CHAPTER 7
ACCOUNTABILITY ISSUES
Introduction
With market-testing of the provision of government IT services mandated,
and outsourcing already underway, the question facing the committee was
how outsourcing IT would affect accountability. The effect of contracting
out government services generally was addressed at some length by the
Industry Commission in its 1996 report.[1]
It concluded that 'while responsibility to do certain things can be transferred,
accountability for the results cannot' and whatever the method of service
delivery, a government agency remains accountable through the minister
to Parliament, and through Parliament to the people, for the efficient
performance of the functions entrusted to it. To the committee, this is
indisputable. But there are differences which result from the provision
of IT services by an outside agent, particularly the lengthening of the
chain of responsibility. In this chapter, the committee considers whether
these differences amount to a risk to accountability or whether they may
in fact enhance it.
By accountability in this context the committee means, in simple terms,
how the public whose money is used to finance the provision of IT services
to government agencies is able to satisfy itself about the performance
of and, if necessary, call to account those who act on their behalf. Obvious
intermediaries are ourselves, as elected members of Parliament. What access
should we have, and what access should our delegates such as the Auditor-General,
the Ombudsman, the Privacy Commissioner and the Administrative Appeals
Tribunal have, to the activities of IT service providers? Accountability,
as a recent MAB/MIAC report observed, 'does not imply simply providing
information or answering questions, but includes setting goals, providing
and reporting on results and the visible consequences for getting things
right or wrong, including rewards or sanctions as appropriate'.[2]
The rationale for contracting out the provision of IT services in the
first place is to save costs and improve efficiency by harnessing the
virtues of competition. It has been argued that those cost savings are
achieved, in part at least, precisely by the reduction in the accountability
burden.[3] The committee considered
whether that was the case and, if so, whether in the present era of risk
management, such reduction was an appropriate risk to take.
The Accountability Chain
When the provision of IT services is, broadly speaking, provided in-house
by a government department or agency, the chain of responsibility for
the conduct of those services goes from the hands-on operators through
their superiors to senior officials and ultimately through the minister
to Parliament. Intervention from above is a possibility at any point along
this hierarchical chain. When you impose a contract in the chain, service
provision is placed in the hands of persons not under the day-to-day control
of the government department or agency. Technically the service provider
is accountable only for performance as specified in the contract and not
for discretionary acts performed in association with the contract. As
the Attorney-General's Department pointed out in its submission to the
committee,
the contractor is an independent contractor which is responsible for
its own actions in the course of the performance of the services. It is
a principle under the general law that an employer is vicariously liable
for its employees (over whom it exercises direct control), but a principal
is not held responsible for the actions of an independent contractor (over
whom it does not exercise direct control).[4]
If a minister cannot exercise direct control over the operations of a
contracted service, should he then accept responsibility if things go
wrong? To the committee's knowledge, there have been no precedents in
the outsourced IT field to provide guidance. It will consider the matter
further in its second report on the general contracting out of government
services, where several examples spring to mind.
On the matter of principle, the Clerk of the Senate asserted that a fairly
clear line could be drawn around the extent of ministerial responsibility.
Ministers should have no role in assessing tenders and awarding contracts
but,
if something has obviously gone wrong with the tendering process, if
the contractor who has been awarded the contract has some financial connection
with somebody sitting on the panel that is awarding the contract or something
like that, the minister has to be accountable for the integrity of the
process. The minister has to be answerable to the parliament for the process
going wrong. So the minister has a responsibility to see that due processes
are in place and that all reasonable safeguards are in place to ensure
the integrity of the contracting process.[5]
He added that nowadays there is much more public scrutiny - not merely
parliamentary and political scrutiny - of the activities of corporations,
which will have to accept that their activities are going to be subjected
to examination, whether or not they are involved in public contracts.
Accountability and Audit
One of Parliament's principal agents in assisting it to monitor the way
public monies are spent and to determine whether those monies are well
spent is the Auditor-General. Representatives of the Australian National
Audit Office (ANAO) raised two particular accountability concerns with
the committee: the adequacy of contract monitoring by agencies; and Audit
Office access to information and records generated by contractors.
As contracting out of IT infrastructure is a relatively recent phenomenon,
agencies have had little time to develop contract monitoring skills. The
ANAO too has conducted few performance audits on IT outsourcing, and in
its two audits conducted on the Department of Veterans' Affairs first
IT outsourcing contract had to use the services of a specialist consultant
itself. While painting a rosy picture of the actual costs and the cost
savings, both of which were in line with predictions, and other benefits,
the audit found that more adequate documentation of the management arrangements,
and a formal evaluation, would have been desirable.[6]
Based on its experience to date, the ANAO is producing a best practice
guide for the management of IT outsourcing.
For effective contract administration, the contracting agency, as well
as the ANAO, require certain access to the contractor's records and information.
In the view of Mr McPhee of the ANAO, such access should be specified
in the contract, via standard use contract provisions. He accepted that
access to such records was a 'sensitive issue', but pointed to the situation
in the United States where federal regulations contain a requirement for
negotiated contracts of worth more than $10,000 to contain a clause allowing
access by the US Comptroller General and authorised staff to relevant
records.[7] The committee is sympathetic
to the ANAO's desire to ensure access to such records, should the need
arise. It will consider the issue in more detail in its report on general
outsourcing issues, as experience in Defence is particularly relevant.
Accountability and the Right to Redress
IT outsourcing has the potential to place in private sector hands sensitive
personal information which government may have demanded of individuals.
A major aspect of accountability is the provision of a right of redress
to individuals whose rights have been infringed by a government department
or agency, or those acting at the behest of a department or agency. The
most likely scenario in this context might be the unauthorised release
of personal information but the right to privacy is by no means the only
right which may be infringed.
At present, when government IT provision is largely handled in-house,
individuals affected by that provision have the many administrative law
provisions available to them at little or no charge. Complaints about
basic maladministration can be taken to the Commonwealth Ombudsman; information
can be sought via Freedom of Information legislation; judicial review
of decisions can be obtained through the courts and merit review through
specialist tribunals; privacy abuses may be addressed by the Privacy Commissioner.
The importance of the right to redress is demonstrated by the government's
extension of the administrative law package to the private sector case
managers operating under the Employment Services Act 1994.
If the administrative law provisions are not extended to cover outsourced
IT services, the provision of right of redress can only be effected by
contractual clauses. The Ombudsman expressed her doubts about whether
the standard clauses she had seen were satisfactory. She suggested that
if Parliament wanted transparency, consistency or probity in the use of
government money, it would need to ensure that the Ombudsman, FOI and
ANAO legislation was explicit in its extension of coverage of accountability
as it pertained to government functions performed by third parties. Such
explicitness could be achieved, in her view, by a simple deeming provision.[8]
The committee notes that her Queensland counterpart's jurisdiction covers
acts by private agencies taken under functions conferred on, or instructions
given by, a [public] agency.[9]
There was little support amongst other witnesses for the extension of
the administrative law package to private sector contractors. Dr Macdonald
of OGIT believed that many of the issues could be addressed through standard
clauses in contracts, but indicated that there were ongoing discussions
between his agency and the Attorney-General's Department on the matter.[10]
A Department of Finance representative suggested that if the administrative
law requirements were extended to contractors, it might even deter firms
from tendering. A private sector representative commented:
If the services sought under contracting out arrangements are not amenable
to normal commercial contractual disciplines including those pertaining
to service performance then they probably should not be contracted out.
To overlay contractual arrangements with application of the Ombudsman
Act would appear to risk negating or detracting from the benefits of contracting
out.[11]
The committee has been unable to determine even a ballpark figure for
the additional costs which might accrue, principally in terms of staff
investigative time, if the Ombudsman's jurisdiction or FOI provisions
were to be extended to cover private sector IT providers.
The Australian Law Reform Commission (ALRC) and the Administrative Review
Council (ARC) recently examined the Freedom of Information Act 1982
(Cwealth), and made a number of recommendations regarding private sector
bodies contracting with the Commonwealth. One recommendation was that
the FOI Act should not be extended to apply generally to private sector
bodies.[12] As Alan Rose, Chairman
of the ALRC, pointed out to the committee, in cases such as the ESRA legislation
where statutory discretions were being exercised as part of the contract,
the ALRC was supportive of the extension of FOI, archives access, privacy
protection and administrative review in the enabling legislation; but
at the other end of the contracting spectrum, where a contract simply
substituted for the provision of a physical service previously provided
by public servants, such legislative provision would be inappropriate.[13]
As the Industry Commission report recognised, the base line here is that
'a change from direct to contracted provision ought not undermine the
ability of individuals or organisations to seek redress for decisions
or actions for which governments are accountable'.[14]
The Commission was generally unenthusiastic about the extension of the
administrative law provisions to contractors but urged particular consideration
when client choice or degree of competition was limited.
Accountability and Commercial Confidentiality
The issue of when commercial confidentiality should properly attach to
documents in which Parliament has an interest has been debated within
the Parliament and elsewhere for decades. This committee's predecessor
considered the issue on several occasions, a prominent example being its
inquiry into ABC employment contracts.[15]
That committee found that, while due regard should be paid to matters
such as personal privacy and commercial competitiveness, public authorities
had to be prepared to account to parliamentary committees for all aspects
of their financial management and administration.
It was put to the committee by the Clerk of the Senate that 'claims that
information is commercial-in-confidence are not really justified because,
at the end of the day, it cannot be demonstrated that any real damage
would be done by disclosing that information either publicly or on a confidential
basis to the committee concerned'.[16]
This view was supported by Mr Brendan Godfrey of Administrative Services,
a department with extensive experience in commercial contracts. He told
the committee:
if we believe a company has [information] so specific that it would affect
their ongoing business, we will go to great lengths to protect that because
it is to the advantage of the Commonwealth and the taxpayer to protect
that information - that is, we are going to continue to get a better price
... We have provided to lots of parliamentary committees information in
camera which has been protected, and the suppliers know that. If they
are aware of that arrangement that an agency will protect [commercial
information] and will ask, if possible, to go in camera to provide that
information, I think suppliers have not been reluctant to provide details
to us in order to get the best contract.[17]
The Attorney-General's Department was more cautious, stating that:
Parliament should only examine commercial-in-confidence contractual arrangements
between government agencies and service providers in limited circumstances
... Parliament should only require disclosure of [commercial-in-confidence]
information where the public interest in the information being on the
public record is not outweighed by other relevant considerations'.[18]
It went on to suggest that in the great majority of cases, accountability
would be achieved by ensuring that agencies adopted appropriate tender
and contract procedures.
The committee notes that the US, however, has a rather more robust attitude
to these matters. There it is widely accepted that once a contract is
finalised, its provisions are a matter of public record. The New South
Wales Auditor-General, Mr Tony Harris, supported this view:
it appears to me that there should be a very clear demarcation between
commercial information which is ex ante, before a decision is made relevant
to that information, and commercial information which is ex post - that
is, after decisions have been made. Tender documents provided before the
tender decision is made are particularly commercially sensitive ... because
the benefits and rights attaching to that information can be usurped by
others should that information be given out. After the decision is made
... the information is of very little value in a commercially confidential
sense.[19]
He explained that for very large contracts, the provisions are known
to hundreds of lawyers, advisers, financial consultants and hence the
information could not be considered to have much commercial value.
As a general rule the committee accepts the ANAO 'reverse onus of proof'
position, namely that contract information should be public unless there
is a good reason for it not to be.[20]
And in any event, the provisions of a signed contract should always be
publicly available except in the most limited of circumstances. Such circumstances
might include intellectual property and other industrial property trade
secrets and pricing structures. Mr Alan Rose gave an example of just such
a situation: the Attorney-General's Legal Practice agreed to confidentiality
clauses concerning the software billing systems created for it, because
it got the package at a lower price by permitting the contractor to exploit
the product commercially at a later stage.[21]
Precisely what should be covered by commercial-in-confidence provisions
is a challenging question. There have been sufficient examples of mismanagement
and/or downright fraud in outsourcing internationally to suggest to the
committee that bland bureaucratic assurances that all will be well here
are yet another attempt to divert parliamentary attention away from the
integrity of processes - an attempt that will be resisted. Value for money
is an important goal but not one that should be achieved at any cost.
The committee considers that on balance, it is probably better to start
at the other end of accountability and to demand that government departments
and agencies have available the maximum amount of information concerning
contracts they have entered into, for possible parliamentary scrutiny
through questioning of the agency which let the contract.
Such information that is properly deemed to be commercially sensitive
should nevertheless be available for scrutiny in camera by parliamentary
committees, should a genuine need arise. The committee notes and agrees
with the view that this should not become a routine matter, though it
does not necessarily agree that routine in camera parliamentary access
to commercially confidential material would affect the price tendered
or the willingness of agencies to contract for government services.
Conclusions
What must not be lost sight of in this matter is that what is at stake
is the expenditure of public money. Of course Parliament wants to reassure
itself that its public servants achieved an optimum IT facility at a good
price. But it also wants to know that the tendering process was conducted
with complete integrity; that the process of contract monitoring by the
agency and the audit office is not impeded by lack of access to relevant
information; and that the agency/contractor relationship is a well documented,
professional partnership open when required to parliamentary scrutiny.
Senator Shayne Murphy
Chairman
Footnotes
[1] Industry Commission, Competitive
Tendering and Contracting by Public Sector Agencies, AGPS, Melbourne,
1996, pp. 81-103.
[2] MAB/MIAC, Accountability
in the Commonwealth Public Sector, AGPS, Canberra, 1993, p. 13.
[3] Finance and Public Administration
References Committee, Submissions, vol. 3, p. 597 (Professor Mulgan).
[4] Finance and Public Administration
References Committee, Submissions, vol. 2, p. 375.
[5] Mr Harry Evans, Committee Hansard,4
April 1997, p. F&PA 103.
[6] Auditor-General, Management
of IT Outsourcing, Department of Veterans' Affairs, AGPS, Canberra,
1996, p. x.
[7] Committee Hansard, 3
April 1997, p. F&PA 62.
[8] Committee Hansard,
4 July 1997, p. F&PA 589.
[9] Queensland Parliamentary Commissioner
Act 1974, s. 13 (7).
[10] Committee Hansard, 4
July 1997, p. F&PA 590.
[11] TNT, Committee Hansard,
19 May 1997, p. F&PA 305.
[12] ALRC/ARC, Open Government:
a review of the federal Freedom of Information Act 1982, recommendation
97.
[13] Committee Hansard,
20 May 1997, p. F&PA 471.
[14] Industry Commission, Competitive
Tendering and Contracting by Public Sector Agencies, AGPS, Melbourne,
1996, p. 99.
[15] Senate Standing Committee
on Finance and Government Operations, A.B.C. Employment Contracts and
their Confidentiality, 1986.
[16] Mr Harry Evans, Committee
Hansard, 4 April 1997, p. F&PA 105.
[17] Committee Hansard,
4 April 1997, p. F&PA 182.
[18] Finance and Public Administration
References Committee, Submissions, vol. 2, p. 384 (Attorney-General's
Department).
[19] Committee Hansard, 20
May 1997, p. F&PA 378.
[20] Mr Ian McPhee, Committee
Hansard, 3 April 1997, p. F&PA 71.
[21] Committee Hansard, 20
May 1997, pp. F&PA 474-5.
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