Chapter 4APS Contract management
4.1Contract management is the principal way in which the Australian Public Service (APS) manages the consultants that it engages. This includes planning for the contract, procurement, monitoring performance, managing variations, managing disputes and evaluating the final product or service delivered to ensure it is up to standard and represents value for money. This chapter examines the APS's ability to effectively undertake this work.
Effective management of contracts
4.2In addition to the specific contract terms, departments gave evidence that they manage contracts by following the requirements and guidance in the Commonwealth Resource Management Framework. However, as noted in Chapter 3, some submitters raised concerns that the APS currently lacks the skills and knowledge required to effectively do this work.
4.3Professor Mazzucato and Ms Collington held this view, contending that the decreased capability of the public service may undermine its capacity for evaluating the claims of tendering consultancies and managing contracts with them.Additionally, they pointed out that seeking to manage breach of contracts with management consultancies relates to the (often) qualitative and ambiguous nature of consulting services contracts and the interactive nature of consultants relationship with clients can make it challenging to pinpoint blame.
4.4Additionally, Professor Podger argued that writing a good tender requires deep knowledge of whatever is being consulted on and that the loss of capacity from the public service in turn reduces the quality of the consulting that the government receives.
4.5Regarding this issue, Mr Gareth Sebar, Acting First Assistant Secretary with the Department of Finance (Finance) highlighted that the 2023–24 Budget included funding to improve the training of procurement officials across the Commonwealth:
That will include training to assist officials to go through the process of assessing value for money. With a more skilled procuring workforce, we will expect that there will be a greater focus on value for money and those decisions will reflect that. Also, part of that measure is engaging with suppliers to help them through the process for applying for government procurement and assisting them in identifying the types of issues that might better explain the value that their particular service can provide.
4.6Mr Sebar also noted that Finance regularly engages with other departments to discuss their procurement behaviour. Mr Sebar indicated that Finance will call out concerning behaviour and ‘suggest to them different approaches that they might want to take rather than continually extending and broadening contracts'. The Department did not provide any examples to illustrate this point.
4.7Mr Andrew Jaggers, Deputy Secretary, Commercial Group, Department of Finance also noted that Finance is working closely with the Australian Public Service Commission (APSC) and other agencies to provide training for procurement officials:
We are taking this very seriously, because it is not just about the rules but also about how they interpret the rules and how they run it. Since September [2023], we have put 700 public servants through procurement training across 22 different agencies.
When to engage consultants
4.8Submitters to this inquiry offered suggestions to improve the procurement process and how contracts could be managed more effectively.
4.9Starting at the procurement stage, submitters recommended that there should be clearer guidance about when it is appropriate to engage an external consultant.
4.10The Australia Institute urged that clear guidelines be established about when consultants should be used. They advised that not only would this give the Public Service room to grow and develop skills in-house, but it would leave 'expensive and partial consultancies to do specialised work that, for whatever reason, the Public Service is not suited to'.
4.11Professor Baum said that she would like to see external consultants being engaged to complete very specific pieces of work, such as a specific report, rather than broad topics such as 'how do we reorganise our department?' or 'how do we deal with this whole area of policy?' This approach would also make it easier to evaluate whether the consultant has delivered on the specific piece of work requested.
4.12Similarly, Professor Podger submitted that 'when you're procuring consultants, you have to have a good process of managing the purchasing of that advice. You need to be very clear about what it is that you are seeking’.
Knowledge transfer
4.13Several submitters emphasised that consultants should be required to share their knowledge with public servants, rather than keeping this information hidden which would result in building APS capacity and reduce the need for future consultants in a particular area.
4.14Consultants agreed that knowledge transfer was an important part of their work for the APS. For example, Mr John Vidas, from consulting firm Accenture commented that knowledge transfer was an important part of every project they undertake, including with the APS.
4.15Mr Paul Low from KPMG Australia also agreed that knowledge transfer was important:
From our perspective I guess that skills transfer or that capacity building really can be built through a knowledge transfer process, on-job coaching, role shadowing or providing local insights and/or artefacts back into the public sector. So, it's financial models and economic models used for appraisals.
4.16Mr Miguel Carrasco from Boston Consulting Group and Mr Damien Bruce from McKinsey Australia both proposed that not only is knowledge transfer important, but that it should be a requirement built into every APS contract with a consulting firm. Further, Mr Carrasco and Mr Bruce and suggested that the success of the knowledge transfer should be measured at the end of each contract.
4.17The evidence provided to the committee indicates that knowledge transfer should be an important feature of consultancy work. The exact manner in which knowledge transfer is delivered may vary on a contract-by-contract basis. For example, one way to achieve this may be a fifty-fifty staffing ratio of consultants to APS staff to ensure adequate knowledge transfer.
Identifying and addressing poor performance and unethical conduct
4.18The Commonwealth Resource Management Framework largely relies on APS officials to identify and manage poor performance, breaches of contract and unethical conduct, rather than on the consultants themselves, or the consulting firms that employ them (apart from recent changes to the MAS Head Agreement discussed in Chapter 2).
4.19The evidence provided to the committee suggests that even the most experienced and diligent APS officer could encounter difficulties in managing contracts with large consultancy firms.
4.20Defence submitted that, despite its best endeavours to conduct appropriate due diligence screening and risk reduction activities, it is reliant on a consultant self- declaring if their ability to provide impartial and objective advice is compromised. Similarly, verifying a declaration of 'no' conflicts of interest is restricted, as there is no centralised database which captures the work being undertaken by consultants and other external service providers.
4.21Defence advised that access to a Commonwealth-wide database which identifies other government and private sector contracts, or proposed tenders held, may support the due diligence activities that it currently undertakes. They noted that Defence and the broader Commonwealth currently lack the ability to track consultants who have been proven to have engaged in unethical conduct, and this information should be available as part of the procurement process, given the absence of transparency of the work being undertaken by consultations.
4.22Additionally, the committee received evidence that in practice, the enforcement of contractual terms relating to non-criminal unethical conduct may be challenged, resulting in lengthy legal proceedings, and it may be difficult to conclusively determine that the contract requirements have been breached. For example, Defence submitted that it is aware of instances of consultants concurrently selling 'the same product' both within Defence and across the Commonwealth. Whilst such practices are not considered illegal, Defence advised that it considers these practices unethical, and yet there is currently no clear way, at a whole-of-government level, to prevent this from occurring or for dealing with the conduct when it is identified as having occurred.
4.23To this point, government departments were asked whether, in the last ten years, a consulting firm they engaged did not fulfil their contract obligations, had their contract terminated, and whether any contracts have been the subject of dispute or legal action. Concerningly, several departments advised that they are unable to provide an answer to some or all of these questions as they do not have a central repository that captures this information. Treasury and the Department of Home Affairs (Home Affairs) advised that it would be an unreasonable diversion of resources to obtain the requested information.
4.24In relation to contract disputes, Home Affairs noted that 'a significant number of contracts will have been the subject of dispute or legal action because that is a normal part of contract management including disputed invoices, issues around scope of deliverables, milestone payments, timeframes and so on, as well as more significant actions such as litigation'. However, identifying the disputes in all contracts over the ten-year period would involve reviewing records of various entities for different periods, through multiple Machinery of Government changes.
4.25Similarly, the Department of Health and Aged Care advised that its systems do not record data on contract management issues to support reporting in the manner requested without an unreasonable diversion of resources. However, they were able to advise the committee that their records show that at least one consultancy contract has been the subject of dispute or legal action in the last ten-year period.
4.26Defence advised that information relating to consultancy contracts are commercial in confidence and cannot be provided but did note that it had not identified any consulting contracts that have been subject to legal proceedings or formal dispute.
4.27The Department of Prime Minister and Cabinet advised that it holds all records relating to a contract for a period up to seven years after the expiration or early termination of a contract, and it is not aware of any instances in this period where a consultancy has been terminated, or of any instances of contracts being the subject of dispute or legal action.
4.28Finance also advised that it holds all records relating to a contract for a period up to seven years after the expiration or termination of the contract and during this time period, it is unaware of any instance where a consulting firm has not fulfilled its contract, had their contract terminated, or been subject to legal action, advising that it 'proactively manages the performance of all contracts in accordance with the Commonwealth Contract Management Guide (the Guide).'
4.29The Department of Agriculture, Fisheries and Forestry submitted that it does not have a central repository of these records, but it is aware of one consultancy contract that was recently terminated due to budget constraints, and four contract disputes that were addressed through dispute resolution processes.
4.30The Department of Climate Change, Energy, the Environment and Water advised that it is aware of one consultancy contract that has been terminated by mutual agreement with the consultant.
4.31It is unclear how officials conducting procurement can access relevant and critical information about previous issues or concerns with suppliers if this information is not recorded, or easily accessible.
4.32In relation to the departments that were able to provide substantive responses to the questions asked, the number of contracts that were the subject of dispute or ultimately terminated appear to be remarkably low in the context of the evidence received throughout this inquiry about poor performance and unethical conduct by certain consultants.
Greater transparency, accountability and managing conflicts of interests
4.33The committee heard that greater transparency and accountably surrounding the engagement, conduct and output of consultants is needed, and the APS needs to better identify and manage the conflicts of interest as they arise.
Increasing transparency and accountability
4.34Emeritus Professor James Guthrie, AM, Professor Jane Andrew and Dr Erin Twyford recommended increased disclosures should be mandated by consultants wanting to win public sector contracts, as this would enable taxpayers to better assess the quality of the work produced by advisers and support confidence in the public sector and its integrity. Additionally, consulting firms should not advise private entities that profit from government programs, and that should be enshrined in any contract for service.
4.35Emeritus Professor James Guthrie, AM, Professor Jane Andrew and Dr Erin Twyford also recommended that in order to lift the 'veil of secrecy made clear in the case of robodebt' that the Joint Committee of Public Accounts and Audit inquiry into Commonwealth procurement be broadened to include reviewing all consulting services in Commonwealth agencies. Further, they recommended that the Australian National Audit Office (ANAO) play a more significant role, and be resourced to undertake more performance audits, particularly in relation to procurement processes.
4.36The Centre for Public Integrity recommended the following reforms:
broaden the scope of the Commonwealth Procurement Rules to capture all corporate Commonwealth entities;
require disclosure of outputs produced pursuant to contracts;
develop and require compliance with a set of codes to facilitate analysis of government expenditure disclosed on AusTender;
allow FOI;
establish an Independent Transparency Monitor (previously proposed by the Centre for Public Integrity);
empower the ANAO or a new independent statutory authority with oversight over consultants to periodically audit the use of confidentiality clauses in government contracts;
establish an independent Whistleblower Protection Authority;
require contracts with consultants to include obligations to abide by the ethical standards equivalent to those set by and pursuant to the Public Service Act;
broaden the jurisdiction of the Australian Public Service Commissioner to cover the conduct of consultants performing government contracts.
4.37The Community and Public Sector Union (CPSU) made similar recommendations, stating 'as a simple test the public and the parliament should have access to information that clearly shows why a consultant is being engaged, what work they will be doing, how much they are being paid, and what was the outcome of this work. The recommendations include:
regularly publishing agency and service-data on consultancy expenditure and numbers;
that the Department of Finance lead work to reform how consultancies are categorised and tagged in AusTender with the goal of more accurately capturing the level of expenditure on consultants across the APS;
consideration should be given to adopting an 'open contracting' regime; and
strong whistleblower protections for public servants to both reveal corruption, conflicts of interest and other unethical behaviour.
4.38Professor Allan Fels urged for greater transparency about the relationship between the APS and consultants that it engages. He submitted:
Transparency should apply in regard to the terms of reference, conflicts and the process which will be used by consultants. Also, there should be processes about the link—the communications—between governments and consultants so that there are no secret messages to them, no conclusions told to them in advance and no saying, 'I want these conclusions,' unless that has been made public and there's a justification for it.
4.39Further, Professor Allan Fels recommended that:
…governments should publish quite full information about bids, including winning bids, how much is being paid and what the promise from the consulting firm is. In general, I don't think that it is relevant to quote commercial-in-confidence factors affecting your ability to compete. If you offer a low or a high price and you win, and you beat other bids, I don't see what commercial need there is to keep the bid secret. It would be much more healthy if the amounts of money on offer and the job offer were made public.
4.40Finally, it was suggested that the Senate could make orders to increase transparency relating to the output of external consultants. The Australia Institute proposed that, the Senate could require final reports and advice provided by consultants to be published, unless there is a good reason not to, noting 'the executive could still apply the protections that it has and the privileges it claims for things like cabinet confidence and so on'. ProfessorPodger stated that there should be an expectation of publication – noting that there will be some exceptions in particular circumstances.
Conflicts of interest management
4.41The committee heard that there is no assurance that conflicts of interest are identified in a timely way and managed effectively. Finance noted that as it does not have access to a list of clients of the consulting firms, it is therefore unable to check itself whether a consulting firm might be undertaking work that would put it in a conflicted position. Rather the onus is on the consulting firms to responsibly manage conflicts of interest.
4.42The CPSU highlighted that the key issue in the onus being on consulting firms 'is the potential for the consultancy to act in its own material interests', for example:
One way this could occur is where the consultant makes recommendations that generate further work for the initial consultant or for a business unit of the same company. CPSU is aware that among the consultancy industry this approach is referred to as 'land and expand'.
4.43CPSU also contended that consulting firms' conflicts of interest were particularly difficult to manage in the Australian market because it is dominated by a small number of very large players i.e. the Big 4, who have substantial business interests across the economy: 'Put simply, the larger the client list the more chance there could be of conflict of interest'. CPSU considered that the strict conflicts of interest rules that apply to the APS should also apply to consultants.
4.44Ms Rosie Collington suggested that 'conflicts of interest could be identified by requiring consultants who undertake government work to produce a list of all their current contracts and clients'.
4.45The Business Council of Australia considered how conflicts of interest relating to consultants could be better managed, submitting that there should be a 'clear and consistent definition of what constitutes a conflict of interest, a conflict-of-interest breach, and expectations around the management of conflicts of interest'. Further, they suggested large entities that tender for government contracts could be required to undertake independent reviews of conflicts of interest policies, systems and processes.
4.46The Centre for Public Integrity also made recommendations about identifying and managing conflicts of interest, including requiring consultants to provide client lists if they wish to work for the government and utilising exclusivity clauses in government contracts with consultants (for example, requiring government consent before a consultant can take on potentially conflicting work).
4.47The Business Council of Australia made a similar recommendation, proposing that consideration be given to 'maintaining breaches in a central register for use by government entities to promptly identify breaches for new/existing tenders, and requiring government entities to consult the register before considering tenders (and requiring public reporting of such breaches).
4.48EY also recommended public disclosure of the management of Conflicts of Interest by Commonwealth entities and companies:
One measure could be a requirement for the Commonwealth entity or company to establish and maintain a Conflicts of Interest disclosure log, which publicly discloses potential Conflicts of Interest and how the tenderer has managed these Conflicts of Interest. Appropriate safeguards would be required to protect the confidential information of the Commonwealth, supplier and other private sector entities or individuals involved in this disclosure.
4.49In reviewing these suggestions, the committee considers that any mechanism requiring consultants to declare their contracts, clients, and conflicts should require active disclosure, ensuring the information available is current throughout the life of the government contract for which the consultant has been engaged. It is important that the active disclosure requirement is enforced by APS staff who manage contracts. One option for ensuring updated information could be to require active disclosure of a consulting firm's conflicts of interest as a component of the contract management process. The committee cautions the introduction of such disclosure requirements without adequate and enforceable consequences for consultants who breach these requirements.
4.50The committee will set out its views in connection with these suggestions for improvement in further detail in Chapter 7.