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Chapter 1 - Background
1.1
The Senate order for departmental and agency contracts is one of several
measures that the Senate introduced in recent years to improve openness and
transparency in relation to the expenditure of public funds.[1]
The need for such measures became evident over time, with the markedly increased
use of 'outsourced' arrangements to provide what traditionally had been solely
government operations. Increased outsourcing, through contract arrangements
with private sector organisations, had created an environment in which the
scrutiny of government expenditure had become more challenging.
1.2
Two principal concerns emerged: one, that significant contracts for services
or goods should be available and accessible for scrutiny; and two, that
confidentiality provisions were valid, appropriate and warranted in application
and usage.
1.3
To ensure government expenditure is scrutinised effectively, it is
essential that information within government contracts is not inappropriately
withheld from the parliament and the public. Senator Murray made this case to
the Senate in August 1999:
Accountability can be exacted only where those whose
responsibility it is to call government to account are themselves possessed of,
or are able to obtain, the information necessary to make considered judgments.
Information is the key to accountability.[2]
1.4
The Senate order for departmental and agency contracts responds to this
need for information. Essentially, the order requires that agencies list on
their Internet site details of all contracts to the value of $100,000 or more.
The order specifies that the list indicate for each contract whether any
confidentiality provisions have been agreed, and if so, the reasons for the
confidentiality arrangements.[3]
Underlying these specific requirements, the order aims to enforce the basic
accountability principle that information regarding government expenditure
should be available for public scrutiny, unless there is sound reason for it
not to be.
Second report
1.5
This is the Committee's second report as required under the Senate order
for departmental and agency contracts. The first report in 2002 dealt with the
first year's operation of the order. A summary of its findings and
recommendations is provided later in this chapter.
1.6
This report covers the operation of the order since 2002. It covers a
longer period than the second year of operation as required under the order. This
reflects the Committee view that there would be benefit in allowing time for
departments and agencies to bed down procedures to comply with the order. Extra
time was also seen as useful to allow the government's enhanced accountability
principles to be assimilated into the routine work of line staff negotiating
and managing contracts. A report limited to the second year's operation might
have only provided a snapshot of some of the issues. This report therefore presents
a survey over a reasonable period of time of trends and issues with the order's
operation and identifies areas for improvement.
1.7
The report is also timely in that it considers the Department of Finance
and Administration's (DOFA) recent proposal to adopt a single reporting regime
for procurement. The proposal is an attempt to rationalise the overall
framework for procurement reporting. However, under this model the order would
be revoked, along with the requirement for consultancies to be reported in
annual reports. Whether DOFA's proposal represents an advance for
accountability and transparency is a major question the Committee examines
later in this report.
Committee approach
1.8
In considering the operation of the order, the Committee has reviewed Australian
National Audit Office (ANAO) performance audits of agency compliance with the
order and evidence collected through the estimates process. Three public
hearings were held in Canberra on 25 March 2004, 11 October 2006 and 27 November 2006. The Clerk of the Senate and officers from ANAO and DOFA appeared at these
hearings and are listed in Appendix 1. The Committee has also taken account of
evidence tendered to the Joint Committee on Public Accounts and Audit.
Report structure
1.9
The rest of this chapter outlines the development and requirements of
the order, before summarising the Committee's first report, its findings and
recommendations.
1.10
Chapter 2 addresses developments relating to the order since 2002, in
particular the government response to the first report and amendments to the
order.
1.11
Chapter 3 analyses compliance with the order, while chapter 4 discusses
proposals for improving the operation of the order and the broader
accountability framework for government contracts.
1.12
Chapter 5 presents the Committee's conclusions and recommendations.
Development of the order
1.13
The issue of accountability in relation to government contracts was formally
referred to the Committee on 12 April 2000 when the Senate agreed to a motion
moved by Senator Murray. Three reports relating to the motion were subsequently
published:
- The Committee's report Inquiry into the mechanism for
providing accountability to the Senate in relation to government contracts,
tabled on 26 June 2000;[4]
- The ANAO's Audit Report No.38 2000-2001, The Use of
Confidentiality Provisions in Commonwealth Contracts, tabled on 24 May
2001; [5]
and
- The Committee's report Commonwealth contracts: a new framework
for accountability, tabled on 26 September 2001.[6]
1.14
The motion became a Senate order on 20 June 2001, and took effect from 1 July 2001. Appendix 2 contains the original order.
1.15
On 27 September 2001, the order was amended to include changes
recommended in the Committee's report on a new framework for accountability in
relation to Commonwealth contracts. These included changes to contract details
required in agencies' Internet lists, and to the details required in the ministers'
letters. Appendix 3 contains the order as amended.
1.16
In accordance with the requirements of the original and the amended
order, the Committee reported on the first year of operation of the order in
December 2002. That report is discussed below. Amendments to the order in
response to the Committee's recommendations were made on 18 June 2003, 26 June 2003 and 4 December 2003. Appendices 4–6 contain the order as amended.
Requirements of the order
1.17
The order requires that ministers table in the Senate a letter on behalf
of each agency they administer, advising that a list of the agencies' contracts
has been placed on the Internet. Ministers are required to table these letters
twice each year, within two months of the end of the financial and calendar
years. If agencies' Internet lists do not fully comply with the order (see
below), ministers are required to specify in their letter the extent and
reasons for non-compliance and when full compliance is expected. Where no
contracts relevant to the order have been entered into, ministers are still
required to table a letter indicating that this is the case.
1.18
Departments and agencies are required to compile the list of contracts and
publish it on their Internet site. The agencies covered by the order are those
within the meaning of the Financial Management and Accountability Act 1997.
1.19
The order specifies that the list must:
- be published on the Internet for both the financial and calendar
years, with access through the department or agency homepage;
- include all contracts to the value of $100,000 or more entered
into or not fully performed during the previous twelve months, by that
department and its agencies;
- indicate the following information for each contract:
- the name of the contractor, amount of the consideration, subject
matter of the contract, commencement date and duration of the contract; and
- whether parties have agreed to maintain confidentiality of any of
the contract's provisions, or whether there are any other requirements of
confidentiality, and the reasons for the confidentiality;
-
indicate the relevant reporting period and the twelve-month
period relating to the contract listing; and
- provide an estimate of the cost of complying with the order and a
statement of the method used to derive the estimate.
1.20
In addition to the transparency created by the Internet lists and ministers'
letters, the order aims to achieve a further layer of accountability by
requesting a response from the Australian National Audit Office (ANAO). The Auditor-General
is requested to evaluate a sample of the contracts listed by agencies and report
to the Senate whether confidentiality provisions have been used inappropriately
in those contracts. The order also requests that the Auditor-General examine a
sample of contracts not included in the Internet lists and determine whether
the contracts should have been listed. The order therefore not only requires that
agencies take action to ensure openness and transparency in relation to
government contracts, but also ensures that agencies' progress in this area is
regularly monitored.
Government responses
1.21
The Government's response to the order and its amendments has been
generally favourable. In response to both the original and amended orders, the
Government agreed that agencies would comply with the order on the following
terms:
- agencies will use the Department of Prime Minister and Cabinet's
guidelines on the scope of public interest immunity (in Government Guidelines
for Official Witnesses before Parliamentary Committees) to determine whether
information regarding individual contracts will be provided;
- agencies will not disclose information if disclosure would be
contrary to the Privacy Act 1988, or to other statutory secrecy provisions, or
if the Commonwealth has given an undertaking to another party that the
information will not be disclosed; and
- compliance with the Senate order will be progressive as agencies
covered by the Financial Management and Accountability Act 1997 refine
arrangements and processes to meet the requirements.[7]
Report on the first year of operation of the order
1.22
The Committee reported on the order's first year of operation, that is 1 July 2001 to 30 June 2002, in December 2002.[8]
The report set out 17 recommendations for changes to the order and for ongoing agency
compliance and reporting. This section summarises the issues raised in the
Committee's 2002 report, and the recommendations made.
1.23
In general, the Committee concluded that the order is an important
mechanism for improving accountability, and that most agencies had responded
positively to the order. The Committee stated that:
... the establishment of the order has been a catalyst for action
on the part of government agencies to ensure greater accountability and
transparency in relation to government contracting.[9]
1.24
However, the Committee found that there was room for improvement in some
agencies' response to the order, stating:
...in taking a literal and over-cautious response [and] approach
to the letter of the Senate order, some agencies may still be resisting the
spirit of the accountability requirements of the Senate.[10]
Issues in the first year of
operation
1.25
Issues raised following the first year of operation of the order
included matters relating to: (1) agency compliance with the order, (2) the
definition of a contract within the order, (3) inappropriate use of commercial
confidentiality provisions, (4) the reporting requirements of the order, (5) the
scope of agencies covered by the order and (6) the frequency of ANAO audits. A
summary of the Committee's findings in relation to each of these issues is
provided below.
(1) Agency compliance
1.26
The Committee found that compliance with the order during its first year
of operation varied across agencies. While most agencies had compiled a list of
contracts and published it on their Internet site, only around half had actually
met all the order's requirements.[11]
Similarly, although letters of advice were received from most ministers, there
were a number of deficiencies including late tabling of letters and failure to
indicate agency non-compliance with the order.[12]
1.27
The Committee concluded that it would be appropriate for the ANAO, in
consultation with the Department of Finance and Administration (DOFA), to develop
guidelines for agencies to use in complying with the order.[13]
(2) Definition of a contract
1.28
In the first year of the order's operation, most agencies adopted a
broad definition of the term 'contract' when complying with the order. The
Committee's 2002 report notes the concern expressed by some ministers about
this approach. The Committee heard that restricting the range of contracts covered
by the order would make compliance more efficient for agencies. Specifically,
several agencies indicated that confining the order to procurement related
contracts only would align the order's requirements more closely with the
Gazette Publishing System (GaPS) which is used for reporting government
procurement related contracts.[14]
1.29
While noting these views, the Committee concluded that a broad interpretation
of the term 'contract' was consistent with the objectives of the order and its accountability
principles. As such, the Committee advised that all government contracts, based
on their legal status rather than the title of the arrangements, should be
covered by the order.[15]
(3) Commercial confidentiality
1.30
In the first year of operation, a high proportion of contracts listed by
agencies as having confidentiality provisions were found to be inappropriately
categorised. The ANAO advised the Committee that this situation reflected contracts
having been negotiated before the new accountability framework was in place. The
incidence of inappropriate confidentiality provisions was therefore expected to
decline over time.[16]
1.31
The ANAO's audit reports informed the Committee that some agencies were
not addressing confidentiality issues prior to contracts being signed. Some
agencies reported difficulty negotiating contracts, due to contractors'
insistence on confidentiality provisions.
1.32
The Committee concluded that DOFA, in consultation with the ANAO, should
develop best practice guidelines on commercial confidentiality, and that this
guidance should be used by procurement and contracting officers as part of the
contract negotiation process.[17]
1.33
Other commercial confidentiality issues considered in the Committee's
2002 report included the use of general disclosure clauses to categorise
contracts as confidential, and the changing nature of confidentiality over time,
which was an issue for some agencies. The Committee concluded that the use of general
disclosure clauses was questionable in an environment of openness and
transparency. To achieve maximum transparency the Committee recommended that
agencies distinguish between specific and generic commercial confidentiality
provisions.[18]
(4) Presentation and reporting
requirements
1.34
In its 2002 report, the Committee acknowledged that maintaining contract
lists on the Internet and reporting twice-yearly had been resource intensive
for agencies, particularly given changes to the order since its inception. The
Committee reiterated that the intention of twice-yearly reporting was to
encourage agencies to keep their contract lists up to date. Further, this level
of reporting reflected the Committee's wish to be assured:
...that agencies are complying with the spirit of the order both
practically and in terms of a cultural shift towards transparency and
disclosure of information about government contracts.[19]
1.35
However, the Committee recognised that in the long-term annual reporting
may be more appropriate. The Committee considered that the Auditor-General
could advise the Committee when satisfied that annual reporting would be
adequate.[20]
1.36
The Committee's 2002 report also noted agencies' preference for
reporting periods that align with calendar and financial years. Agencies were
also concerned about the short timeframe between the end of the reporting period
and required listing and tabling dates. The Committee concluded that reporting
periods for the order should be aligned with calendar and financial years, with
the tabling date for Ministers' letters amended accordingly.[21]
The Committee encouraged agencies to structure their systems and processes to
enable continual additions to the contract lists, thus minimising the workload
required to meet the specified reporting dates.[22]
1.37
Other reporting issues raised in the Committee's 2002 report included
the difficulty of locating contract lists on some agencies' websites and the
advantages of including additional information, such as date information, in
relation to each contract.[23]
(5) Agencies covered by the order
1.38
Agencies covered by the order are those within the meaning of the Financial
and Management Accountability Act 1997 (the FMA Act). The Committee's
report on the order's first year of operation considered whether bodies subject
to the Commonwealth Authorities and Companies Act 1997 (the CAC Act)
should also be covered by the order. While acknowledging that incorporating CAC
Act bodies under the order may not be straightforward, the Committee considered
that including these agencies was in line with the order's aims of ensuring
openness and accountability in relation to all government expenditure.[24]
1.39
Two other matters were raised in the Committee's 2002 report concerning
the agencies covered by the order:
- while parliamentary departments are not covered by the order, all
departments except the Department of the House of Representatives had chosen to
comply with the order;[25]
- the Australian Security Intelligence Organisation (ASIO) and the
Australian Secret Intelligence (ASIS) had not published contract lists on their
websites, arguing that their contracts should be exempt on the basis of
national security concerns.[26]
1.40
Both the Department of the Senate and the Department of Parliamentary
Services have complied voluntarily with the order. The Department of the House
of Representatives, on the other hand, has refused to on the ground that 'as a
matter of principle this Department does not acknowledge nor comply with Senate
Orders unless the House of Representative has passed a similar order'.[27]
1.41
The Committee suggested that the Department of the House of
Representatives should comply with the order, and recommended that the ANAO and
DOFA discuss with ASIS and ASIO options for future compliance.[28]
(6) Frequency of ANAO audits of
compliance
1.42
As outlined previously, the order requests that the ANAO audit agency compliance
with the order. The frequency of these audits was considered following the order's
first year of operation, with the Committee concluding that 'no change should be
made to the order's request for six-monthly ANAO audits of compliance at this
stage'.[29]
The Committee undertook to review the frequency of the audits, after the ANAO
completed its fourth audit.
Recommendations following the first
year of operation
1.43
Keeping in mind that agencies had already complied with one set of amendments
to the order, the Committee concluded after the first year of operation that:
...wholesale changes to the order at this stage would weaken its
intent and undermine the progress being made towards development of a new
culture of openness and accountability in relation to government contracting.[30]
1.44
The Committee's recommendations therefore aimed to minimise any
additional workload for agencies, and to assist efficiency by clarifying the existing
requirements of the order.[31]
1.45
Relating directly to the order, the Committee recommended a number of amendments,
including changes to:
- include in the Internet list the commencement date of each
contract, the duration of each contract, and the relevant reporting period and
twelve-month period relating to the contact list;
- alter the required reporting periods to align with financial and
calendar years and amend the tabling date for Ministers' letters accordingly;
- extend the order to cover CAC Act bodies from 1 January 2004; and
- require the Committee to report on the second year of operation
of the order.
1.46
More generally, in relation to agency implementation of the order, the Committee
recommended that:
- agencies include all government contracts, as might be deemed to
be contracts in law, in their contract list;
- agencies record a generic entry where they have a large number of
similar types of contracts;
- guidance be developed for agencies regarding the content,
presentation and format of the contract lists, and the methods for indicating
the nature of commercial confidentiality;
- any additional reporting requirements resulting from the above
guidelines be included as additional information collected in the GaPS system;
- agencies continue to report at six-monthly intervals, with the
Auditor-General to advise the Committee when annual reporting would be adequate;
- agencies develop systems and processes that enable continual
additions to their contract lists;
- bodies subject to the CAC Act extend DOFA's commercial
confidentiality guidelines to all new contracts;
- the Department of the House of Representatives comply with the
order; and
- the ANAO and DOFA discuss with ASIO and ASIS options for
compliance with the order.
1.47
The Government response to these recommendations, and consequential amendments
to the order, are summarised in the next chapter.
Summary of progress
1.48
The order has been in operation for five years. Progress in agency
compliance with the order can be summarised as follows:
- Most agencies are complying with the reporting requirements and
have established appropriate systems and processes to meet the order's requirements;
- The number of confidentiality provisions in contracts has
generally declined;
- The misuse of confidentiality provisions in contracts has also
started to fall but still remains at a level for concern about the extent to
which line staff understand the new accountability framework surrounding
government contracting; and
- Doubts hang over the completeness and accuracy of the information
agencies are reporting to the Senate.
1.49
The chapters that follow, especially chapter 3, discuss these issues in
detail and measures to address them.
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