then there's the question—the final key issue—of design maturity. The tender required a mature design, and somehow the Hunter class frigate was assessed as a mature design. Yet it was not designed and it had never been built. This was a completely redesigned ship based on an earlier UK vessel that was not in the water anywhere in the world, which goes to cost-effectiveness and risk. The secretary of Defence, at the end of a two-hour hearing in the inquiry, made the welcome if somewhat overdue statement that he would not have characterised it as mature, on reflection. And I do thank the secretary for appearing and for his evidence. The committee recommends that Defence reassess how it determines maturity in future large-scale acquisitions, particularly as foreign governments will always be keen to sell expensive military hardware to Australia. A balance is needed between that approach and acquiring off-the-shelf military capability.

Finally, key documents regarding the decision-making process were unavailable. The documents that went missing, to be clear, included minutes of the Defence Committee. The Defence Committee, for those who are not familiar with this, is the apex decision-making forum of the entire defence enterprise. It is the most senior defence committee in the Commonwealth, and the minutes relating to this procurement just went missing.

The committee makes five recommendations in relation to the Hunter class frigate program. It recommends that the Commonwealth Procurement Rules explicitly require a value-for-money assessment in a tender evaluation plan as a default option. This must be cleared by the Department of Finance.

In the interests of time, I won't refer to the other part of the report and the future of the MPR. I'll just go straight to the final of the three reports, Deputy Speaker Vamvakinou, and it's the one you've been waiting for, I know, because I'm sure you're intrigued by the title: The never-ending quest for the golden thread: probity and ethics in the Australian public sector.

This is a very thoughtful report with very useful recommendations, if I do say so myself. The law requires that the Australian Public Service be efficient and effective in serving the government, the parliament and the Australian public—and the law, o the law. In delivering outcomes, however, it's not a case of anything goes. Complying with the letter of the law whilst ignoring its intent doesn't cut it. The public sector must operate with probity and ethically. Yet too often we've seen that the public sector falls short of the high standards of professionalism required of it. We've seen that noncompliance with the law is tolerated—that getting the job done, even if it involves cutting corners, is more important than meeting legal obligations.

Even when officials were found to be acting contrary to finance law, multiple witnesses to the inquiry, including very senior people and entities, referred to, 'a lack of mal-intent', to have 'acted in good faith', 'no-one personally benefitted', and, 'we were just delivering on decisions of government'. That is plainly and unambiguously wrong. It should not need to be said that any claim that it is somehow acceptable for an officer to breach finance law and fail to act with probity, but still be acting in good faith and for a proper purpose, is just plain wrong.

Frankly, the committee wishes that breaking finance law was indeed innovative and a new situation. But, unfortunately, the evidence in this and numerous other inquiries make clear it is not. Officials in the Department of Health even received corporate 'congestion busting awards' for former Minister Greg Hunt's hospital grants program, which breached finance laws. Public money was paid without any apparent legislative authority and in blatant defiance of legal advice.

Agency heads are not consistently able to be reasonably confident their officers are acting according to the letter and the intent of the law and thus demonstrating probity. What entities commonly have are integrity frameworks against which they measure probity. I'm getting to the punchline, Deputy Speaker. While necessary, integrity frameworks capture only the minimum requirements of the law. They are necessary, but not sufficient. The committee reflected deeply. We really wrestled with this, and I particularly thank the deputy chair, Senator Reynolds, for her participation in this inquiry. We concluded that a system that could provide assurance that the public sector was operating with integrity, uprightness and honesty has three critical pillars.

First are the frameworks that establish the requirements for public officials, be they legislation, regulation, rules, policies, codes or guidelines. Second is culture; 'The way we do things around here'. Entity culture itself is overwhelmingly set by senior leaders, but it is shaped by cross-government frameworks and the tone is set by governments and the parliament. The third is accountability. This falls to everyone. Individual officers are accountable for their actions. Senior leaders and accountable authorities—that's Public Service lingo for the head of an agency—are accountable for their entities. Policy owners are accountable for the outcomes and compliance with their policies.

But the most essential thing, the secret sauce, the golden thread that binds and animates the system in a positive direction, is ethical leadership. Ethical leadership must be demonstrated at all levels, especially by agency heads and senior officers. The committee has made 11 recommendations that will embed assurances with regard to probity and ethics. I would like to thank all inquiry participants and witnesses, including two departmental secretaries, who appeared. I would like to also thank committee members, especially the deputy chair. And I would like to give a special shout-out to Dr Fiona Allen, the inquiry secretary, for helping to draft such a thoughtful and elegant report. I commend the reports to the House.