- Procurement by the National Capital Authority
Auditor-General Report No. 30 2021–22
Introduction
Background
4.1The audited entity was the National Capital Authority (NCA). The NCA was created in 1989 after the introduction of self-government to the Australian Capital Territory. It manages some of Canberra's most significant landscapes and attractions:
We operate and maintain national monuments, public artworks, large areas of landscape and infrastructure including paths, lighting, signage, open space areas, trees, carparks, and civil infrastructure such as roads, bridges, lake and waterways, dam, and street lighting.
4.2The NCA is a small agency with approximately 60 staff including engineers, architects, planners, designers, horticulturalists, and other specialists. It is a non‑corporate Commonwealth entity and therefore subject to the Commonwealth Procurement Rules (CPRs).
Audit findings
4.3Procurement is a core business of the NCA, accounting for 40 per cent of the agency's total expenses in 2020-21. The objective of the audit was to determine whether the NCA’s procurement activities complied with the CPRs and whether it could demonstrate the achievement of value for money.
4.4Auditor-General Report No. 30, 2021-22, Procurement by the National Capital Authority examined the NCA's procurement framework (including its processes and systems) and its procurement activities over the 2019-20 and 2020-21 financial years. A sample of 42 procurement contracts covering different procurement approaches was examined in detail.
4.5The audit found NCA procurement processes were insufficiently open and competitive. Where open tenders were conducted, it was common for request documentation to limit the extent of effective competition. Where suppliers were directly approached, the pool of potential tenderers was often limited to those previously engaged by, or known to, the NCA.
4.6The ANAO also found that the NCA could not demonstrate that its procurement decision making was transparent and accountable, primarily as a result of gaps in the records of the planning and conduct of procurements.
4.7The ANAO made eight recommendations, seven of which were directed to the NCA. The NCA agreed to all seven recommendations.
Chapter overview
4.8This chapter considers the audit report’s findings and the measures taken by the NCA to address them, in particular:
- value for money and competition in procurement, especially procurement thresholds, the use of panels, incumbency advantage and tender evaluation
- probity and ethics in procurement, and
- record keeping.
Value for money and competition
4.9Competition is a key mechanism through which agencies can demonstrate value for money in procurement. As the ANAO notes:
Generally, the more competitive the procurement process, the better placed an entity is to demonstrate that it has achieved value for money. Competition encourages respondents to submit more efficient, effective and economical proposals. It also ensures that the purchasing entity has access to comparative services and rates, placing it in an informed position when evaluating the responses.
The use of procurement thresholds to avoid competition
4.10The CPRs require an entity to estimate the expected value of a procurement prior to the commitment of funds. This estimate determines which rules in the CPRs should be followed. If the estimated value of a procurement is above a certain threshold, an open approach to market must be made, subject to exemptions which apply in limited circumstances. For procurements of construction services, the threshold is $7.5million, while for non-constructions services the threshold is $80,000.
4.11The audit report found that the NCA had 'adopted an interpretation of “construction services” to encompass goods or services not explicitly covered by the definition as set out in the CPRs and relevant legislation’.
4.12Examples of the types of goods and services procured by the NCA which it defined as ‘construction services’ include:
- provision of sketch plan design, tender and construction documentation, participation on the NCA tender assessment panel and related superintendency services under a consultancy services contract valued at $152,432
- supply and delivery of compost, drainage sand and mulch, with the NCA initially approaching two suppliers in an unsuccessful approach to market and then running a further limited tender that resulted in a $150,194 contract, and
- supply and delivery of granite plaques for the Old Parliament House Rose Gardens totalling $115,500.
- The NCA advised that in the 2021-22 year there were five procurements in addition to those covered in the audit report that were also misclassified as construction:
There were also five (5) procurements for design and supervision services that were classified as construction services. We have made changes to our internal processes and instructions to ensure design services are not classified as construction services going forward.
4.14The NCA submission noted that one of the internal reforms it has implemented in response to this finding was early engagement with the NCA's new ‘procurement expert’, the Director of Procurement:
staff are required to engage with the procurement expert and discuss procurement activities in the planning phase, prior to determining approach and presenting approvals to the delegate. This is aimed at early intervention but also ensuring that relevant documentations are in place, including rationale for the procurement approach.
4.15In relation to the misclassification of procurements as 'construction related', the NCA’s Chief Executive Officer Ms Sally Barnes said that 'they were people doing…projects that, in their minds, were all part of the construction project':
I have no excuse for why it happened, but I haven't sensed mal-intent or trying to get around the rules. It is more that this is part of that construction project, and therefore it falls under those CPRs. That's incorrect, and it's been clarified.
The NCA's use of panel arrangements
4.16The NCA's Accountable Authority Instructions require officials conducting procurements to use mandated whole-of-government arrangements where they exist, and to consider whether there is an existing non-mandatory arrangement (such as a panel) that may be used for the procurement.
4.17In 2015, the NCA established an Estate Services Panel to provide gardening, landscaping, engineering, and construction advice services, among others. A Deed of Standing Offer was established with qualifying suppliers for a term of four years, with an option to extend for a further two years by issuing notice in writing at least 30 days before the Deed's expiry.
4.18The audit report found that the NCA's use of the Estate Services panel did not always foster competition. The NCA exercised its option to extend the term of the Deed but did so after its expiry date. Six of the 42 contracts analysed by the ANAO were issued under the panel after it had expired. Two further contracts were awarded via direct approach and then retrospectively attributed to a panel in order to avoid having to use an open approach to market.
4.19The ANAO also analysed six further procurements by the NCA that made use of panel arrangements set up by other Commonwealth entities:
- In one instance, the relevant panel was established via limited tender and the NCA approached only one supplier.
- In one instance, the NCA ‘piggybacked’ off an existing contract originally let by limited tender between the supplier and another non-corporate Commonwealth entity.
- In one instance, the NCA approached three suppliers on a panel established by open tender.
- In three instances, the NCA approached only one supplier on a panel established by open tender.
- On the basis of these findings, the ANAO recommended that the NCA increase the extent to which it uses open competitive procurement processes.
Competitive processes which were not open, fair and non-discriminatory
4.21The ANAO found that even where the NCA conducted open tender processes, it often did so in a way that functioned to limit competition.
4.22As the audit report noted, 'a procurement approach that commences with an open approach to the market does not necessarily mean that the procurement process promoted effective competition'.
4.23Even where the NCA conducted open tender procurement processes, the ANAO found that its approach often functioned to limit competition. The report noted that 'Of the 16 contracts examined in detail that were let by open tender, 10 'contained conditions for participation which may have unfairly limited competition despite being open approaches to market'. These conditions included:
- a requirement for suppliers to demonstrate financial stability over three years - an obstacle to new market entrants
- a requirement to hold baseline security clearance - instead of being capable of obtaining clearance
- a requirement to hold membership in a professional organisation - instead of eligibility to be a member.
- The NCA also gave undue weight to the prior experience of its potential suppliers. According to the CPRs, it is only permissible to require relevant prior experience in a procurement's conditions for participation if that experience is essential to meet requirements. Even then the CPRs do not allow an entity to specify that potential suppliers must have previous experience with the relevant entity or with the Australian Government.
- However, when it examined the 14 contracts where the NCA invited more than one supplier to tender for work, the ANAO found that the NCA commonly limited its approaches to contractors who had previously been engaged by the NCA, finding that 'the NCA commonly treated previous experience as an unspecified requirement for participation'. The 12 contracts examined by the ANAO which involved single‑supplier approaches 'reinforced' this conclusion.
- In three of the contracts that purported used the NCA's Estate Services Panel, Request for Quote documentation was sent to two suppliers who were not on the panel, for the simple reason that they had previously been engaged by the NCA.
- The ANAO therefore recommended that the NCA 'monitor and provide assurance that the National Capital Authority employs open, fair and non-discriminatory approaches when undertaking procurements'.
- When asked how the NCA had changed its approach to procurement in the wake of the audit, Ms Barnes said 'The one-word answer is: thoroughly'. (Sally Barnes, 14 Dec 31).
- The NCA’s Chief Operating Officer Mr Hamid Heydarian elaborated:
In short, do we have conditions for participation? So far, no. In fact, there are very few reasons why there should be conditions for participation as such. We're putting greater emphasis on building up the evaluation criteria and fully disclosing it in the tender documentation.
Requests for and evaluation of tenders
4.30Where entities make an open approach to market for a procurement, the CPRs require them to include evaluation criteria in request documentation, so that tenders are treated in a fair, common and appropriately transparent basis. The request document should include a description of the evaluation criteria to be used and the relative importance of the criteria.
4.31The audit found that 25 of the 42 contracts examined (approximately 60 per cent) included evaluation criteria with varying levels of detail. The remaining 17 either did not include any criteria or had no records of criteria retained on file. Inconsistent or insufficient records kept on file meant the ANAO was unable to examine whether criteria had been amended during the procurement.
4.32As such, the ANAO recommended that in future, the NCA should ensure that procurements provide request documentation that includes evaluation critera.
4.33The audit also identified problems with the NCA's screening and evaluation of tenders. Just over half the contracts examined by the ANAO were awarded to the tender that offered the best value for money. In the remaining cases, the NCA either failed to analyse bids sufficiently to demonstrate value for money in line with the cost or complexity of the procurement or failed to keep good enough records. In some cases, the NCA applied evaluation criteria that were not consistent with the approach to market.
4.34In one case, tenders were assessed against two mandatory participation requirements that were not included in request documentation:
Four of the five tenders received were failed against the second requirement. However, all five progressed through to the evaluation stage and were each scored and ranked against the evaluation criteria. In recommending the preferred supplier, the panel then noted that the other four ‘failed to meet tender requirements’.
4.35The ANAO found that in only five of the 42 contracts the criteria and weightings the NCA applied in the evaluation process were consistent with those advised to potential suppliers in the request documentation. For the remaining 37 contracts, 27 had some inconsistency, mostly because the NCA had not advised potential suppliers of the criteria, and 10 had insufficient information on file to demonstrate consistency.
4.36In response to these findings, the NCA pointed to reforms it has undertaken which are intended to change its procurement culture:
We have made significant inroads in addressing the recommendations of the ANAO Report and putting in place additional internal controls to ensure the measures are lasting. In designing the control measures, we have taken a holistic view through the lense of governance, people, process and systems.
4.37The NCA has developed standardised guidance for its officials when they are undertaking procurements:
At the time of the ANAO audit, we had been working to develop standardised guidance and agency-specific templates for use by staff members when conducting procurement ... Updated information is available on the NCA intranet, incorporating regular updates and ongoing guidance provided to staff when using the resources. The detailed guidance and templates are designed to drive consistency across the agency and improve overall efficiency while ensuring adherence to the Commonwealth Procurement Rules (CPRs) when undertaking procurement.
4.38The NCA has also engaged a Director of Procurement to provide centralised and consistent compliance advice to procuring staff:
The Director of Procurement engages with staff early to provide advice in the planning stage, and also conducts monitoring and ongoing review of procurement activities to ensure compliance.
4.39The NCA has also implemented a rolling audit program of its procurements to give greater assurance that they are being carried out in line with the CPRs:
A rolling external audit program of high value and/or risk procurements throughout the life of these projects - this process will bring independent scrutiny and confirmation of our compliance with ANAO’s recommendations and assist in further refining our plan to drive best practice and continuous improvement.
4.40The NCA’s Chief Procurement Officer noted that she had experienced very little by way of resistance to the NCA’s reform processes:
When I QA things, it's not a matter of 'No, I don't want to do that'; it's a matter of 'Okay; how can we make that work?' Sometimes the response is, 'Yes, we have taken that on board, and now we're going to progress it to the delegate.' ...that's been a very positive experience for me, in particular.
Probity and ethics
4.41The CPRs require procuring officials to act ethically in conducting the procurement. This includes recognising and treating actual or perceived conflicts of interest, dealing with all potential suppliers or contractors equitably, and complying with requirements governing gifts or hospitality. The CPRs require procuring officials to 'seek appropriate internal or external advice when probity issues arise'.
4.42As the audit report notes, the APS Code of Conduct also requires officials to take reasonable steps to avoid real or apparent conflicts of interest, and the Public Service Act 1999, the Public Governance, Performance and Accountability Act 2013 (the PGPA Act) and the Public Governance, Performance and Accountability Rule 2014 all require officials to disclose the details of any material personal interest.
4.43The most basic form of probity management involves the management of conflicts of interest through written declarations made prior to the commencement of the procurement which specify if persons involved have any actual, potential or perceived conflicts of interest.
4.44NCA policy required staff to complete declarations – an 'Acknowledgement of Conflict of Interest Policy' form and a 'Declaration of Material Interests' form – at the start of their employment. Persons involved in procurements from time to time were also required to complete activity-specific declarations for each process in which they were involved.
4.45However, the audit found that 'conflict of interest declarations were not completed by all evaluation team members in 39 per cent of the contracts examined in detail by the ANAO where there was sufficient information to enable reliable examination'.
4.46The CPRs also provide that an entity may seek appropriate external advice when probity issues arise during a procurement. This is typically done through the appointment of a probity adviser.
4.47An external probity adviser was appointed in 12 of the 42 procurements examined by the ANAO, generally for the more complex procurements or those with higher estimated values. However, the audit found that the NCA could not demonstrate that it had used external probity advice effectively:
of the 12 instances where an external probity adviser was appointed (typically for larger value procurements), only one had sufficient records maintained documenting the probity adviser’s role and a report completed by the adviser confirming probity had been maintained during the procurement process.
4.48Further, the audit went on to note that:
Despite the NCA identifying a need for a probity adviser during planning, it was common for there to be limited information maintained in the relevant procurement files evidencing the probity adviser’s involvement. Additionally, the evaluation reports did not contain a clear statement to decision-makers as to the extent of the probity adviser’s role.
4.49The ANAO therefore recommended that the NCA actively engage and manage external probity advisers to ensure that the agreed services are provided, and that probity is maintained.
4.50In response to this recommendation, Ms Barnes said that NCA officials lacked the capability to manage external probity advisers effectively:
In the model we were using, project officers were using probity advisers but didn't have enough skills to actually know what they needed the probity adviser for or what was expected and asking them to do the role properly.
4.51The NCA also responded by drawing the Committee's attention to the ‘strong ethical framework’ it has in place, including 'a range of preventative controls, procedural arrangements and periodic awareness training'.
4.52Further, in relation to the ANAO's finding that the NCA had not conducted its procurements to a consistent ethical standard, the NCA emphasised that 'discussions with the ANAO confirmed the finding was not a reference to impropriety, but about recognising and dealing with conflicts of interest and maintaining appropriate records regarding conflicts of interest declaration forms'.
4.53Ms Barnes pointed to a range of measures the NCA has taken to address the ANAO's findings on probity:
We're reminding everyone of their APS requirements, generally - their code of conduct requirements. We do an annual check of conflicts through the senior executive team. In the larger procurements, particularly, we've been using external probity providers and lawyers. This hasn't given us the results we needed, so we're doing it internally, and we're checking everything before we sign things off. We've also put in new procedures, in which we're asking probity advisers to give us assurance that there have been the right probity checks and balances and that all conflicts of interest have been addressed, which we didn't do before.
Record keeping
4.54The CPRs require entities to maintain written records of a procurement commensurate with its scale, scope, and risk. This should include records of the requirement for the procurement, the process that was followed, how value for money was considered and established, all relevant approvals, and records of all relevant decisions with the basis of those decisions. Records should also be kept of evidence of agreements with suppliers.
4.55NCA staff are required to manage information in line with the NCA’s record keeping policies, which are specified in two documents – the NCA National Archives Records Authority, and the NCA Information Management Policy.
4.56The NCA National Archive Records Authority requires several classes of documents to be retained as national archives, including:
- records relating to the management of NCA managed land and assets
- arrangements with external parties to manage or undertake works on NCA managed land or assets, and
- records relating to major works or development applications.
- The NCA Information Management Policy establishes a framework for the creation and management of records within the NCA. The policy sets out information responsibilities for staff at all levels of the organisation.
- The audit found that the NCA did not maintain records of procurements as specified by the CPRs. Appropriate written records of the justification for using limited tender processes were kept for just under half of the examined procurements.
- When limited tender procurements are used, the CPRs require that each contract should have a written report specifying the value and type of goods, the circumstances that justify the use of a limited tender approach, and how the procurement represents value for money.
- Of the sixteen limited tender contracts examined the ANAO:
- nine met the conditions specified in the CPRs
- two had records justifying the use of limited tender but not demonstrating value for money
- four had records demonstrating value for money but not justifying the use of limited tender, and
- one had insufficient records to reach a conclusion.
- Of the 42 contracts examined in detail 35 (or 83 per cent) had incomplete documentation, that is, documents that were in draft form or which were missing altogether. Higher value procurements tended to have more complete documentation, in line with their size and scale.
- On this basis, the ANAO recommended that the NCA improve its controls over the making of appropriate records.
- In response, Ms Barnes told the Committee that the NCA’s record keeping issues arose in part because it employed 'doers' whose focus was not on how to keep records:
What tends to happen in a small organisation with lots of doers is that you have this pendulum of expertise in the corporate area. We have had very small corporate areas, because we wanted to put most of the resources into the doing. That leaves you exposed, because you need your technical project managers to also be good in the corporate services sphere ... It is the doing and the busyness that has led us to be sloppy and not good at record management and not good at actually making sure we dot i's and cross t's.
4.64The NCA submission noted that one of the responsibilities of its newly created Director of Procurement role is to improve record keeping practices:
Part of the responsibilities of the Director of Procurement is to ensure the key relevant documents and records are in place to support each procurement activity from beginning to end, including clear justification for selecting a procurement method.
4.65The NCA response also drew the Committee’s attention to its Monthly Active Contracts Reminders tool, which it characterised as ‘a tool to assist staff better monitor and plan for future procurement requirements. In addition, greater visibility promotes maintenance of current records and accurate reporting’.
Committee comment
4.66The findings of the ANAO’s audit report into procurement at the NCA are concerning. An agency with such longstanding procurement and contracting requirements and for whom procurement is a core business requirement, should demonstrate a far better track record than that found by the ANAO.
4.67The NCA did not make sufficient use of open and competitive procurement approaches. Its misclassification of procurements as relating to construction to avoid the necessity for open approaches to market is one of many aspects of its procurement practices that did not comply with the CPRs.
4.68The NCA did not make use of competitive procurement options frequently enough and did not keep sufficient records of its justification for using limited tender approaches. Further, even when using competitive procurement approaches, it did not do so in an open, fair and non-discriminatory manner. In particular, it gave incumbent suppliers too great an advantage and included conditions for participation that limited competition.
4.69The NCA also failed in its duty to conduct procurements to a consistent ethical standard, especially with respect to the management of actual, potential or perceived conflicts interest. The Committee notes the evidence that despite the manifest and repeated breaches of the CPRs including ethical lapses that no evidence was identified that these constitute serious impropriety. The Committee acknowledges that the NCA’s primary deficiency is a failure to adequately document its management of probity rather than persistent or seriously egregious breaches of the ethical requirements laid down by the CPRs and the PGPA Act.
4.70The Committee is also concerned at the inadequate record keeping practices at the NCA. Good record keeping practices are critical to the administration of public funding as without a documentary record an entity is unable to demonstrate that it has conducted itself in line with its obligations.
4.71That said, the Committee was pleased that the NCA acknowledged that its procurement practices were not in line with the expected standards. The Committee is encouraged to receive information from the NCA indicating that it has undertaken to make changes to its procurement practices and procedures, and that it intends its procurement culture to be one of compliance with the CPRs going forward.
4.72The Committee recommends that the National Capital Authority provide an update on the implementation of the reforms undertaken in response to the audit, including:
- statistics on and analysis of its use of competitive procurement methods, especially when procuring through standing offers and panels
- statistics on and analysis of how its procurement methods have changed to encourage competition, particularly its request documentation and its tender evaluation processes
- changes to its management of probity and promotion of ethical and fair procurement, and
- changes to its record keeping practices and procedures.