CHAPTER 3
Key Issues
3.1
This chapter summarises key issues that were raised during the course of
the inquiry including the proposed tendering process and its design, as well as
the impact of the process on clients and employees of service providers. A
detailed description of the Framework appears in Chapter 4.
Competitive tendering for Disability Employment Services
3.2
The purpose of conducting a competitive tender process is to provide
clients with access to the best possible providers and maximise opportunity to
achieve value for money. The Department put to the committee that:
The government's view is that a competitive tender for the
business of one-, two- and three-star DES providers, and the retention of four-
and five-star providers is the best way to achieve this.[1]
3.3
A purchasing process would provide the Department with an opportunity to
address known service shortages and ensure the correct balance of providers is
in place. The absence of purchasing processes in this program has meant that
the Department has not been able to fill obvious gaps in the market not
currently serviced by existing providers.[2]
For example, there is no specialist service for people with moderate
intellectual disabilities in Melbourne.[3]
The committee learnt that there is only one specialist service targeting people
with a moderate intellectual disability in Australia.[4]
3.4
The Australian Government commenced a consultation process in
December 2010 regarding the purchasing of DES-ESS. The Department informed
the committee in its written submission that:
The feedback from stakeholders on DES-ESS purchasing
arrangements was varied, ranging from those who supported a full immediate
tender of the services to those who advocated contract extensions for all
providers regardless of performance.[5]
3.5
The committee similarly received a full range of views on the matter of
purchasing via an open tendering process. Most submissions recognised a general
need for a process that ensured poor performers were removed from the market,
and that innovative providers were afforded access to it. In its
submission, National Employment Services Association (NESA) – the peak body for
Australian Employment Services – summarised the diversity of opinion in the
sector:
In relation to Disability Employment Services – Employment
Support Services a consensus position in relation to purchasing is not evident.
Many consider that an appropriate balance has been struck between stability of
service and reward for high performance in the proposed arrangements. Others
consider the benchmark for high performance at four or five Star Rating is too
high with some expressing the view it should not be subject to any form of
competition and all providers should be awarded an extension. There are also
many who consider that given the program has not been subject to competitive
arrangements 100% of the market should be put to tender to ensure the strongest
network of providers are in place for service users. This diversity of views is
evidence across providers including those who are existing providers of ESS as
well as those with expertise to offer and a desire to enter the market.[6]
3.6
The majority of stakeholders recognised that at some point the DES-ESS
program would likely undergo a purchasing process consistent with many other
Australian Government programs. As it was put by Jobs Australia's
Mr David Thompson: 'at some juncture in the administration of this
program, it needs to be opened up to some form of competition.'[7]
3.7
Although open tendering has become standard Australian Government
practice in recent years, it is not without its critics. Disability Employment
Australia's Chief Executive Officer Ms Lynette May questioned whether the
proposed purchasing model is compatible with the objectives of DES:
The disability employment service is not simply a labour market
program to reduce government spending on income support. The expertise,
knowledge and relationship which have been built over 25 years or so will be
ignored, displaced and lost just because there is a policy which says that open
tendering is a procurement method that is favoured by the department which is
currently...administering this program.[8]
3.8
It was put to the committee that competitive tendering can create unproductive
competition between service providers and stifle dissemination of innovative
practices. At a more fundamental level, competition for performance ratings can
result in a reluctance to provide services to those most in need of them.
National Disability Services' (NDS) Mr Craig Harrison explained:
When you have a performance measurement system that is
influencing procurement – and this is not a criticism of providers – and this
is hardly surprising that providers will be making business case decisions
about who they work with from the point of view of the scoreboard.[9]
3.9
The Heidelberg Training and Resource Centre's Mr George Giuliani argued
that the competitive system has stifled collaboration and cooperation. As Mr
Giuliani elaborated: '[W]hen you sit at a table and you know that the person
next to you will be tendering against you, it is very hard to share your best
practice.'[10]
In a similar vein, Mr Paul Cain, representing the Australian Federation of
Disability Organisations (AFDO), argued that:
We should be saying: 'Here is a demonstration of excellence.
How can we make that flourish across other labour market regions? How can we
ask that particular excellence to trade in other labour market
regions?'...[C]learly [competitive tendering] does have an impact on many in
terms of closing up shop: 'I'm a competitor. I don't want to share my
innovation, my ideas,' et cetera.[11]
3.10
A number of submissions questioned whether competitive tender was the
best means of improving performance in the specific context of DES-ESS. In its
2010 report, Contribution of the Not-for-Profit Sector, the Productivity
Commission found that:
Purchase of service contracting is most applicable to the
delivery of relatively standardised services for which there is a widespread
need in the community...Conversely, it can be harder for this model to support
enhanced client choice.[12]
3.11
The committee heard that the use of competitive tendering was not the
only mechanism available to the Australian Government to meet their objectives
of introducing competitive efficiencies. It was suggested that a licensing
model, combined with a vigorous performance system, could also be a way to
improve fluidity of providers in the market while maintaining quality controls.
National Disability Services' Mr Craig Harrison explained the potential of a
licensing model:
[T]he construct of licensing under a quality system is not
foreign to the purchasing of various services across this nation. We purchase
aged care services in that way; we establish appropriate quality standards, we
audit them and we make sure that those providers are doing what they should be
doing. They attract customers to their business through a transparent quality
and performance system.[13]
3.12
A licensing model would allow providers to establish services in areas
with unmet demand, especially in the case of specialist service providers. For
example, the committee was informed that family and advocacy groups in
Melbourne and Brisbane have wanted to have access to a specialist moderate
intellectual disability service similar to a successful service in Sydney.[14]
3.13
Another option presented to the committee was a fee-for-service model
could be used in combination with competitive tendering to ensure that areas
that fail to attract bids in the tender process are adequately serviced.[15]
3.14
There were also queries raised regarding the efficacy of the proposed
tender process to return the best mix of providers. A number of submitters
expressed concern that successful applicants would not necessarily be those
best placed to provide services, but those who had the best tender-writing
capacity.[16]
It was argued that the Department has no way of ensuring in advance that
delivery by new providers will be better than under the current providers based
solely on what is included in a tender.[17]
3.15
The Department informed the committee that it was aware of these concerns
and is actively exploring options to ensure that providers are publicly
accountable for delivering services to the promised standard.[18] In an attempt to allay
concerns regarding contracts only being awarded to the best tender writers, the
Department informed the committee that the assessment of tenders was a thorough
process that includes consideration of everything that the Department knows
about a provider, not just the paper tender document.[19]
3.16
The Department was not alone in arguing that tender processes are a
purchasing method that has enjoyed success in the past. Speaking in defence of
tendering as an effective procurement method Advanced Personnel Management – a
national employment service provider who intends to tender for business in the
upcoming round – posited that: 'Tendering processes provide the level playing
field that will guarantee the best current mix of providers to enable job
seeker success.'[20]
Committee view
3.17
The committee recognises the importance of ensuring high quality
services are available to clients and value for money for taxpayers, but also
that tender processes can be disruptive to both clients and service providers.
The engagement of specialist writers by a potential provider to prepare its
tender does not necessarily relate to that provider's ability to deliver high
quality outcomes if their tender is accepted. Accordingly, the committee considers
that solid past performance should be included in the assessment of tenders in
any tendering process.
Recommendation 1
3.18 The committee recommends that the Department consider exploring
alternative purchasing models for DES-ESS, especially in relation to the
purchasing of specialist provider services.
Timing of the tender process
3.19
There is seemingly some frustration within the industry that the
Department's decision regarding the method and timing of the tender and the way
it was delivered to the industry as a fait accompli.[21] Although stakeholders
were generally supportive of the Department's efforts at consultation, it appears
that no serious consultation was undertaken around the overall design of the
purchasing framework. It was pointed out to the committee that if there is no
discussion around different purchasing models now, the debate will be adjourned
for three or more years.[22]
3.20
The committee heard that the DES-ESS program has not been running long
enough to allow existing providers to bed down their delivery models, and that
a tender now would serve to undermine their good work for no guaranteed
advantage. One service provider warned that:
We have only been in this new model for 18 months or so. That
work has only just started. The outcome numbers from my organisation are only
just starting to reach a reasonable standard and we are being assessed for the
next period's contract. We have not had enough time to even get that model
bedded in, let alone get the outcomes that are needed.[23]
3.21
This issue is explored further in the following section dealing with the
length of contracts.
3.22
A corollary position was put to the committee that there is insufficient
data available to properly judge the relative performance of DES-ESS compared
to the programs that it replaced.[24]
Although 26-week employment outcomes are currently at 16 per cent for DES
compared to 20 per cent for DEN and VRS, National Disability Services argued
that the performance was trending upwards.[25]
During the consultation process leading up to the Australian Government's
announcement that it intended to launch a tender process for DES-ESS, concerns
were raised with the Department regarding the limited quantity of performance
data available on service providers. To address this, the Australian Government
extended DES-ESS contracts by eight months ensuring that two years of data
would be available before the commencement of the formal purchasing process.
The Department claims that this will ensure that the purchasing process is
'statistically robust'.[26]
Many organisations also argued that their individual programs were only
beginning to achieve recordable outcomes.
3.23
The other principal argument put forward regarding the timing of the
tender process was in relation to changes to the Disability Support Pension
(DSP). During the 2011–12 Budget the Australian Government announced changes to
the DSP, specifically the introduction of new participation requirements for
certain DSP recipients with some capacity to work.[27] The Department does not
anticipate that the increased volume will cause any significant disruption. As
the Department reported:
We do not envisage huge pressure on providers. It is a
demand-driven program. The providers do not appear to be concerned; in fact,
they have been wanting to be able to access more clients. So we think they are
very well placed to handle the changes.[28]
3.24
The committee considers that a tender process on the timeline indicated
by the Australian Government would be premature. Notwithstanding the Australian
Government's decision to delay tendering for a further eight months to
facilitate the collection of two-years' data, it appears that there is a positive
trend in the performance data. The committee considers that it would be
advisable to further observe the performance of DES-ESS in order to see if performance
will continue to improve.
Recommendation 2
3.25 The committee recommends that any purchasing process for DES-ESS,
including competitive tendering, be delayed by a further 12 months to avoid
unnecessarily disrupting service provision during a time of improving
performance.
Length of contracts
3.26
The committee heard a diversity of views regarding the optimal duration
of the DES-ESS contract. The proposed tender process would extend over a term
of three years.
3.27
A large number of submissions called for contracts to be for a period
not less than five years. The Department has informed the committee that most
employment service contracts are for an initial period of three years with an
option to extend, and that in most contracts this option to extend has been
exercised.[29]
3.28
It was put to the committee that three year contracts are too short
because of the long lead-in times for outcomes, the impact on staff morale of
constant tendering processes, and the time it takes to establish relationships
within the community. A number of submissions pointed out that three years is
insufficient to establish and refine programs that will place large numbers of
disabled job seekers into work.[30]
As explained by NESA's Ms Sally Sinclair:
Essentially, three years is too short. You spend a good six
months managing that transition and then tweaking things, getting everything
right, in that first year. You spend the next year going hell for leather and
then you spend the final year preparing for the next purchasing arrangements.[31]
3.29
Anglicare Tasmania argued that:
[A] three year funding cycle does not enhance the capacity
for DES to provide stable and secure workplaces, or high quality outcomes for
job seekers. From our perspective, five year contracts are more likely to meet
these aims.[32]
3.30
The committee received many examples of programs that fostered
relationships between schools, employers and other community organisations and
were effective in placing people with disabilities into employment. Most of
these programs required significant up-front investments of time and resources
before a service provider would be able to claim any 'outcomes' under the
Framework.[33]
The committee was also informed that it takes time for word to filter through
to members of disabled communities about which providers obtain the best
outcomes.[34]
3.31
Along with the extensive support for longer contracts was wide recognition
that longer contracts would require stronger performance management mechanisms
than in a three-year cycle which would provide a more regular opportunity to
identify poor performers.
3.32
However, Advanced Personnel Management's Mr Vivian Gugger argued that
five-year contracts should not be used in the first tender of DES-ESS services,
while leaving the door open for longer-term contracts to be used in the future:
We do not support five-year contracts in the first instance
with ESS...There is a place for five-year contracts, particularly in DMS and
[Job Services Australia], but I think ESS would be too immature in the
procurement process to go to five-year contracts straightaway. I would be
concerned about that. We have to make sure that ESS is successful. I am not
sure that is the first step. It may be the second but not the first.[35]
3.33
It was also put to the committee that the sector should be informed at
the time of tendering what the conditions for contract extensions will be at
their conclusion.[36]
For example, will only four and five-star service providers be offered
extensions, or will three-star providers also receive contract extensions?
Committee view
3.34
The committee is not convinced that three-year contracts offer any
benefit through either improved service quality or fiscal efficiencies. The
committee considers that a five-year contract with quality control mechanisms
to remove poor performers would balance the dual imperatives of minimising
disruption and fostering competition.
Recommendation 3
3.35 The committee recommends that the contract duration be extended from
three- to five-years. The contract should include a mid-point review to ensure
that consistent poor performance is identified and addressed.
Cost to providers
3.36
Many submissions argued that the cost of tendering all one-, two- and
three-star providers would offset potential benefits.
3.37
The committee was informed that: 'Industry considers that the
development of high quality tenders is resource intensive and can interfere
with frontline service delivery to clients.'[37]
The committee received various cost estimates from individual providers:
- Key Employment Association claims that the tender round will cost
the organisation $80 000 in consultants and internal resources;[38]
- EDGE Employment Solutions placed their estimate at $50 000 in
order to prepare for tender;[39]
and
- NDS and Good Samaritan Industries both suggested that they will
be required to commit around $100 000.[40]
3.38
There was some evidence to suggest that the tendering process will be
more disruptive and difficult for small providers,[41] and may result in them
leaving the sector altogether.[42]
Jobs Australia summarised:
There is no getting away from the fact that [tenders] are a
distraction, that they involve a significant investment of resources and they
put a considerable stress on organisation and the people in them.
3.39
Jobs Australia went on to conclude:
But there is no getting away from the fact – and the evidence
is there – that in the medium to longer term the taxpayers and the citizens to
whom the services are directed are getting better outcomes and better outcomes
and better outcomes as a consequence.[43]
3.40
The committee notes that the Australian Government has decided to
undertake a competitive tendering process. As a consequence, service providers
will be required to commit significant human and financial resources towards
the purchasing process. The committee also heard that the impacts of the tender
would not be distributed equally. For example, in Western Australia 95 per cent
of service providers are three-star or below and would be required to submit
tenders.[44]
Decision to extend contracts only to 4- and 5-Star providers
3.41
Most submissions recognised the need for a competitive process of some
kind to reward high performance and remove consistently poor performers from
the market. The most contentious element of the proposed tender process, based
on submissions received by the committee, is the decision to tender one-, two- and
three-star providers. The decision to only offer contract extensions to four
and five-star providers means that around 80 per cent of service providers will
be required to submit tenders.[45]
In some Employment Service Areas up to one hundred per cent of providers may be
required to submit tenders.[46]
3.42
The Department argues that the decision to tender one-, two- and
three-star service providers will:
...provide opportunities for current high performing
providers to expand their business and new organisations to enter the market.
The decision of the Government to roll over 4 and 5 star providers and tender
the remaining business will reward the highest performance while sending a
strong message to industry that poor performance will not be tolerated.[47]
3.43
Although it was well known in the industry that a competitive tender
process would likely feature in the next contract period, it was unknown how
extensive the tender process would be. The prime concern of many in the sector
is not the decision to tender, but rather its scale. National Disability Services
(NDS) argues:
[O]ur view is certainly not that the Employment Support
Service program is perfect. There are things that need to be changed and there
are things that need to be fixed, but a tender process of this extensiveness is
not the way to do it.[48]
3.44
One of the key arguments was that only one- and two-star providers
should be required to submit tenders as three-star providers had been under the
impression that they were performing to an acceptable standard. NDS's Chief
Executive Officer Dr Ken Baker explained where the impression may have come
from:
We do not agree that three-star providers of employment
support services are poor performers. Until the 2011 budget we thought the
government had a similar view. Last year the department funded National Disability
Services and other peak associations to provide capacity building to employment
support services. Eligibility for that program of assistance, however, was
restricted to one- and two-star providers. The sector read this as a clear
message from the department that poor performers meant one-star and two-star
providers, not three-star providers.[49]
3.45
The Department recently funded workshops open to three-star rated
providers to help them improve their performance. However, because any
improvement resulting from the workshops will take up to six months to appear
in a provider's star-rating, the workshops are too late to assist existing
providers during the proposed tender process.[50]
3.46
In a similar vein, it appears that some providers had assumed that
DES-ESS service providers with a three-star rating would be offered a contract
extension because of the recent decision to offer contract extensions to
service providers in another employment program, Job Services Australia, with a
three-star or above rating. In September 2011 the Department sent a letter
to JSA service providers explaining the reason for the Australian Government's
decision to offer deed extensions.[51]
The letter acknowledged that a large-scale tender process has the potential to
seriously disrupt service delivery, and also to create costs in excess of the
benefits derived through competitive tender.
3.47
Some queried the cost-effectiveness of requiring three-star providers to
tender when it is likely that many would be returned. If the Department anticipates
most three-star providers to be returned, the argument goes, it is inefficient
for both providers and the Department to undertake a tender process of these
services.[52]
3.48
It was also put to the committee that the proposed tender process would
not introduce a 'new' mix of providers as organisations that hold contracts for
other elements of employment services would likely be the beneficiaries.
Disability Employment Australia described this as a 'shifting of seats rather
than any meaningful change.'[53]
Following a similar thread, NDS argued that there are not enough organisations
outside of current DES-ESS providers that could potentially enter the program
justifying a tender of eighty per cent of service providers.[54]
3.49
By far the most common suggestion by way of alternative was to limit the
tender to one- and two-star rated providers. EDGE Employment Solutions put
forward a scheme in which one- and two-star rated providers would be invited to
tender and three-star and above providers would voluntarily give back market
share which could also be tendered.[55]
Good Samaritan Industries argued that it would be more appropriate to set the
star-rating cut-off at 3.5-stars.[56]
3.50
However, there was support for the competitive tendering process from
some groups; Advanced Personnel Management, who intends to tender for DES-ESS
contracts at the upcoming round, argued:
When we start getting into the three-star range and consider
that some of that score could be equated to four out of 10 at the bottom,
hitting six to seven out of 10 at the top, this is not superb performance. When
the industry are going to get back to $3 billion worth of expenditure, we have
to have a rigorous process to ensure that the best mix of providers is in
place, and I do not think that a score of 6½ out of 10 is good enough to avoid
the rigorous process.[57]
3.51
Mission Australia, who also intend to tender for DES-ESS contracts,
expressed a similar viewpoint:
We believe that the proposed tender offers a good balance of
stability and contestability. It will reward current providers who are
performing strongly with a contract extension and it will offer good
opportunities for new providers with strong experience in the successful
delivery of employment and disability related services to demonstrate their
claims to enter the market.[58]
3.52
Also supporting an extensive tender process was the Australian
Federation of Disability Organisations – a national body representing the
interests of people with disabilities – who argued that:
While AFDO does not believe tendering alone will address the
poor performance outcome of the ESS, the decision by the minister to review
contracts rated 1, 2, 3 stars is responsible and justified.[59]
Committee view
3.53
After careful consideration of the evidence available, the committee
queries the need to tender all one-, two- and three-star providers in order to
meet the Australian Governments stated objectives of testing the market,
ensuring value for money, and ensuring that there is an adequate mix of
providers. While the committee supports competitive purchasing processes –
including open tender – as a method of purchasing employment services, tendering
more than 80 per cent of service providers is unnecessarily disruptive and
costly to the Department, providers, and clients. There appears no reason why
the Australian Government's objective could not be reached by tendering a
lesser percentage of the market. For example, the Department could divide the
star-rating cohorts into an upper and a lower band, and offer contract
extensions to four- five- and upper three-star rated providers.
Recommendation 4
3.54 The committee recommends that the scale of the proposed tender be
limited to service providers below the national star-rating median.
Impact of the proposed purchasing process on clients
3.55
Any purchasing process involving services to the public is likely to be
disruptive, and this is especially the case for programs dealing with already
marginalised groups. Short-term disruption must be weighed against long-term
gain. It is important that the clients of DES-ESS providers are assisted, where
required, to move between unsuccessful and successful providers to minimise
disruption.
3.56
To this end, the National Employment Service Association called for
appropriate transitional arrangements that were properly resourced and over a
sufficient duration to ensure maximum coverage.[60]
3.57
In its submission the Department assured the committee that it had
extensive experience successfully managing transitions between employment
service contracts, and that through careful consultation any disruption will be
managed and minimised.[61]
While, the committee notes the Department's argument that any short-term
disruption will be outweighed by the long-term benefits, it considers the
development of a transition strategy by the Department to be a prudent step in
minimising the disruption that will occur.
Recommendation 5
3.58 The committee recommends that a transition strategy for clients be
released at the same time as the Exposure Draft Request for Tender to allow
interested parties to provide feedback at an early stage to the Department.
Impact of the proposed purchasing process on employees
3.59
Many submissions raised the issue of the proposed tender's impact on
employees and employers. The committee received a significant number of
submissions from employees expressing concern that the tender process increased
their feelings of insecurity, and also may lead to some leaving the sector
altogether.[62]
The committee received evidence suggesting some employees may already be
leaving because of the uncertainty of the tender process.[63]
3.60
The Department concedes that the tender may result in some staff
turnover, but notes that for the sector as a whole, there is generally long
tenure for most staff.[64]
This view is shared by NESA who informed the committee that although staff
turn-over does increase during purchasing processes, most workers easily find
work with new providers or elsewhere in the sector.[65]
3.61
It was put to the committee however, that although the staff may stay
within the sector broadly, purchasing processes can provide significant
disruption to individual providers.[66]
When staff leave one provider for another they take with them 'corporate
knowledge' regarding individual cases, links that provider has built in the
community, and administrative practices.
3.62
The committee also heard that not all services and areas are impacted
equally. Greenacres Disability Services emphasised to the committee that
regional providers already struggle to find highly skilled workers and that the
tender process threatens to exacerbate the resourcing situation.[67] Kimberly
Personnel also expressed concern that regional providers' future performance
will be disadvantaged because of the loss of staff:
The loss of trained experienced staff creates a considerable
lag in an organisation's service delivery effectiveness. This fact is greatly
exacerbated in the regional areas of Australia where it is considerably harder
to recruit and retain experienced and trained people.[68]
3.63
A number of submissions highlighted that the tender process could
disrupt employees' access to leave entitlements if they were obliged to switch
between providers.
Conclusion
3.64
The committee considers open tendering processes as an effective means
of procuring government services. However, the committee has concerns regarding
the proposed purchasing process which will have a significant impact on service
providers and clients, and will absorb resources from both the Australian
Government and service providers. Based on the evidence received by the committee,
there was insufficient consultation in relation to the design of the proposed
purchasing process including its scale and the length of contracts. It also
appears that alternative models of purchasing were not explored. Given the
progressive improvement in the performance of DES-ESS, the committee considers
it prudent to allow providers an additional year to prove their individual
methodologies.
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