- The management of the maritime surveillance contract by Home Affairs
Auditor-General Report No. 6 2021–22
Introduction
Background
5.1On 3 March 2006, the Australian Government entered into a contract with Surveillance Australia Pty Ltd (Surveillance Australia) for the provision of civil maritime surveillance services. Civil maritime surveillance involves surveillance activities in Australia’s maritime zone for the purpose of deterring, preventing, detecting and responding to civil (non-military) maritime threats, including illegal maritime arrivals as part of Operation Sovereign Borders.
5.2At the time of contract, it had a reported value of $1.187 billion, and was due to expire on 31 December 2019 with an option to extend by up to two years. This option was exercised by the Department of Home Affairs (Home Affairs) in October 2012, more than six years before any notice needed to be given to the contractor, ‘in an attempt to reduce the annual cost of the contract’. The extension took the contract expiry date out to 31 December 2021 with a total value of $1.647 billion.
5.3In September 2021, the department extended the contract with Surveillance Australia for further six years to 31 December 2027. This extension increased the value of the contract by $991.3 million, bringing the total contract value to $2.6 billion.
Audit findings
5.4Auditor-General Report No. 6 of 2021–22 Management of the Civil Maritime Surveillance Services Contract assessed whether Home Affairs was effectively managing the civil maritime surveillance services contract. To form a conclusion against the objective, the Australian National Audit Office (ANAO) adopted the following high-level criteria:
- Has the contract delivered against the planned cost, scope and delivery timeframe?
- Have the specified surveillance assets been provided?
- Have the specified surveillance services been provided?
- The audit was undertaken in a similar timeframe as a separate audit of the Australian Maritime Safety Authority’s (AMSA) management of its search and rescue contract (the AMSA audit). The two contracts were awarded to subsidiaries of the same parent company, Cobham Ltd. This provided an opportunity for the ANAO to compare and contrast the two aircraft service contracts and their management by AMSA and Home Affairs.
- The AMSA audit was tabled on 18 January 2021 and concluded that AMSA’s management of the search and rescue contract has been fully effective. In contrast, the Home Affairs audit found that:
The department’s management of the Civil Maritime Surveillance Services contract has not been effective and, as a result, while surveillance services have been provided, the quantum and range of those services has fallen short of the contractual requirements.
5.7The ANAO made four recommendations to Home Affairs, all of which were agreed to by the department.
Chapter overview
5.8This chapter discusses key findings from the audit and Home Affairs’ actions to address these findings since the tabling of the audit. The chapter focuses particularly on findings relating to:
- contract extensions and variations
- contractor performance management
- AusTender reporting and record keeping, and
- leadership and culture.
Contract extensions and variations
Changes to contract cost, scope and timeframe
5.9According to the audit report, the original contract signed in March 2006 had an authorised total cost of $1.1873 billion over 14 years, including a two-year transitionary period. This amounted to a contract cost of $98.9 million per annum over the expected 12 years of operations.
5.10Under the terms of the original contract, Surveillance Australia was responsible for the provision of:
- ten fixed wing aircraft (six Dash–8 202s and four Dash–8 315s) that operate day and night, in all but the most extreme weather, 365 days a year
- on-board sensor and communication systems, including the development, delivery and integration of a surveillance information management (SIM) system
- annual rate of effort of 13,613 hours with 26 qualified aircrews, and
- bases in Darwin, Cairns, Broome and Horn Island.
- Services were to commence on the ‘handover date’ of 1 January 2008, on which the specified surveillance assets necessary to perform the contract were to be made available. Full service delivery was scheduled for 1 July 2008.
- The contract has since undergone significant changes. The audit report noted that as at March 2021, the contract had been subject to 40 variations, ‘with the effect of significantly changing the scope of the services to be delivered and increasing the term and value of the contract’. Examples of key contract variations include:
- a variation executed in December 2006 for a new delivery schedule, including amendment of the full service delivery date from 1 July 2008 to 7 June 2010, 23 months later than originally planned. This delay was due to ongoing contract negotiations between Home Affairs and Surveillance Australia relating to the delivery of a suitable SIM solution
- a variation executed in September 2008 for an increase in the contracted annual rate of effort from 13,613 hours to 15,000 hours, from 1 October 2008 to 30 June 2010, at an estimated cost of $6 million. This included provision of additional two crew members (for 28 crew members in total) and an increase in fixed monthly service charges to Home Affairs. The audit report found that ministerial authorisation was not sought prior to entering into this contract variation, which increased the value of the contract beyond the approved limit, and Home Affairs did not conduct a value for money assessment to inform the decision
- a variation executed in July 2009 for additional surveillance services using two Reims F406 aircrafts until 30 June 2011, at an estimated cost of $16.5 million. This included two additional crew (for a total of 30 crew members) to provide an extra 2,000 surveillance hours per annum. As above, ministerial authorisation was not sought prior to entering into the contract variation despite it increasing the value of the contract beyond the approved limit. This arrangement was extended via another variation to June 2013, and then to June 2015
- numerous variations relating to provision of satellite communication services, including one executed in October 2014 for satellite engineering support and data provision services that was scheduled to be reviewed or ceased in June 2016 but was continued without review until November 2018, when Home Affairs formally acknowledged continuing requirement for the services. Expenditure for this variation exceeded the approved amount by $1.1 million.
- The audit report found that variations to the contract to March 2021 had increased its cost by $354.1 million, ‘more than 29 per cent higher than the amount authorised by the Finance Minister when the contract was originally entered into’. The latest variation of $991.3 million in September 2021 brings the total cost increase by variation to $1.3454 billion—more than double the original authorised contract value.
- At the public hearing on 14 December 2022, the Committee inquired about the decision to extend the contract for another six years to 2027, despite the myriad of issues outlined in the audit report. Home Affairs informed the Committee that this was because the department’s market sweeps indicated that there was no other provider capable of providing the services within the timeframes required:
The ability of the market to respond with what we need in the time frames, in terms of a new capability for aerial surveillance, is where you get that out to 2027. We have plans to go out to market, but the market sweeps that have been done have sort of confirmed the market is not ready to respond quickly and needs time to build up that capability in order to get it to a deliverable state, hence the length of the extension that’s been done.
5.15In a supplementary submission to the inquiry, Home Affairs further explained that it had commenced planning for future aerial surveillance capability in 2016 in advance of expiry of the previous contractual arrangements on 31 December 2021. The department conducted three formal industry engagements (market sweeps) in October 2018, late 2020 and August 2021, before concluding that ‘full delivery of a like-for-like replacement capability could not be achieved by other service providers (other than the incumbent) before at least 2025’.
5.16In response to the Committee’s question of whether contract terms had been amended with the extension, for instance to address the areas identified as deficient in the audit report, Home Affairs advised the Committee that there were ‘minor variations to the terms to accommodate the extension’ of September 2021, but that the contract had been extended ‘largely on the same terms and conditions’. The minor changes included an ‘aircraft modification program to address obsolete mission systems and equipment’ and amendment of administrative processes in line with updated departmental policies.
5.17The department noted that the extension contained options to terminate early, with 12 months’ notice, at the end of 2025 and 2026. If the contract runs to its full term to 2027, it would not have been competitively tendered for 21 years. At the public hearing on 10 February 2023, the Secretary of the department acknowledged that this was not acceptable, but argued that the department’s options had been limited because it did not have an integrated investment plan with an ongoing capital budget like the Department of Defence to ‘recapitalise the fleet’ as needed.
5.18In a supplementary submission to the inquiry, the ANAO questioned the relevance of an integrated investment plan to the department’s ability to retender the contract, noting that the contract is for the provision of surveillance services with the aircraft and equipment owned and operated by the contractor.
The civil maritime services contract is for surveillance services and so incorporates a service level agreement. The key contractual obligation is the delivery of a specified quantum of surveillance flying hours, being the annual Rate of Effort … As this is a services contract, the surveillance aircraft are owned and operated by the contractor. Consequently, the relevance of a[n] integrated investment plan is not evident.
5.19Home Affairs informed the Committee that the department has since made changes to its contract management practices to provide better guidance to staff when considering contract variations and amendments. These include updating and publishing internal guidance material for staff, updating its Accountable Authority Instructions to include the requirement for the Chief Procurement Officer to approve all proposals to extend a contract by variation where there are no further extension options, and releasing a non-mandatory eLearning course titled ‘Your responsibilities as a Contract Manager’, which outlines the requirements of contract managers to meet high standards of governance, performance and accountability.
Concessions and reductions in contractual penalties through variations
5.20As outlined above, the contract requires Surveillance Australia to provide a specified number of surveillance assets, including aircraft, the SIM system, and a contingent of qualified aircrew to operate the aircraft and equipment. The contract also required four aerial surveillance bases to be established and maintained in Cairns, Darwin, Broome and Horn Island.
5.21The audit report found that not all required assets were provided at commencement of services on 1 January 2008. Shortfalls in the provision of surveillance assets included:
- an eight-month delay in establishing the fourth base, with negotiations not resolved until August 2008
- one of the Dash–8 315 aircrafts not being provided until 23 March 2008
- the remaining three Dash–8 315 aircrafts not having long-range fuel tanks installed as required by the contract to perform longer-endurance surveillance missions
- the SIM system not being fully installed in all aircrafts until June 2010, resulting in a 23-month delay in full service delivery
- the full contingent of qualified aircrew not being provided, with only 17 of 26 available at commencement of services—a shortfall of 35 per cent.
- The audit report observed that the shortfalls in aircraft and qualified aircrew at commencement of services ‘triggered the contract liquidated damages regime, which covered the first six months of service delivery before the performance measurement system came into effect from 1 July 2008’. There were two liquidated damages provisions in the original contract:
- from 1 January 2008 to 31 March 2008, liquidated damages applied at the percentage of actual rate of effort compared to planned rate of effort, multiplied by $100,000 per day (first damages provision)
- from 1 April 2008 to 30 June 2008, liquidated damages applied at a flat rate of $100,000 per day (second damages provision).
- The audit report outlined how Home Affairs progressively varied the contract to reduce the applicability of the liquidated damages scheme, with negotiations with the contractor on how the scheme will be applied continuing into 2008:
- In December 2007, Home Affairs agreed to implement a contract variation to amend the second damages provision to reflect the arrangement in the first damages provision, ‘thereby removing Surveillance Australia’s exposure to the flat $100,000 per day’ that would have resulted in $9 million in liquidated damages for failure to provide the contracted number of qualified aircrew.
- In February 2008, Home Affairs agreed that liquidated damages would only apply if the achieved rate of effort fell below a threshold of 95 per cent of the planned rate of effort, measured retrospectively for each month.
- In April 2008, Home Affairs agreed to use the average monthly contracted rate of effort to establish the monthly liquidated damages threshold, rather than the actual planned rate of effort.
- Home Affairs made numerous other concessions and accommodations to ‘mitigate’ Surveillance Australia’s exposure to liquidated damages and assist it in meeting the planned rate of effort during the liquidated damages period. This included planning missions based on Surveillance Australia’s ability to perform the missions rather than the department’s actual operational imperatives, and enabling Surveillance Australia to fill the shortfall of aircrew by using pilots not trained for the purposes of the contract. Home Affairs further agreed to credit all completed missions with at least six hours of flight time, unless the planned or actual flight time was greater than six hours. This meant, for example, ‘if the actual flight time for a completed mission was 5.8 hours and the planned mission time was 6.2 hours, the mission would be credited with an “adjusted” time of 6.2 hours’.
- Home Affairs also assisted the contractor with meeting its contractual obligations in relation to establishing the contracted number of bases and resource distribution, such as by leasing three of the department’s residential properties in Broome to Surveillance Australia to assist in attracting aircrew to Broome, for rent payment of $34–$35 per week.
- The contract had also included a penalty framework to deal with unavailability of the SIM Ground (SIM-G) component, with Surveillance Australia liable to pay $1,000 per hour of unavailability of the system. In July 2012, Home Affairs amended the penalty clause in the contract so that the penalty was only applied if Surveillance Australia failed to rectify the problem within 12 hours, rather than immediately upon notification of the unavailability.
- In addition to reducing the contractor’s liquidated damages and penalties payable under the contract, the audit report found that Home Affairs commenced payment for surveillance assets that were not being provided. This included payment of the full fixed component of the monthly service charge of $4.5 million per month from 1 January 2008, for:
- the Dash–8 315 aircraft that was not available for almost all of the first three months of service delivery, which amounted to $1.4 million
- the three non-compliant Dash–8 315, which had a reduction in capability due to lack of long-range fuel tanks, and
- the provision of the contracted number of qualified aircrew, which comprised around 37 per cent of the fixed monthly service charge, that was not provided at any time throughout the life of the contract.
- The audit report further noted that:
Home Affairs was not liable to pay Surveillance Australia for the SIM until acceptance of the first SIM modified aircraft. Nevertheless, Home Affairs agreed to amend the contract to commence payments for the SIM prior to the acceptance of the first aircraft.
5.29From available records, the ANAO estimated that around $4.2 million was paid for the SIM prior to the acceptance of the first SIM-modified aircraft in July 2009. In relation to the provision of aircrews, the ANAO estimated that ‘Home Affairs may have paid in excess of $87 million … over the life of the contract in monthly service charges for crew numbers that it did not receive’.
5.30At the public hearing held on 14 December 2022, Home Affairs informed the Committee that the contractor still had not been able to provide the full complement of qualified aircrews as contracted. Home Affairs also confirmed that it continues to pay the full monthly service charges, ‘because the contract’s performance framework is centred around the 90 per cent [mission performance] threshold … not the number of crew.’ Deficiencies in the contract’s performance framework are examined later in the chapter.
5.31The audit report drew a contrast between the numerous concessions made by Home Affairs for Surveillance Australia, and the approach taken by AMSA for its search and rescue contract. The audit report noted that AMSA effectively managed delays in provision of required assets through the contractual framework:
Specifically, AMSA did not pay the standing charge for the bases and aircraft until they had been accepted into service and, once it started paying the charge, paid at a reduced rate until the remaining deficiencies had been addressed.
5.32At the public hearing of 14 December 2022, the Auditor-General elaborated on this comparison:
… in AMSA the contract was managed quite hard to the contract terms. The contract set up the incentives, and it was very strongly implemented. We thought it was one of the best contract management audits that we’d done as an office … Whereas, at Home Affairs we didn’t see the same rigorous process in adhering to the terms of the contract.
5.33In its response to the audit, Home Affairs disagreed with the comparison between its contract and AMSA’s due to ‘significant differences between the two Services’ such as length of time, different service requirements, and different fleet and base locations. In a supplementary submission, the ANAO explained that the two audits had the same three audit criteria relating to effectiveness of contract management that yielded different conclusions, based on evidence of each entity’s performance:
For AMSA, the evidence was that ‘following initial delays, search and rescue assets have been provided and accepted into service’ with AMSA addressing the initial delays through the contractual framework so they did not persist. For Home Affairs, the evidence was that ‘there were shortfalls and delays in the provision of the contracted surveillance assets’ and that ‘the department did not effectively apply the contractual framework to manage the shortfalls and delays’.
5.34The ANAO recommended that Home Affairs, in developing and managing the next surveillance services contract:
… adopt an approach that involves not paying charges for the bases and aircraft until they have been accepted into service and, once it has started paying charges, paying at a reduced rate until any remaining deficiencies are addressed.
5.35The department agreed to the recommendation. In its submission, Home Affairs stated that ‘[t]he Department will ensure that the conditions of contract and associated payment schedules contain sufficient provision of information to enable informed decisions on payments, with remuneration reflective of services rendered’.
Contractor performance management
Deficiencies in contract performance framework
5.36The contract contains a Performance Measurement System under which Surveillance Australia’s performance is measured and assessed. There are two key performance measures under the contract:
- Dispatch Reliability, which assesses whether the response mission was on time or delayed
- Mission Completion, which assesses whether the mission brief was completed.
- These performance measures are allocated a score between 0 per cent and 100 per cent. The two scores are then used to calculate the Overall Mission Performance (OMP) score for each mission. At the end of each month, the OMP scores are averaged to calculate the Overall Contract Performance (OCP) score. The contract requires a minimum OCP score of 90 per cent to be achieved in order to be paid the full monthly service charge. A lower minimum threshold of 80 per cent was specified for the Reims F406 aircrafts, which were in service from July 2011 to June 2015. If the OCP score falls below the minimum threshold, a performance deduction will apply.
- The audit report noted that ‘over the life of the contract to 31 December 2020, overall performance has been calculated to meet the contracted 90 per cent OCP metric for the significant majority of months (92 per cent)’, with the Dash–8 service OCP score falling below the threshold for only 13 months (8 per cent) over the period analysed. For the Reims F406 service, OCP fell below the 80 per cent minimum threshold for 7 months (15 per cent) over the period they were in service.
- However, the audit report found that there were a number of ways that the OCP score could be adjusted and increased. For instance, the Dispatch Reliability and Mission Completion scores were ‘up scored’ when the mission was not completed as briefed, if the reason was considered to be out of the service provider’s control. Examples of reasons for ‘up scoring’ included:
- coverage >95 per cent — surveillance mission completion of 95 per cent or greater equals up score to 100 per cent (4,426 missions)
- prudent Limit of Endurance — the time during which an aircraft can remain airborne and still retain a given safety margin of fuel (2,133 missions)
- adverse weather conditions (520 missions)
- not enough fuel available for the mission duration (381 missions).
- The ANAO found that 10,512 (47 per cent) of total 22,203 missions planned for the Dash–8s that were subject to the performance system had their Mission Completion scores increased.
- There was also a mechanism to exclude missions with the lowest OMP scores from the OCP calculation, using a cap that limited the number of missions that the Performance Measurement System could be applied to. This cap was introduced via a contract variation in March 2008 and subsequently amended in line with increases in annual rate of effort.
- Other adjustments and alleviations could be made to the performance scores. For example, the audit report noted that the process used for calculating the OCP scores was conducted in a ‘local spreadsheet’, outside of the department’s system used to monitor and manage surveillance mission data. The audit observed that ‘[t]his means that there is a lack of version control and transparency regarding the calculation of the OCP scores, with limited supporting evidence to explain changes and omissions when calculating the OCP score.’
- Further, Surveillance Australia uses a different system to Home Affairs to collect and calculate missions scores. The audit report found that this ‘has provided additional avenues for negotiations when there are instances where data does not align’, with the audit identifying ‘occasions where mission scores have been negotiated due to a difference between the two systems’. Record keeping and data quality issues are discussed further below.
- As the ANAO summarised at the hearing on 30 March 2023:
Whilst at the higher level, the department is able to say that most of the time the department is meeting the target under the contract for performance. What we point out in the audit report is that happens through a number of things, where the department is able to upscore whether missions have actually been completed or not. The department is able to adjust what it tasks to what is able to be delivered rather than what it wants delivered.
5.45The audit report also outlined another significant shortcoming in the contract’s performance framework. Key deliverables specified in the contract are not linked to the Performance Measurement System, meaning that even if the full suite of contracted assets and services are not provided, Home Affairs is not able to apply a performance deduction. This includes the provision of surveillance assets such as the number of qualified aircrew, examined earlier in the chapter, as well as surveillance services such as night missions, long-range missions and reserve missions.
5.46Importantly, the audit report noted that costs were incurred for all of these assets and services that were not provided or utilised. For example, three Dash–8 315 aircraft were required to be fitted with a long-range fuel tank for longer endurance flights of up to 13 hours duration, incurring a cost that was approximately 27 per cent higher than the other Dash–8 aircraft (amounting to $16 million per aircraft over the life of the contract). However, the audit report noted that although the fuel tanks were retrofitted into the Dash–8 315 aircrafts, the capability to undertake a 13-hour flight was never provided. This was due to aircraft weight limitations, with ‘many of the runways to be used at the bases and for deployments preclud[ing] take-off at current maximum take-off weights’, meaning the planes are unable to carry additional fuel. As the ANAO explained in the 30 March 2023 hearing:
… they've negotiated the contract to have something provided which, physically, is unable to be provided. They're still paying that additional fee for an aircraft that can't perform the very function it's there for, if that makes sense.
5.47Home Affairs admitted in 2014 that both the Dash–8 202 and Dash–8 315 were only able to provide an endurance of 6.5 to 7 hours. The ANAO found that over the life of the contract, the longest recorded mission duration was 10 hours and 43 minutes, completed using a Dash–8 202 aircraft rather than the modified Dash–8 315.
5.48The audit report further noted that ‘[i]n 2006, Home Affairs obtained additional Budget funding to increase the range and amount of night time surveillance under the contract, and this led to two contract variations … at a combined cost of $63.2 million’. However, ‘[s]ince 2018–19, planning for night missions has reduced significantly. Since September 2018, only two “late night” missions have been flown.’
5.49At the 14 December 2022 hearing, the Auditor-General further commented on this audit finding:
The contract allowed for certain capability to be done. Part of the contract was having aircraft with larger fuel tanks so they could go further. That hasn’t been utilised. The ability to do reserve missions when there’s capability—that hasn’t been utilised. More night flights—that hasn’t been utilised to the extent expected. So, while you’re getting a performance of the contract within the contract terms, because those things aren’t specified in contractual terms, you’re not getting part of that additional capability that was envisaged when the contract was entered into.
5.50At the same hearing, Home Affairs told the Committee that:
The contract provides that [the services] are ready and available for when we need them. From our perspective, they are being delivered when we need them. The Auditor-General’s comment is about the way the contract is written and about the fact that we’re paying for these even though we’re not using them up to the amount that’s in there. But, from our perspective, from an operational perspective and a delivery perspective, the tasking level has been met.
5.51In response to a question from the Committee about whether the operational response was being driven by the limits of contracted services available, Home Affairs advised that ‘[t]he requirement is driven by intelligence and risk assessments done by a maritime border command area within ABF’, and that the reason certain services had not been utilised was due to lack of operational needs. However, contrary to this evidence, the audit had found that ‘Home Affairs has been planning missions to fit Surveillance Australia’s capability, rather than planning to meet the desired operational outcomes’:
… instead of tasking missions to meet operational requirements, mission tasking factors in Surveillance Australia’s reduced capacity… As recently as March 2021, in accepting requested changes to the [Monthly Deployment Plan], the department stated it was ‘another example of the compromises we make continually in planning to accommodate shortages of crew duty’.
5.52At the public hearing held on 10 February 2023, the ABF Commissioner acknowledged the issues in the contract’s performance framework:
The overall contract performance, whether we like it or not … doesn’t hold the contractor to account in the performance framework for how many crew or how many hours. It’s based on dispatch reliability… [a]nd mission completion…
… we have what we have here, and in terms of aircrews there are a whole lot of issues there. I would agree that there’s been less than we would like. We’re unable to take action against the contractor in terms of abatements, because it’s not part of the overall contract performance framework.
5.53Despite these issues, in a supplementary submission to the inquiry, Home Affairs confirmed that it ‘has not sought to change the outcomes-based nature of the performance management framework since the Contract commenced in 2008’. Home Affairs also ‘reject[ed] the assertion that the performance framework allows taxpayer funds to be paid for work that is not done’, stating that the contract is ‘an outcomes-based Contract’ that ‘has met the operational objectives it was put in place to achieve’. Home Affairs further asserted that ‘[t]he majority of concerns raised by ANAO in the report are historical in nature, and have largely been addressed since 2017 through significant improvements in contract management’.
5.54In a supplementary submission, the ANAO disputed this advice, stating that:
The contract is not an ‘outcomes’ based contract. The contract specifies a certain number of aircraft and equipment, and number of aircrew to be provided to meet a specific annual planned rate effort. The contract includes a service level agreement with a requirement that the ‘service provider shall deliver the Annual Planned Rate of Effort’ (paragraph 4.6 [of the audit report]). As described above, the contracted annual [rate of effort] was not achieved in any year of the contract examined by the ANAO.
5.55The ANAO made two recommendations relevant to the contract performance framework in developing and managing the next surveillance services contract:
- where it sets requirements for the provision of aircrew, for Home Affairs to adopt an approach which links the contractual requirements to the performance measurement system.
- leveraging off the approach taken by AMSA for its search and rescue contract, for Home Affairs to develop and use appropriate systems and processes that links data on operational activities with contractual performance requirements, including opportunities to apply technology solutions to increase automation thereby increasing transparency and reducing reliance on external processes.
- Home Affairs agreed to both recommendations, and confirmed that it was engaging with ‘partner civil maritime security agencies including the Department of Defence and AMSA, as well as Central Agencies’ in its procurement planning for the next contract.
Assurance over contractor performance
5.57Under the terms of the contract, Home Affairs employs Maritime Aviation Specialist Officers (MASSOs) ‘to provide a level of assurance over the operational competency of Surveillance Australia’. According to the audit report, the MASSOs have three key roles:
- monitor and report on Surveillance Australia’s operational performance and compliance with the contractual service delivery requirements of all activities associated with missions, including pre-mission, in-mission and post-mission activities
- contribute to, and report on the development, delivery and assessment of operational surveillance training by Surveillance Australia, and
- work with Surveillance Australia to improve the overall operational effectiveness and efficiency of surveillance operations.
- The audit report noted that MASSOs have an internal target to undertake monitoring activities of at least 15 per cent of all missions flown across the four bases. According to ANAO’s analysis of Home Affairs’ records, only an average of 10.6 per cent of missions were monitored by MASSOs in 2014–15. This decreased over the years to 2.3 per cent in 2020–21, 1.9 per cent of which were from missions based in Darwin, 0.3 per cent from Cairns and 0.1 per cent from Broome. There was also a corresponding decrease in the total number of MASSOs employed by Home Affairs, from six in 2014–15 to just one in 2020–21.
- The audit report observed that an internal consultants’ report from January 2018 had commented that the degree of assurance provided by the one MASSO in employment ‘must surely be considered unacceptable’ to the Australian Government. The audit report concluded that ‘[a]ppropriate arrangements are not in place to provide assurance over contractor performance in undertaking missions’ and recommended that the department implement stronger assurance arrangements for monitoring of mission performance.
- Home Affairs agreed to the recommendation. In its submission to the inquiry, Home Affairs stated that an additional MASSO was engaged in late August 2021 ‘to monitor and report on the service provider’s mission performance, and to conduct operational assessments on-board aircraft.’ In a supplementary submission, the department elaborated that the engagement of the additional MASSO has ‘increased mission monitoring onboard the aircraft from an average of 2.14% in FY2020/2021 to 3.64% in FY2021/2022’, noting that the monitoring levels were impacted by COVID-19 travel restrictions. The department denied that it had ‘an agreed internal target of 15% for MASSO mission monitoring under this Contract’.
- Home Affairs further noted that:
The service provider’s operational performance is monitored through a range of measures including monthly performance reporting, strong governance arrangements, and 24/7 engagement and monitoring of all missions undertaken by the ABF.
Record keeping
Record keeping and data quality issues
5.62The audit report commented that analysis of Home Affairs’ performance against the audit criteria was ‘made difficult by the state of the department’s records of its management of the contract’. Key shortfalls in Home Affairs’ record keeping practices observed by the ANAO include:
- lack of adequate records of the original procurement, including the approval of the decision to enter into the contract
- inability to locate spending proposals and approvals for all variations that increased the cost of the contract
- no evidence of the original breakdown of the budgeted expenses for each category of the service charge at the time the spending proposal for the contract was approved
- incomplete invoice records, with $17 million of expenditure that could not be supported by invoices, 43 per cent of invoices analysed by the ANAO totalling $452 million not having evidence of delegate approval, and $121 million of expenditure misattributed to the current Surveillance Australia contract when it actually related to the previous contract during the transition-in period from March 2006 to December 2007, and
- insufficient records regarding the provision of surveillance assets, including not retaining acceptance certificates for all aircrafts and significant gaps in data on aircrew numbers.
- The ANAO also made a number of findings in relation to the quality of mission data collected by the department. From January 2008 to June 2011, Home Affairs used the Coastwatch Command and Support System (CWCSS) to record mission data. In July 2011, Geospatial Data Mart (GDM) Reporting and Operations Command (GROC) was implemented. GROC remains the primary system used by Maritime Border Command to monitor and manage surveillance mission data passed through from the surveillance assets. Accuracy of mission data recorded in GROC is important, as the system is used to generate a report with performance scores for each mission, which are then used to calculate the OCP score every month.
- The ANAO identified the following concerns with the base data recorded in GROC:
- instances of mismatches between flying hours invoiced and flying hours recorded in base data
- instances of mismatches of the quantum of missions and missions scores between the OCP calculation and base data
- mission records that are incorrect, haven’t been updated, or are incomplete, and
- inconsistent processes in place through the use of free text to input important context for mission data.
- The ANAO noted that Home Affairs has not performed quality assurance checks over the base data contained in GROC since it was implemented in July 2011. Home Affairs corrected the base data records throughout the audit as issues were raised by the ANAO.
- In its submission and supplementary submission, Home Affairs informed the Committee that it has since implemented quality assurance of mission and performance data in GROC, and that manual changes to performance scores ‘are now clearly documented in GROC, and reviewed against Contract requirements as part of the monthly performance reporting assurance processes’.
Leadership and culture
5.67An organisation’s leadership has a significant role in shaping its culture, including procurement culture. In his mid-term report published in October 2020, the Auditor‑General commented that ‘[a] culture of integrity in an organisation flows from the standards set by its leaders’ and noted that:
… culture is a driver of the proper use of public resources. Compliance with minimum standards is essential, but internal culture drives entity behaviours and affects whether their approach to compliance results in actions consistent with the intended outcomes of a framework.
5.68Poor procurement culture can also result in issues such as high turnover, affecting continuity of contract management, and lack of appropriate training and support provided for staff. In the audit report, the ANAO observed that the surveillance services contract had been managed by 19 different staff up until August 2020. Of these:
- six had experience managing large-scale contracts and/or have held formal contract management training and/or qualifications
- none were involved in the development of the original request for tender or contract negotiation process.
- The audit report noted that there has been improvement in staffing arrangements since 2021, with the branch responsible for the management of the contract now comprising a team of five staff, all of whom hold formal qualifications in government procurement and contracting. This team is supported by those responsible for managing the operational aspects of the contract, including service provider and asset performance.
- At the 14 December 2022 hearing, Home Affairs stated that the current contract manager had been in the role for three years, and ‘had over 20 years’ experience in [High Risk High Value] contract management’. The department further elaborated on the work it had been doing to develop its capability in procurement and contract management:
We’ve been rolling out courses for people to do, communities of practice and clinics that people can attend. We’re trying lots of different avenues to identify the people in the organisation who have those responsibilities, sometimes as part of their main job, and there’s mandatory training for people who are identified within those roles. We also look back on some of the processes and do some assurance to see what we can learn internally. There is a lot of work happening internally within the department to actually improve the way that we do not only procurement but also contract management.
5.71The department recognised that cultural change will be a long process and acknowledged the challenge ahead. In a supplementary submission, Home Affairs also commented more broadly on the department’s broader initiatives to improve its annual staff census results, address behavioural issues, and embed an inclusive culture.
Committee comment
5.72Home Affairs is an important portfolio with significant responsibilities relating to immigration and citizenship, border protection, and national security. The department is also one of the largest procurers in the Australian Government, ranking fifth by number and second by value of all parent contracts reported on AusTender from 2012–13 to 2021–22.
5.73It 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. This is on the back of similarly critical audit reports on other significant procurements, such as contracts for the delivery of garrison support and welfare services in offshore processing centres at Nauru and Papua New Guinea.
5.74Yet, despite the serious deficiencies in the contract identified by the ANAO, the department decided to further extend the surveillance services contract out to December 2027 at an additional cost of $991.3 million. This brings the total contract value to $2.6 billion, and it will have been 21 years since the contract was competitively tendered by the time it expires.
5.75The Committee does not find persuasive the Home Affairs Secretary’s explanation that the lack of an integrated investment plan for the department was one of the key reasons that the contract was extended and not re-tendered. As explored in subsequent public hearings, the contract is for the provision of surveillance services. The contractor owns the surveillance assets, and there is no capital investment required by the Commonwealth that would have necessitated an ongoing capital funding to re-tender. Following his offer to do so, the Committee invited the department to make a supplementary submission explaining its views on the department’s funding model and its relevance to the surveillance services contract in more detail. However, this has not been provided. Committee members were genuinely interested to understand the issue and open to making recommendations that an integrated investment capital budget should be provided however were unable to consider this without further evidence.
5.76The Committee also notes that the delay in retendering this contract is not simply a matter of value for money or probity or compliance with the CPRs. As a result of the decade long delay Australia is lumbered with sub-optimal out of date technology, rather than having the world’s best surveillance working in crewed, uncrewed systems and satellite technology that other nations already have.
5.77Further, the Committee is unable to understand why the department has not sought amendments to the terms and conditions of the contract to remediate the issues identified in the audit before approving the latest six-year extension. In particular, the Committee believes that the flawed performance framework that allows full payment to be made regardless of whether all assets and services were provided if the contractor meets a certain threshold of mission performance should have been amended. The audit finding that mission performance scores could be adjusted and ‘up scored’ on various pretexts is very concerning, and the fact that the ANAO found 47 per cent of Dash–8 missions were adjusted in such a way weakens the department’s assurance that the contractor had met the minimum performance threshold for the majority of months over the term of the contract.
5.78It is not clear to the Committee what the department meant by the contract being an ‘outcomes-based contract’. The contract includes a clear service-level agreement with the requirement that the service provider shall deliver the annual planned rate of effort, which the audit found were not met in any year. Moreover, the findings of the audit report, as well as evidence received during the inquiry, indicated that Home Affairs was tailoring its mission tasking according to the limits of the contractor’s capability, rather than operational needs or outcomes it was seeking to achieve. The Committee again notes that it invited the department to elaborate on what it meant by an ‘outcomes-based contract’, and this has not been provided.
5.79The Committee agrees with the ANAO’s conclusion that poor contract management has led to the department not receiving the quantum of surveillance assets and services that it was paying for. This relates not only to the full complement of qualified aircrews, which the audit report found has never been provided, but also the fact that the department had agreed to pay additional costs for long-range fuel tank capability that was never realised, and had obtained additional budget funding for increased night time surveillance that is underutilised.
5.80Although the department had indicated that certain services, such as longer range flights and late night flights, were not being requested because of lack of operational needs, the Committee finds that it is not acceptable for the department to have been paying additional sums of money for capabilities it is not utilising. This once again emphasises the flaws that had been inherent in the initial contract design, which were further exacerbated via numerous variations that provided additional concessions and reduced the service provider’s liability to liquidated damages and penalties under the contractual framework.
5.81The department’s response to the findings of the audit and the Committee’s concerns were disappointing. While the Committee appreciates the department’s commitment to improving its organisational and procurement culture, its rejection of key findings from the audit, such as those in relation to the contract’s performance framework and additional payments made for services not provided, suggests that it has not fully acknowledged its shortcomings in contract management or accepted this experience as a valuable learning opportunity to improve its future performance.
5.82Home Affairs has assured the Committee that its future contract will be incorporating the recommendations and lessons learned from the audit, including any learnings shared by AMSA, with procurement planning and industry engagement already underway. In light of the above, however, the Committee believes that there would be benefit in greater oversight of the department’s procurement and contract management processes until the new contract is in place.
5.83The Committee notes the evidence including from Audit and Risk Committee Chairs that the primary determinant of organisational culture is the behaviour of and tone set by leaders including officials and ministers. The Committee is concerned that the Department of Home Affairs has consistently been found in annual APSC surveys to have the worst culture of any large Commonwealth Department. This cannot be brushed aside by grandiose critiques of the survey methodology or by claims that it is because staff want to be paid more (which no doubt they do). While the Committee acknowledges the impact that concerns about wages no doubt have on morale alongside the impact of serial under-resourcing and structural underfunding of Home Affairs since its creation, the leadership of Home Affairs needs to accept its share of responsibility.
5.84The Committee also notes that how senior officials present to Parliamentary Committees and respond (or fail to respond) to legitimate questions on notice is not just a matter of courtesy or even the accountability of officials to the Parliament – it goes directly to integrity in the public sector and, along with the tone set by ministers in administering their agencies, sends cultural signals to a department’s officers. This is especially the case with the JCPAA given the Committee’s significant statutory responsibilities and powers in relation to audit, public finances and public administration, exercised on behalf of the Parliament.
5.85The Committee recommends that the Department of Home Affairs report back to the Committee, commencing in September 2023 and then six monthly until the current contract expires, on its progress in tendering and procuring a new surveillance services contract, given that it will have been 21 years since the contract was competitively procured if it runs to its current expiry date.
5.86The Committee recommends that the Australian National Audit Office undertake a performance audit of the Department of Home Affairs’ transition to the new surveillance services contract when the current contract expires.