CHAPTER 4
ACCOUNTABILITY
Introduction
In a much-quoted address to the national conference of the Australian Institute of
Public Administration in November 1996, the Governor-General, Sir William Deane, stated:
Incorruptibility, accountability and fairness ... are ... basic values underlying
public administration. They are in no way inconsistent with the processes of desirable
change or the search for greater efficiency.
As government services of many kinds are increasingly being provided by non-government
agencies, the challenge for governments is to translate those basic values to the new
service providers. This is not to suggest that merely because contracted service providers
may be concerned with operating to make a profit, they will automatically be corruptible,
unaccountable or unfair. Nor does the committee draw any comparisons between the relative
probability of ethical, accountable behaviour on the part of the public and private
sectors. It notes, however, that the Commonwealth public sector is governed by a published
code of ethics, the Guidelines on Official Conduct of Commonwealth Public Servants;
similar documents exist in the state public services.
Accountability has been described in simple terms as the means by which those persons
whose money is used to finance an undertaking are able to control the performance of those
who act on their behalf. [1] In discussing the issue at a
seminar jointly sponsored by the committee, the then Public Service Commissioner, Dr Peter
Shergold, outlined what he described as an 'unambiguous' line of accountability:
That line of accountability of a public servant is to the government, through the
government to the parliament, and through the parliament, to the Australian people. [2]
Dr Shergold explained that when a contractor, rather than a public servant, provided a
given service and that service failed to meet the needs of a member of the public, that
person could seek a remedy in a variety of ways, either directly with the contractor, with
the government department oversighting the contract, with the Commonwealth Ombudsman,
through parliament, through a parliamentary representative, or through the minister.
In the committee's view, this traditional view of accountability needs to be elaborated
somewhat to accommodate the rapid technological, financial and administrative changes of
the late 20th century. To retain the confidence of the people who elected them,
governments still need to maintain a trustworthy and responsive public administration.
Increasingly, substantial powers are being delegated. The practical constraints imposed by
the size and complexity of government was recognised in the mid-1970s and led to the
creation of bodies or structures to assist both parliament and ministers in their scrutiny
of administration, with the Commonwealth Ombudsman, the Administrative Appeals Tribunal,
the Freedom of Information Act joining the Auditor-General to undertake this role.
A central tenet in both the current government's - and its predecessor's -
justification for the outsourcing of certain government services is that government
accountability for those services is not lessened and may even be enhanced following their
outsourcing. Critics of outsourcing, however, argue that accountability can be seriously
compromised. Appearances notwithstanding, these views are not necessarily diametrically
opposed. Much depends on what government services, and what aspect of accountability, are
being considered and, of course, how well the outsourcing is undertaken. Despite the
proliferation of literature on outsourcing and the growing body of international and
Australian experience with it, the committee believes more still needs to be learnt on the
accountability front.
Some witnesses support the argument that the cost-saving benefits of outsourcing are
achieved in part because of a reduction in accountability and that that is the price
society must pay for a similar standard of service. For example, as Professor Mulgan told
the committee:
Contracting out inevitably involves some reduction in accountability through the
removal of direct departmental and ministerial control over the day-to-day actions of
contractors and their staff. Indeed, the removal of such control is essential to the
rationale of contracting out because the main increases in efficiency come from the
greater freedom allowed to contracting providers. Accountability is also likely to be
reduced through the reduced availability of citizen redresss under such instruments as the
Ombudsman and FOI. [3]
One company with considerable experience with government contracts was quite direct in
its assessment of the accountability implications of outsourcing:
Overlaying best practice contractual arrangements with additional provisions for
Ministerial accountability and intervention and/or detailed parliamentary scrutiny can
only increase the costs and reduce the efficiency of contracting out. [4]
Even the Commonwealth Department of Finance and Administration, whose Competitive
Tendering and Contracting Unit is responsible for much advice to other government agencies
on these matters, voiced what in the committee's view is a reduced accountability model:
Although contracted service providers must be accountable for outcomes and service
quality, care should be taken to ensure that the value of contracting out is not
reduced by duplicating public service reporting and monitoring in the private sector (emphasis
added). [5]
The Victorian Auditor-General addressed this argument head on:
The various checks and balances in the public accountability process may be costly to
administer and may, as some would argue, be a bureaucratic hindrance in the effective
management of a function such as purchasing, but they are designed to protect a
Government's reputation and the interest of the public at large. [6]
Proponents of outsourcing emphasise that, although a particular service might be
delivered by a contractor, the government agency responsible for the contract remains
accountable for the proper provision of that service. The then Department of Finance
considered that accountability in an outsourced environment could be enhanced because
performance expectations would be made explicit and value-added outcomes could be
achieved. [7] In theory, this makes eminent good sense. In
practice, it is much less clearcut. In particular, whether the relevant minister should
take responsibility for any deficiencies in the handling of a contracted-out service is a
grey area. The committee believes that, irrespective of the service delivery method
adopted, there should be no reduction in accountability.
In this chapter, the committee examines issues related to the chain of accountability,
to the question of redress for maladministration on the part of a contractor, to access to
information and to the privacy ramifications.
The accountability chain
The traditional model of accountability holds ministers responsible for the public and
parliamentary advocacy and defence of government policies and administration, while public
servants' responsibilities are to assist ministers to fulfil their accountability
obligations by providing full and accurate information to the parliament about the factual
and technical background to policies and their administration. The division between policy
and administration has never been clearcut and the introduction into the equation of the
contracting out the provision of services formerly provided by government has the
potential to blur the dividing line even further. There are a number of recent examples of
disputed responsibility when contracts or contracted services have gone quite dramatically
wrong: the Cave Creek viewing platform disaster in New Zealand; the Child Support Agency
problems and prison breakouts in the United Kingdom. Did the failings result from
defective policies, thus pinning responsibility at the minister's door, or from defective
administration, in which case the agency head needed to shoulder the blame? Or is it too
difficult to apportion precise responsibility? The British Home Secretary who declined to
answer parliamentary questions about the outbreaks from privatised prisons on the grounds
that he was not responsible for operational matters was subsequently shown to have been
personally involved in operational decisions as well as setting the policy and budgetary
framework. [8]
A MAB/MIAC report on accountability argued that ministerial responsibility did not
extend to individual liability for every action of public servants and that ministers
should not be expected to tender their resignation in the event of an administrative
failure. [9] The Australian National Audit Office supported this
generally accepted view:
any decision to contract the delivery of services or maintain the service delivery
in-house does not diminish the normally accepted level of Ministerial responsibility. That
is, the nature of the service delivery does not change Ministers' responsibility in
regard to the overall management of their portfolio and the delivery of services as part
of overall program outcomes. [10]
Professor Mulgan argues that the public is accustomed to holding elected politicians,
not non-elected managers, to account for prison disturbances or breakdowns in hospital
services – and the public wants to see heads roll for blatant maladministration. [11] When politicians absolve themselves from any part in the
failure, the public is unlikely to be aware – or to accept - that the minister
perhaps had no right to intervene in a contracted out service. And a failure to act has
the potential to damage the reputation of a government and its electoral prospects.
The committee recognises that responsibility for aspects of outsourced services may not
always be clearcut. The committee believes that portfolio agencies on behalf of the
minister should so monitor the operations of those services that all reasonable
parliamentary questions on process or outcomes can be handled. Whether ministers should
resign in situations of service failure will depend on the extent of their involvement which
should be documented, the seriousness of the failure, their own sense of propriety and
the political realities of the day.
One contentious area is the selection of the successful tenderer, although the handling
of the contract, the monitoring of outcomes and the resolution of disputes can also
present accountability problems. As noted in chapter 2, if ministers involve themselves
directly in the tender process, they should accept responsibility if that process is
subsequently shown to be flawed. A better option, in the committee's view, would be the
use probity auditors, and/or acquisition councils for contracts over a certain monetary
figure, so that the process is fully documented and responsibility for the decision is
unequivocal.
Accountability through parliament
As governments increasingly contract out or commercialise their services, there is the
potential for less information to be made available to the parliament and, through the
parliament, to the people who are paying for the services. Reporting by agencies will
continue to be a vital mechanism for public sector accountability to parliament. Current
public sector annual reporting requirements may need to be modified to ensure that
reporting of contracted out services provides sufficient information to the parliament.
This committee will monitor the effectiveness of reporting on such services in the 1997-98
annual reports and, if necessary, may report again on this aspect of its reference.
Part of the reason for the provision of less information to parliament may be that the
responsible minister and his or her portfolio agency has failed to negotiate appropriate
access to contractual operations and may, indeed, not have the answers. In part, it may be
because of legitimate commercial confidentiality issues, which are addressed in the next
chapter.And in part, it will be because of public interest immunity claims on the part of
government.
Considerable tension has always existed between executive government and the parliament
over the latter's claims of 'right to know' for accountability reasons and the former's
claims of 'executive privilege' or 'public interest immunity'. It has been suggested that:
There appears to be a consensus that the struggle between the two principles involved,
the executive's claim for confidentiality and the Parliament's right to know, must be
resolved politically. In practice this means that whether, in any particular case, a
government will release information which it would rather keep confidential depends on its
political judgment as to whether disclosure of the information will be politically more
damaging than not disclosing it, the latter course perhaps involving difficulty in the
Senate or public disapprobation. [12]
There is never likely to be complete consensus on public interest immunity matters and
it is generally recognised that, as former Chief Justice Gibbs indicated, `it is inherent
in the nature of things that government at a high level cannot function without some
degree of secrecy. No Minister, or senior public servant, could effectively discharge the
responsibilities of his office if every document prepared to to enable policies to be
formulated was liable to be made public' – but the object of such protection from
disclosure is `to ensure the proper working of government, and not to protect Ministers
and other servants of the Crown from criticism'. [13]
Chief Justice Gibbs also suggested that even where a legitimate need for secrecy
existed, it would cease in some cases after a short time had elapsed.
In the committee's view, this principle also applies with equal force to contracts.
Once a contract has been awarded, the bulk of its provisions should be in the public
domain. The few matters which might be deemed commercially confidential are discussed in
the next chapter. The need for confidentiality for even those limited aspects should not
exist at the outside beyond the life of the contract and the onus should be on the
contractor to argue for confidentiality at any level. Other jurisdictions have no problems
with publishing contracts. It is routine practice in the United States, the committee was
told. The Western Australian Public Sector Management Office in its submission to the
committee also indicated its commitment to make public sector contracts publicly
available. [14]
Government claims of public interest immunity and claims of commercial confidentiality
in relation to contracted out services are handled in a similar way, at least in the
Senate. The committee addresses the implications for accountability in the following
chapter, when it examines specific cases.
Accountability through audit
As the business of government has become increasingly complex, parliaments have turned
increasingly to independent agents, and particularly to audit offices, to assist them in
monitoring the activities of governments. In the last three years, the Australian National
Audit Office has tabled 19 audits of matters relating in whole or in substantial part to
tendering or contract monitoring and the number is increasing steadily. State and
Territory audit offices have been similarly active, with a number of reports highlighting
deficiencies in contracting processes.
In order to function effectively, auditors need access to records of contractors. Their
United States counterparts have such access to records, including those of subcontractors,
for contracts to a value of $10 000 or greater. Such access has not been provided for
under the Auditor-General Act 1997 (C'wealth). The ANAO first experienced access
difficulties in the course of its 1992 audit of amendments to the Defence contract with
the Australian Submarine Corporation. Some $500m of contract amendments were let
uncompetitively by the department to the ASC yet the ANAO was refused access to the
records of amounts paid by the ASC to its own subcontractors to check on the validity of
the prices. [15] The reasons advanced by the department for not
supporting audit access were that the contractors would not like it, it would create extra
costs for the contractors, it would involve a change in philosophy in the way that
government procurement was carried out, and it had the potential to create an adversarial
relationship with the contractor.
The committee was informed that the 4000-strong US Defense Contract Audit Agency, by
virtue of its access to such records, has maintained `quite a substantial return' from
such access. [16]
At a practical level, the ANAO currently lacks the power to access the premises of
third party providers to look at records relating to Commonwealth contracts, unless such
access is specified in the contract. It recognises that unfettered access is a highly
sensitive issue. To overcome such difficulties in the least obtrusive way, the ANAO has
expressed a preference for the use of standard contract clauses, tailored as necessary by
specific clauses to reflect the particular circumstances of each contract, as the means of
providing access to relevant third party information and records. [17]
Such an approach has the support of the Attorney-General's Department which also
considers standard clauses in contracts as the best way to ensure the maintenance of
appropriate records, ownership of material supplied by the Commonwealth or produced in the
course of providing the service, and other matters. [18] Given
the Auditor-General's broad systemic responsibility for maintaining the integrity of
government, it is vital that the ANAO not be inappropriately fettered in its access to
contractors' records.
The committee therefore recommends, as a bare minimum, that standard contract
clauses, tailored as necessary by specific clauses to reflect the particular circumstances
of each contract, be used as the means of providing audit access to relevant third party
information and records.
Accountability for the resolution of complaints and disputes
While many contracts are performed without problems occurring, others are not.
Contractual disputes may occur between the government agency and the contractor; they may
also occur between the citizen using the service and the contractor. Complaint and dispute
resolution practices are normally outlined in the broad in contracts. In practice, both
types of dispute can generate issues unthought of in tender documentation. The committee
is concerned that genuine concerns of both contractors and citizens using contracted out
government services may not be addressed as readily or as thoroughly as they would have
been, had the service been provided directly by government. This is not necessarily an
argument against contracting out, but a reminder that workable complaint and dispute
resolution avenues need to be provided in every contract.
Government agency – contractor disputes
The standard contract clauses advanced by the Commonwealth's Legal Practice establish
procedures under which disputes are firstly handled by direct negotiation between senior
persons on each side; if not resolved, they go to a mediation-type resolution or to
arbitration; in the last resort, they may go to litigation.
It is unclear to the committee how well such provisions operate. It is aware of
instances of protracted and expensive litigation over the TAAATS and coastwatch contracts,
for example, as described in chapter 2. In a contract situation in which both sides were
in genuine partnership as advocated by the Department of Finance and Administration, any
problems which arose would be settled amicably. In the event, however, that the `best of
all possible worlds' scenario failed to materialise, the committee suspects that the
government agency, and hence the taxpayer, would tend to come off second best,
particularly in major procurement exercises.
Evidence was received from Dr Seddon, a contract law specialist from the Australian
National University, suggesting that while most such contract disputes are settled without
going to litigation, the settlement generally favours the contractor. [19] The Administrative Review Council in its issues paper on the
subject also highlighted a number of potential failings of dispute resolution provisions.
Both pointed out that there may not be appropriately moderated penalties for modest
contractual failings, short of termination for breach of contract which might be too
drastic in the circumstances and which might also present problems in terms of finding a
substitute service provider. Even in routine procurement contracts, a damages claim for
late provision might not succeed if the contracting agency could not prove that it had
suffered loss as a result – and in many cases, it probably could not do so.
Liquidated damages clauses in contracts, while sometimes useful, are not always
enforceable or enforced. And, inevitably, the political penalties for an obvious contract
failure are such that the contracting agency will generally wear a certain level of
non-compliance or inefficiency on the part of the contractor rather than cause trouble.
The drafting of the contract is extremely important. If it is not drafted with
sufficient clarity to pinpoint where responsibility lies in certain situations, endless
arguments can ensue. And as the then Ombudsman pointed out, specifications for certain
government services can be difficult to word precisely. A contract to provide services to
the intellectually disabled, for example, requires detailing circumstances in which the
exercise of discretion could apply, a much more difficult exercise than, say, specifying
requirements for a garbage collection contract. It is correspondingly more difficult to
ensure fair and consistent application of provisions, and to determine whether or not
those provisions have been met.
Citizen complaints against contractors
Citizens who suffer loss or detriment at the hands of a contracted service provider
have no contractual remedy as they are not a party to the contract. Contracts which
fail to delineate service requirements precisely may lead to the possibility of
disputation about the responsibility for service failure.
Two now-famous cases illustrate the problem: the damaged letterbox; and the feral
goats. In the first case, an Australia Post contracted mail deliverer damaged a
pensioner's letterbox. He approached Australia Post about compensation and was offered a
third of the cost of the repairs, as the contractor did not want to claim on his insurance
cover as the cost of the repair was less than the excess on the policy. Australia Post
indicated it could neither compel the contractor to meet the cost of the damage nor compel
the contractor to reach a settlement with the complainant. Nor would it admit vicarious
liability. The Ombudsman was ultimately able to break the deadlock, with Australia Post
agreeing to reimburse the pensioner for the damage and seeking recovery of the cost from
the contractor. [20]
The mail delivery contract in question was apparently deficient in at least two
respects: it did not specify what might be regarded as implicit in a contract, namely that
contracted mail deliverers should exercise due care and attention in the conduct of their
work; and it did not provide a clear means of redress for individuals adversely affected
by the service. The committee understands that Australia Post has amended its contracts so
that, where necessary, it makes restitution to aggrieved customers and seeks reimbursement
from the contractor.
In the second case, the Australian Geological Survey Organisation (AGSO) contracted out
an aerial survey. It was alleged that the aircraft conducting the survey flew so low that
it terrorised a large flock of angora goats and kids, which broke through an electrical
boundary fence and were never seen again. The goats' owner wrote to AGSO, claiming
compensation. AGSO denied liability and directed her to the contractor, who also denied
liability. After an investigation by the Ombudsman, the contractor made a compensation
payment to the goats' owner but on a `no admission of liability and without prejudice'
basis. [21]
Although these cases might be regarded as relatively insignificant, they serve to
highlight a number of accountability issues associated with the contracting out of
services. Members of the public adversely affected by the way in which a service is
delivered should never be passed from contractor to contracting agency and back again in
an attempt to find redress. Contracts for services which affect members of the general
public must specify complaint or redress mechanisms and those mechanisms must be simple,
accessible, and monitored by the contracting agency.
Such cases call into question the need for the extension of administrative law remedies
to contracted out services. Responsibility for administrative decision-making in
Commonwealth government agencies was enunciated clearly from the mid-1970s, with the
passage of the Commonwealth Ombudsman Act, the Administrative Decisions (Judicial Review)
Act and the Freedom of Information Act. Variously, they provide:
- merits review of administrative decisions by the Administrative Appeals Tribunal and/or
other specialist tribunals;
- judicial review of administrative decisions to ensure the decisions are made according
to law;
- investigation of complaints about maladministration by an independent Ombudsman; and,
- the right to gain access to documents and information held by government.
The level of use of the administrative law provisions attests to their value. For
example, the number of complaints handled in 1996-97 by the Commonwealth Ombudsman's
Office was 25,876, representing a 19 per cent increase over the previous year. Of the
complaints under the Ombudsman Act investigated to an outcome, 72 per cent were
substantially or partially in favour of the complainant. [22]
This represents a considerable body of justifiably dissatisfied Commonwealth agency
'customers' and, while the Ombudsman does not have determinative powers to provide
redress, the Office can exert considerable moral suasion on agencies which have erred. The
committee recognises that there may be a certain level of dissatisfaction with the
provision of any service, given that no service gets it right the whole time.
The values the administrative law provisions were intended to achieve are, in the words
of Professor Marcia Neave, President of the Administrative Review Council:
ensuring that public administration is lawful; that people behave fairly, rationally,
openly and efficiently in their dealings with the community ... we are concerned to ensure
those values will be maintained as government services are increasingly delivered in new
ways. [23]
As a matter of principle the committee believes that, if a service previously provided
by government was subject to administrative law protection, then the same service provided
by private contractors should not be exempt. As the Attorney-General's Department stated:
members of the Australian community would expect there to be no dilution of
administrative law rights merely because the goods and services previously supplied
directly by the Commonwealth are in future supplied by the private sector under contract
with the Commonwealth. [24]
Administrative law functions both to improve the quality of primary decision-making and
to ensure the correction of errors. It appears that the administrative law provisions most
'at risk' in the case of contracted government services - and the committee is considering
particularly here citizen-oriented services previously provided by the government itself -
are access to the Ombudsman and FOI.
The Commonwealth Ombudsman's current jurisdiction is limited to coverage of
Commonwealth agencies or those deemed to be Commonwealth agencies for the purposes of the
Ombudsman Act. With rare exceptions, contractors are not so covered and hence aggrieved
service recipients would probably not have a complaint handled by the Ombudsman's Office
through want of jurisdiction. Complaints can be made to the Ombudsman about `a matter of
administration', for example how the relevant agency dealt with the contractor, but the
Ombudsman in most circumstances could not deal with a complaint about the actions of a
contractor directly.
Other legal review mechanisms could be closed off as well, because service recipients
are not parties to the service contract, which is between the government agency and the
service provider. A service recipient who suffers loss or damage as a result of the
activities of a contractor might be able to sue under tort law; that individual might also
be able to take legal action under section 82 of the Trade Practices Act if the loss or
damage resulted from misleading representations by a service provider – but such
private law remedies lack the ease and simplicity of an appeal to an ombudsman and may be
beyond the financial or other capacity of the service recipient.
If service recipients have easy access to other government-funded service providers,
the option of voting with their feet arises. In the committee's experience, this is rarely
the case, either through geographical isolation, cost differentials, or
government-designated providers. Another potential equity problem arises in situations
where both government-provided and contracted services exist, with service recipients in
the former case having appeal rights the latter lack.
Where complaint-handling mechanisms are provided in contracts, they typically include
referral to industry or professional complaint-handling bodies, if those exist. Internal
complaints scrutiny is an obvious first step, but may lack the authority of an external
and independent review mechanism. Another problem is that they are typically not available
to persons other than service recipients who are adversely affected by the activities of a
contractor.
The advent of service charters may have a positive influence in this area. All
government agencies which provide services to the public directly or indirectly through
contractors are now required to develop service charters. The charters are plain language
documents detailing the services provided, the standards of service which can be expected,
clear statements as to who is responsible if the service is not provided at the level
promised, and guidance on how to complain if something goes wrong. [25]
Charters can be expected to address, where relevant, such service quality issues as
reliability, tangibles such as the appearance of physical facilities and equipment,
responsiveness, assurance and empathy. The committee believes that service charters, where
appropriate, should contain a code of ethics, or at least address ethical issues.
The committee has examined a number of service charters, all relating to services
currently provided by government. They vary considerably in their quality and the level of
detail they provide. [26] All provide, as a last resort,
recourse to the Ombudsman, an option which may not be available in the case of a
contracted service.
The committee is required by its terms of reference to consider whether the Ombudsman's
jurisdiction should be extended to cover government services provided by contractors. The
majority of government agencies were opposed to the extension of the Ombudsman's
jurisdiction, believing that sufficient safeguards can be built into contracts to cover
all eventualities. As the then Department of Administrative Services indicated, `Including
more detailed specifications of objectives and responsibilities in contracts makes
accountability more readily identifiable, which means the intervention of an independent
arbiter should not be necessary'. [27] The then Department of
Finance pointed out that the Ombudsman had the ability to investigate actions taken by
government agencies in administering and monitoring contracts, including the adequacy of
steps taken to ensure quality of service, to resolve complaints and to protect the right
of clients. [28] It agreed with Administrative Services in
suggesting that specific provisions be included in contracts relating to client
complaints, including the allocation of responsibility for financial compensation to
clients when warranted. The then Ombudsman supported this approach as well. [29] The committee notes that the Ombudsman was able to deal with
the problems that arose over the pensioner's letterbox and the feral goats, as outlined
above.
The Department of Finance acknowledged that for some large or particularly sensitive
areas of service delivery, however, dealing with client grievances through contractual
arrangements might be considered insufficient. It advocated specific extension of the
Ombudsman's powers to accept and investigate complaints about contracted out services
directly, rather than through an investigation of the activities of the purchasing agency,
in such sensitive cases, on a case-by-case basis. As an example, Finance cited the Employment
Services Act 1994, which extended the coverage of the Ombudsman Act to include persons
contracted to provide case management services to job seekers; [30]
current reforms to employment services will extend jurisdiction to a wider range of
service providers.
The then Ombudsman criticised the ad hoc approach of extending her jurisdiction on a
case-by-case basis, on the grounds that it failed to provide general support for the
principle of preserving public sector accountability. [31] She
recommended that the Ombudsman Act be amended to include a `deeming' provision similar to
section 13(9) of the Parliamentary Commissioner Act 1974 (Qld), which states:
If administrative action of an authority or body that is not an agency is taken under
functions conferred on, or instructions given by, an agency, the action is taken, for the
purposes of this Act, to be the action of the agency.
In essence, the proposal is that where government functions are provided by the private
sector, the actions of the private sector contractor are `deemed' to be the actions of the
government agency which has delegated its functions and hence would fall within the
Ombudsman's jurisdiction.
The committee believes strongly that complaints against service providers must be dealt
with by those service providers in the first instance and `jurisdiction shopping' must be
discouraged. This will require service providers to develop adequate complaints handling
mechanisms, the details of which should be spelt out where possible in the provider's
service charter. Where service recipients fail to receive satisfaction from the service
provider, they should have the right to complain to the Ombudsman. Recourse to the
Ombudsman is a well-known and simple procedure and, as the committee found in a previous
inquiry, remarkably cost-effective. However the likely level of complaint and the cost
implications of a decision to extend the Ombudsman's jurisdiction to private sector
contractors providing services to the government is unknown. As an interim measure, the
committee recommends an extension of the Ombudsman's jurisdiction on a case-by-case basis
for sensitive areas of service delivery. It will monitor carefully the usage of the
Ombudsman's services and revisit the question at a later stage as to whether a legislative
extension of the Ombudsman's jurisdiction to cover all contracted out government services
is warranted.
Accountability through the Freedom of Information (FOI) Act
A recent review of the operations of the FOI Act [32] noted
that contracting with private sector bodies for the provision of services on behalf of the
government posed a potential threat to the government accountability and openness provided
by the FOI Act. Access to government information under the FOI Act is premised on the fact
that the government holds the information. When a service is provided by a contractor,
information relating to an individual service recipient would in all probability be held
by the contractor and not the government directly and hence would fall outside the ambit
of the FOI Act. There is no general right of access to information held by private sector
bodies.
After a thorough canvassing of the matter, the review recommended that there be no
general extension of the FOI Act regime to the private sector. A recent discussion paper
by the Administrative Review Council [33] elaborated on the
need to balance the desirability of maintaining accountability through information access
rights in a contracting situation and the interests of the contractors, who might fear
disclosure of commercially sensitive information. Access to information does not come
free, and it was recognised that any increased costs borne by contractors, were they
obliged to provide FOI rights similar to those applicable to government agencies, would be
offset by increased contract costs.
The ARC discussion paper reviewed the available options to ensure that access to
information was not lost or diminished by the contracting out of services. Five possible
means of ensuring this were outlined:
- extend the FOI Act to contractors;
- deem specific documents in the possession of the contractor to be in the possession of
the government agency;
- deem specific documents in the possession of the contractor, relating to the
contractor's performance of his contractual obligations, to be in the possession of the
government agency;
- incorporate information access rights into individual contracts; and
- establish a separate information access regime.
The ARC preferred the third of these options, despite the obvious problems of the
foresight required to pinpoint in advance the types of documents which might ultimately be
required to be disclosed and despite the potential for disagreement between Commonwealth
agency and contractor over whether a particular document could be so categorised.
Evidence was canvassed before the committee on this question, with the example of the
New Zealand Official Information Act being advanced as a means of ensuring access to
contractor-held information. The committee understands that that Act provides that
documents in possession of the contractor be deemed to be in the possession of the
government agency, so that the standard rights of access pertain.
The committee accepts that any means of providing access to even some records of
contractors would be costly, just as providing FOI access to government records is costly,
despite user charges for requests. Exactly how costly is unclear. The FOI Annual Report
prepared by the Attorney-General's Department found that in 1994-95, for example, the cost
of providing information under FOI was estimated to be $10 383 956, only 3.7 per cent of
which was recovered by way of fees and charges. [34] Certainly
contractors would seek to cover such costs in the pricing of their tenders, if FOI
provisions were extended to cover their operations.
On balance, however, the committee believes that the contribution the FOI Act has made
in enhancing scrutiny of government activity is such that it should not be weakened in an
outsourced environment. Service recipients should be able to access sufficient information
to ascertain whether contractors are acting within the terms of their contract in dealings
with them or to obtain evidence of service delivery problems. It supports the ARC third
option of an amendment to the FOI Act deeming documents in the possession of the
contractor that relate directly to the performance of the contractor's contractual
obligations to be in the possession of the government agency and hence FOIable, with the
current exemptions. As the Council pointed out, this is not a perfect solution.
Disagreement could exist as to whether a particular document related directly to the
performance of the contract. Its success depends on the contractor's adherence to his
record-keeping obligations, [35] which can be monitored by
periodic auditing.
Privacy
Governments are accountable to their citizens for the protection of information
concerning those citizens obtained, often compulsorily, by government. As the committee
noted in its first report on IT outsourcing, the contracting out of government services
has the potential to place into the hands of the private sector much sensitive private
information. With the technological advances of recent years, all contracting will rely on
electronic records generation, potentially facilitating access to information by
unauthorised persons or for unauthorised purposes.
As the Privacy Commissioner has pointed out, Australian common law recognises no
general right to privacy. Some statute law offers protection in some circumstances but the
coverage is patchy; litigation options for persons affected by privacy intrusions such as
defamation law and action for breach of duty of confidence can be slow and expensive.
Questions as to the security of personal information held by, or on behalf of governments,
right of access to it, and redress in the case of misuse, were raised before the
committee.
Commonwealth agencies are legally obliged by the Privacy Act 1988 (C'wealth) to
protect the personal information they collect; public servants are required by official
conduct guidelines to protect such information and may be charged with misconduct if they
misuse it and dismissed if the charge is proven. Unauthorised disclosure of information
can be a criminal offence, covered by the provisions of section 70 of the Crimes Act
(C'wealth) which provides for a maximum two-year term of imprisonment for the offence. The
committee has been informed that there have been very few successful prosecutions under
s.70 of the Crimes Act; it is unaware of the number of dismissals from the public service
for misuse of personal information. It cannot, therefore, form an opinion as to the
usefulness of these provisions in encouraging correct handling of personal information.
Individuals who become aware that their privacy has been breached by a Commonwealth
agency may make a complaint about the matter to the Privacy Commissioner who has the power
to investigate alleged breaches and, if warranted, make determinations regarding
compensation. And as the Privacy Commissioner has indicated, there is evidence that people
are concerned: in 1996-97 she received 499 formal written inquiries relating to possible
breaches of the Act and about 15 000 general inquiries; the Telecommunications Industry
Ombudsman received 1 350 complaints about privacy in 1995-96. [36]
Various state privacy committees also receive complaints. The level of concern may be
considerably higher than these figures indicate if one allows for the fact that people may
not be aware that their information has been mishandled or how to complain about it.
Fifty-four per cent of the complaint files opened by the Privacy Commissioner since the
inception of the Office related to disclosure of data or use of data for another purpose
than that for which it was collected. [37]
At present the private sector is covered by the Privacy Act only in relation to credit
reporting and tax file numbers; in addition, the Employment Services Act 1994
(C'wealth) extends the provisions of the Privacy Act to eligible employment service
providers of the long-term unemployed and the Hearing Services and AGHS Reform Act 1997
does the same for accredited hearing service providers. A number of voluntary
industry-centered privacy codes exists in the private sector.
After canvassing the idea of extending the provisions of the Privacy Act to the private
sector in 1996 [38] the government decided against pursuing
that course, citing as its reason the need to consider the regulatory burden on industry. [39] The need to protect privacy standards in all sectors was
recognised, however, and after extensive industry consultation the Privacy Commissioner
issued a consultation paper addressing options for a self-regulatory national scheme for
fair information practices in the private sector, one which would be compatible with
existing Commonwealth privacy laws and with any further legislation considered necessary.
Final principles were published in February 1998. [40]
A particular concern relating to security of information was the prospect that, with
the contracting out of information technology services, data processing might occur
offshore in countries which might not have the same respect for privacy as does Australia.
This concern was recognised by the government; the then Chief Government Information
Officer informed the committee that no offshore processing of information would be allowed
under outsourced IT contracts. [41]
The necessity for appropriate information privacy protection has been reinforced by
directive 95/46 of the European Parliament on the protection of individuals with regard to
the processing of personal data and on the free movement of that data. National laws
implementing the directive are to be in place by October 1998, after which date data
should not be transferred to a non-EU country which fails to ensure an adequate level of
data protection. [42] It is unclear whether Australia currently
qualifies. Mr Boucher, representing the Attorney-General's Department, told the committee
that an EU member country could authorise transfers of personal information where, for
example, there were appropriate contractual clauses in place, whether or not the overall
level of data protection existed. [43]
The Office of Government Information Technology informed the committee that the
government had agreed to amend the Privacy Act 1988 so that it applied to
'contractors supplying services to government in relation to personal information held by
them on behalf of the Government'. [44] The Privacy Amendment
Bill 1998 is currently before the Parliament and, if enacted, should reduce the concerns
expressed above. It is intended to extend the provisions of the Privacy Act to personal
information held by contractors and sub-contractors in relation to services provided both
to the Commonwealth and to private individuals. Subject to a few current FOI exemptions,
individuals will be able to access personal information records held by contractors and
will be able to complain to the Privacy Commissioner if they believe their personal
information has been misused. The Privacy Commissioner will be able to investigate such
complaints, conciliate to reach a settlement or, if a settlement cannot be reached, make a
determination which may include the payment of compensation for damages resulting from the
privacy breach.
If enacted, this legislation should resolve the question as to whether contractual
clauses which aimed to protect personal data privacy are in fact enforceable.
In evidence to the committee, the Privacy Commissioner indicated that she would expect
to see a similar range of breaches and complaints about contractors as she sees at present
concerning government agencies. She noted, however, that most contractors were unlikely to
have a conscious `privacy' culture and `until there is sufficient training of staff
employed by the contractors, there may be some additional problems in relation to browsing
and use of data for an unrelated purpose'. [45] The committee
believes that the Privacy Commissioner must be adequately resourced to handle her
educative role for contracted service providers, as well as potentially more audits and
complaint investigations.
Conclusion
The committee supports the Australian Law Reform Commission in its call for stressing
the crucial importance in establishing and entrenching amongst contractors the same
culture of accountability as exists in the Commonwealth public sector and for reinforcing
in the public sector that outsourcing should not involve any lowering of the existing
levels of public scrutiny and parliamentary accountability of publicly funded enterprises.
[46]
Footnotes
[1] Industry Commission, Competitive Tendering and
Contracting by Public Sector Agencies, Report No. 48, AGPS, Melbourne, 1996, p. 82.
[2] Senate Finance and Public Administration References
Committee, Proceedings of a Round Table Discussion held on 7 February 1997 to consider
the paper: Towards a Best Practice Australian Public Service, Canberra, 1997, p. 20.
[3] Submissions, vol. 3, p. 598.
[4] TNT, in Submissions, vol. 2, p. 307.
[5] Submissions, vol. 2, p. 410.
[6] Victorian Auditor-General, Purchasing Practices,
Special Report no. 31, 1994.
[7] Submissions, vol. 2, p. 406.
[8] Submissions, vol. 2, p. 250.
[9] MAB/MIAC, Accountability in the Commonwealth Public
Sector, 1993.
[10] Submissions, vol.2, p. 295.
[11] Submissions, vol.3, p. 610.
[12] Odgers' Australian Senate Practice, 7th ed.,
Canberra, AGPS, 1995, p. 481.
[13] ibid., pp. 482-3.
[14] Submissions, vol. 1, p. 52.
[15] Evidence, 3 April 1997, p. 67.
[16] ibid.
[17] Evidence, 4 July 1997, p. 591.
[18] Submissions, vol. 2, p. 372.
[19] Submissions, vol. 3, p. 557.
[20] Submissions, vol. 1, pp. 172-3.
[21] ibid., pp. 173-4.
[22] Commonwealth Ombudsman, Annual Report 1996-97, Canberra,
1997, pp. 83-90.
[23] Evidence, 16 May 1997, p. 235.
[24] Submissions, vol. 2, p. 374.
[25] Office of Small Business and Consumer Affairs,
Department of Industry, Science and Tourism, in Submissions, vol. 2, pp. 425-6.
[26] In particular, the committee singled out for praise the
Child Support Agency's Help us to get it right:How to complain.
[27] Submissions, vol. 2, p. 395.
[28] Submissions, vol. 2, p. 414.
[29] Submissions, vol. 1, p. 175.
[30] Submissions, vol. 2, pp. 414-5.
[31] Submissions, vol. 1, p. 193.
[32] Australian Law Reform Commission & Administrative
Review Council, Open government:a review of the federal Freedom of Information Act
1982, 1995.
[33] Administrative Review Council, The Contracting Out of
Government Services: access to information, December 1997.
[34] FOI Annual Report 1994-95, AGPS, Canberra, 1995, p. 16.
[35] Administrative Review Council, The Contracting Out of
Government Services: Access to Information, 1997, pp. 15-16.
[36] Privacy Commissioner, A National Scheme for Fair
Information Practices in the Private Sector, August 1997, Part 1, p. 2.
[37] Submissions, vol. 3, p. 583.
[38] Attorney-General's Department, Discussion Paper
-Privacy Protection in the Private Sector, September 1996.
[39] Senate Hansard, 24 March 1997, p. 2232.
[40] Office of the Privacy Commissioner, National
Principles for the Fair Handling of Personal Information, 1998.
[41] Evidence, 4 July 1997, p. F&PA 497.
[42] See Privacy Commissioner, A National Scheme for Fair
Information Practices in the Private Sector, August 1997, Appendix A, paras 19-20 for
discussion of the issue.
[43] Evidence, 16 May 1997, pp. F&PA 190-91.
[44] Office of Government Information Technology, in Submissions,
vol. 3, p.660.
[45] Submissions, vol. 3, p. 584.
[46] Australian Law Reform Commission, in Submissions, vol.
3, p. 524.
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