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Chapter 5 - Conclusion and recommendations
The system [the order] that Senator Murray initiated is
essentially a safeguard. It is designed to ensure that there are no major train
wrecks down the track. Like all safeguards it operates simply by its very existence.
It signals to everybody involved in this that the matter of contracting is
being watched. If you say that the Senate is watching it, that adds to the
authority of the safeguard.[1]
5.1
The Senate order for departmental and agency contracts has now been in operation
for five years. Over this time there has been a general improvement in
compliance. Regular ANAO auditing has had a key role in not only improving
compliance but also raising awareness among agencies of the transparency and
accountability principles underpinning the order. The order's operation has also
been assisted by the introduction of government policy to promote the
transparency of Commonwealth procurement.
5.2
Two notable achievements are the general decline in the use of
confidentiality provisions and the now commonplace inclusion of standard disclosure
provisions in government contracts. The first suggests the Parliament's concern
about the use of confidentiality provisions has been heeded by most agencies.
The use of disclosure provisions, which provide explicitly for disclosure of
contract information to the Parliament and its committees among others, points
to an acceptance, at least at senior levels within agencies, that government
contracts are the subject of Parliamentary and public scrutiny.
5.3
While compliance against the order's reporting requirements is now at a
generally good level, concerns remain about the continued misuse of
confidentiality provisions in contracts and the reliability of the reported
data in departmental and agency lists. These concerns raise questions about the
extent to which line staff understand the principles and purpose of the order,
and about the framework for reporting against the order.
5.4
The major consideration at this stage is whether the best way forward is
to be achieved by replacing the order with a single reporting mechanism or by modifying
that model with the order remaining in operation. Determining the model of
reporting is the first step required before other measures to improve the
transparency of contracts can be considered.
A new framework?
5.5
The Committee considers it premature at this point to revoke the order. Compliance
problems with the inappropriate use of confidentiality provisions in contracts,
albeit declining but still significant, have continued. These indicate the need
to retain an external oversight and scrutiny mechanism, reinforced with regular
ANAO auditing, which the order provides.
5.6
The proposed new AusTender system promises to improve the completeness
and accuracy of the information available on government contracts. But the
history of large scale information projects, like the AusTender upgrade,
cautions against sweeping change until new systems have proven themselves.
5.7
Another concern with the new AusTender system it that would not report
on non-procurement contracts. If the order were revoked, this would result in a
reduction in the transparency of government contracts.
5.8
Moreover, the Committee considers it unnecessary to revoke the order. As
outlined in chapter 4, as the AusTender system is put into operation,
departments and agencies will be able to continue to comply with the order by
placing required information in the AusTender system. Departments and agencies
would simply need to table in the Parliament statements to this effect, rather
than produce separate lists as is currently required.
5.9
This model would allow reporting to be rationalised with AusTender
operating as the central reporting point, while transparency under the order
would be maintained and possibly improved. It would avoid the risks of moving
to an unproven system. It would also allow time for new reporting arrangements
for non-procurement contracts to be developed if required. ANAO auditing would
continue as currently required under the order and would assist agencies moving
to the new system. The Senate could consider amending the order if this were
required, once AusTender was operational.
Recommendation 1
5.10
The Committee recommends the order be retained while the new AusTender
system for reporting procurement contracts is implemented, with departments and
agencies tabling statements through their ministers in accordance with paragraph
(1) of the order, that they had fulfilled their reporting obligations by
placing the information required under paragraph (2) of the order in the
AusTender system.
Recommendation 2
5.11
The Committee recommends DOFA, in consultation with ANAO, relevant
parliamentary committees and stakeholders, consider reporting arrangements for
non-procurement contracts and explore the development of a reporting mechanism comparable
to the new AusTender system for this category of contract, and report to the
Committee the outcome of this process within six months of the tabling of this
report.
Improving compliance – internal measures
5.12
In chapter 3 the Committee identified a number of measures which, if
implemented, should improve agency compliance with the order.
Internal controls
5.13
The Committee supports ANAO recommendations that agencies improve the
accuracy and completeness of the contract information they report with stronger
internal controls for checking that information. Agencies will be required to
improve their financial management information systems and data extraction processes
in order to meet the requirements of the new AusTender system. The
implementation of the new system should offer the opportunity and capacity for
agencies to improve reporting controls and data quality assurance for contract
information.
Recommendation 3
5.14
The Committee recommends agencies, if they have not done so already,
implement ANAO recommendations to improve the accuracy and completeness of
contract information with stronger internal controls and quality assurance for
checking data, and report that they have done so through their ministers'
tabling statements made under paragraph (1) of the order.
Internal reporting
5.15
The Committee considers technical enhancements to internal controls could
be complemented with regular internal reporting of procurement activity. Contract
information could be included in management reporting and reporting to internal
audit and governance committees. This is already being done in some agencies
but should become routine across all government bodies involved in contracting
activity. The frequency of reporting would depend on the circumstances of
individual agencies.
5.16
Internal reporting of this kind on a regular basis would strengthen
governance frameworks for contracting. It should also improve data accuracy as the
information would be relevant to the regular business and management operations
of agencies and managers would have a stake in the quality of the information
they receive. This would have flow on benefits for the reliability of contract information
reported on AusTender and to the Parliament.
Recommendation 4
5.17
The Committee recommends that to improve data quality and internal
governance agencies include procurement and contract activity in regular business
and management reporting to agency executives and, where necessary, internal
audit and governance committees.
Guidance
5.18
Following ANAO recommendations, DOFA has been working on enhancing its
guidance about the use of confidentiality provisions in contracts. The
Committee considers this guidance could be improved through using examples from
ANAO testing of compliance which illustrate provisions that are classified
appropriately and those that are not. Agencies could also use these examples
for providing internal guidance.
5.19
Providing line staff with concrete examples should help their
understanding of the confidentiality criteria and improve their ability to make
the correct decisions on questions of confidentiality when contracts are under
negotiation. This, in turn, should improve compliance with the requirements of
the order and lead to further reductions in the use of confidentiality
provisions in contracts.
Recommendation 5
5.20
The Committee recommends DOFA and agencies consult ANAO on examples from
compliance audit testing which illustrate provisions that are classified
appropriately and those that are not, for inclusion in guidance and training in
relation to the order.
Training
5.21
Training and education are key ingredients for improving compliance with
the order. ANAO has found that the level of compliance with the order has been
greater in agencies that provide training for staff than those which provide
little, if any, training. If the enhanced AusTender system is to be introduced,
training staff to meet the requirements of the new system will be critical.
5.22
The Committee considers all agencies covered by the order should ensure
staff involved in contract management and completing reporting requirements
receive adequate training and guidance to assist them to comply with government
procurement policy and the requirements of the order. Smaller agencies, and agencies
managing small numbers of contracts, should consider accessing external
training provided by DOFA, the APS Commission and other relevant bodies.
Recommendation 6
5.23
The Committee recommends all agencies provide adequate training and
education to staff responsible for managing contracts and complying with the
order, either through internal training or programs provided externally.
Improving external scrutiny and oversight
5.24
In chapter 4 the Committee identified a number of mechanisms to improve
the external scrutiny and oversight of government contracting, particularly by
the Parliament and ANAO. If adopted these mechanisms, in combination with the
more detailed information expected to be available from the new AusTender
system, should be useful for examining contracts and dealing with claims of
commercial commerciality when they arise.
Verification of compliance
5.25
The Committee draws senators' attention to appendix 7 which provides a
process chart for agency staff dealing with confidentiality of information in
contracts. This is taken from the DOFA guidance on confidentiality of
contractors' commercial information, outlined in chapter 2.
5.26
The Committee considers this chart could be a useful point of reference which
might assist senators examining contracts containing confidentiality
provisions. It could, for instance, help in tracing the decision making process
followed during the negotiation of such a contract. It could also help in testing
the appropriateness of decisions to treat information as confidential.
5.27
The relevant DOFA guidance should include a note to the effect that the
Parliament's committees and members may refer to the process chart to assist
the examination of contracts. This should reinforce the importance of agency
staff complying with the guidelines when negotiating contracts.
Referral to the Auditor-General
5.28
Refusals by officials to disclose contract details on the grounds of
confidentiality or commercial-in-confidence are not an uncommon occurrence
during parliamentary examination of issues involving government contracts. Such
refusals should only be made by ministers and accompanied by a statement
setting out the reason for such a claim and the commercial harm that might
result from disclosure. However, this does not always occur. Nor does it
necessarily allow for detailed testing of the appropriateness of such a claim
or whether the information should have been treated as confidential in the
first place.
5.29
The Auditor-General has agreed that senators could ask him to examine
contracts where officials or ministers have refused to disclose information
based on a claim of commercial confidence. This examination would occur in the
context of the next compliance audit of contracts under the requirements of the
order.
5.30
While it is open for senators already to ask the Auditor-General to
conduct examinations of this type, the Committee is pleased to note the
Auditor-General's agreement to do so as part of the compliance activity under
the order. The existence of this mechanism strengthens the accountability of
government contracts and may influence the way officials and ministers respond
to questions from senators and committees.
5.31
The relevant DOFA guidance should be amended to alert officers that the
Parliament and its committees and members may resort to using this mechanism
where a claim of commercial confidence is raised in relation to a contract.
Recommendation 7
5.32
The Committee recommends DOFA include in guidance advice to the effect
that, in relation to a refusal to disclose information based on a claim of
commercial confidentiality for a contract, the Parliament, and its committees
and members, may:
- test the validity of any claim by reference to DOFA's process
chart for agency staff dealing with confidentiality of information in
contracts; and
- refer the contract to the Auditor-General for examination.
ASIO and ASIS
5.33
ASIO and ASIS have not agreed to comply with the requirement to publish
contract lists under the order on the ground of national security. Presumably
they will continue to refuse to publish this information on the new AusTender
system. Even so, it would seem unusual for all contracts of any kind to be
excluded.
5.34
In this case, it is important that both agencies are subject to regular
compliance auditing by ANAO. Without the ability to scrutinise these agencies' contract
information publicly, the Parliament has to be satisfied that each agency is
complying with government policy and the requirements of the order. Both
agencies would benefit themselves from having ANAO check their contract
management, tender and compliance processes regularly.
5.35
The Committee notes ANAO's agreement to audit ASIO and ASIS on a regular
cycle and suggests a three-yearly cycle may be appropriate.
Recommendation 8
5.36
The Committee requests ANAO consider including ASIO and ASIS regularly
in its compliance audits under the order on a three-yearly basis.
Annual reporting
5.37
DOFA's proposal to rationalise procurement reporting includes
discontinuing the requirement for consultancies valued at $10 000 and above to
be included in annual reports. The Committee has confined its attention in this
report to the question of whether reporting under the order should continue. It
considers the Joint Committee on Public Accounts and Audit may be the most
appropriate body to consider the question of annual reporting of consultancies,
but notes other legislative and general purpose committees might also wish to
contribute to any decision on this matter.
5.38
Suffice it to say, the Committee considers that any decision on the
annual reporting of consultancies must carefully take into account the impact
on the transparency of consultancies under new reporting arrangements. A
reduction in the information currently available on consultancies would be a
backward step and counter to the policy trend to make contracting activity more
open. The Committee notes ANAO shares this view.
5.39
It may be the case that the question of annual reporting of
consultancies should be addressed once the enhanced AusTender is operational
and the quality of the reporting on consultancies under the new system can be
assessed properly.
5.40
Whatever the decision on annual reporting of consultancies, the
Committee considers agencies should note in their annual reports that
information on contracts and consultancies is available on-line through the
AusTender system. Some agencies are already doing so. This would be a useful
reference for public readers interested in government contracting activity. To
give effect to this proposal the Department of Prime Minister and Cabinet
should make the necessary change in the next issuance of the guidelines for
annual reporting.
Recommendation 9
5.41
The Committee recommends the Department of Prime Minister and Cabinet,
in the next set of guidelines for annual reporting, include a requirement for
agencies to include a note in their annual reports referring readers to the
AusTender site for information on contracts and consultancies. Depending on the
outcome of any decision on the DOFA proposal to rationalise procurement
reporting, it may be necessary for agencies to also include a note explaining
changes to reporting requirements for procurement contracts.
Agencies covered under the order
5.42
The Committee reaffirms the view expressed in its first report on the
operation of the order that it should be extended to cover CAC Act bodies and
that the Department of House of Representatives should comply voluntarily with
the order.
CAC Act bodies
5.43
As noted in chapter 2, the government did not agree to the Committee's
recommendation in its earlier report that the order be extended to cover CAC
Act bodies. The government argued CAC bodies operated under a different
legislative framework to FMA Act bodies and that the order's requirements would
place an unreasonable burden on commercial operators.
5.44
Since then, the ground has shifted in relation to disclosure and CAC
bodies. In 2004 the Minister of Finance issued a directive which included a
requirement for certain CAC bodies to report procurement contracts with an
estimated liability above $400 000.[2]
These contracts must be reported on AusTender.
5.45
The ministerial directive continued a trend in extending the
accountability framework for procurement to cover CAC bodies. As noted earlier,
the government had agreed to the Committee's recommendation that CAC bodies have
regard to Finance guidance on commercial confidentiality for all new contracts
from 2003. The 2004 ministerial directive took this a step further making it
mandatory for CAC bodies to apply some parts of the Commonwealth Procurement
Guidelines.
5.46
Now that CAC body contracts are reported on AusTender and follow Finance
commercial confidentiality guidance, the Committee can see little reason for
excluding these bodies from coverage under the order. The streamlined reporting
promised under AusTender should reduce much of the burden which might have
existed at the time the order was originally adopted. At the very least,
procurement contracts entered into by CAC bodies valued at $400 000 or more
should comply with the order, although the Committee recommends the threshold
should be set at $100 000, the same as applies to FMA bodies. If this were to
be accepted, the Finance minister's directive would need to be amended to lower
the reporting threshold.
5.47
As with its original recommendation for CAC bodies, the Committee
appreciates that these bodies should be given reasonable time to establish
appropriate systems and processes to meet the order's requirements. It is
expected that some of these should already be in place to allow CAC bodies to
meet existing reporting and disclosure requirements. The Committee therefore
recommends that CAC bodies should be included under the order from the start of
the next financial year (i.e. 1 July 2007). This means CAC bodies would be
required to report under the order for the 1st time by not later than 1 January 2008. By this time the new AusTender system should have been operational for six
months and be capable of supporting this additional reporting.
5.48
The Committee notes that, if the Senate were to accept the Committee's
recommendation to include CAC bodies under the order from 1 July 2007, the definition of 'agency' in the order will need to be changed to reflect this at that
time.
Recommendation 10
5.49
The Committee recommends that the order be extended to cover CAC Act
bodies from 1 July 2007.
Parliamentary departments
5.50
The Committee has always been of the view that transparency should apply
to parliamentary departments in the same way as for other agencies. While the
order does not cover the parliamentary departments, the Department of the
Senate and the Department of Parliamentary Services have elected to comply
voluntarily. As noted in chapter 1, the Department of the House of
Representatives has not done so on the basis that the department does not
comply with Senate orders unless the House of Representatives has passed a
similar order.
5.51
The Committee suggests that, in the interests of transparency, the House
department should comply voluntarily with the order. To do so on a voluntary
basis would in no way imply an erosion of the sovereignty of the House of Representatives
and its control over its department. Like other parliamentary departments, the
House department is already subject to the Commonwealth Procurement Guidelines
which include instructions for tenders and contracts to alert contractors of disclosure
obligations, including to the Parliament and it committees. In the Committee's
view, it would be a logical step for the House department to take if it were to
comply voluntarily with the order.
5.52
As noted in its previous report on the order, if the Senate accepts the
Committee view then the President of the Senate should convey its suggestion to
the Speaker of the House of Representatives.
Recommendation 11
5.53
The Committee reaffirms its suggestion that the Department of the House
of Representatives comply voluntarily with the order. If the Senate agrees with
this suggestion, the Committee requests the President of the Senate convey its
suggestion to the Speaker of the House of Representatives.
Ongoing Committee role
5.54
The Committee was instrumental in the establishment of the order in
2001. Since then it has closely monitored the order's operation and made
proposals to improve it which the Senate has adopted.
5.55
The Committee considers there remains a strong need for it to have an
ongoing role in relation to the future operation of the order. With significant
changes expected under the proposed new AusTender system, it is even more
important that a committee of the Senate continue to monitor developments in
relation to the reporting of government contracts.
5.56
The Committee sees two main areas where it has a role to play. The first
relates to monitoring the impact on the transparency of procurement contracts
as the new reporting framework is introduced. It is important that the Senate
is kept informed of changes in the reporting arrangements for government
contracts, particularly if new arrangements result in a reduction in
transparency or the capacity for scrutiny.
5.57
The second area of interest for the Committee is in relation to the
consideration and development of reporting options for non procurement
contracts. It is important that solutions for the transparency and reliability
of reporting for procurement contracts also be found for the reporting of non
procurement contracts. In view of its experience in the development of the
order, the Committee should be involved in the development of any new reporting
mechanism for non procurement contracts. As signalled in recommendation 2
above, the Committee considers that DOFA should report back to it on options
for non procurement reporting before any decision is made to implement a new
mechanism.
5.58
The Committee also considers that DOFA should provide a general report
to the Committee on the action it has taken and progress achieved in
implementing the Committee's recommendations. The report should also comment on
progress in implementing the new single reporting mechanism and provide a frank
appraisal of that system's performance and any problems that have emerged. This
general report should be presented to the Committee not later than the end of
September 2007. This should allow time for DOFA to implement the Committee's
recommendations and consider the operation of the new reporting mechanism,
particularly as departments and agencies should have reported contracts on
AusTender by the end of August 2007 (in accordance with paragraph (1) of the
order).
Recommendation 12
5.59
The Committee recommends DOFA provide a general report on the
implementation of the recommendations in this report and the performance of the
new single reporting mechanism, by not later than the last day in
September 2007.
5.60
A minor amendment to the order will be required to enable the Committee
to maintain a watching brief on the operation of the order and relevant
developments.
Recommendation 13
5.61
The Committee recommends the Senate amend paragraph (7) of the order, to
read: 'The Finance and Public Administration Committee consider the ongoing
operation of the order and report on relevant developments from time to time'.
Senator Brett
Mason
Chair
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