“Procurement is a topic that has engaged the attention of Parliamentary Committees with unfortunate regularity in recent years,” says a new report from the Joint Committee of Public Accounts and Audit, very early on. In fact, procurement has been a vexed issue in the Australian Public Service (APS) going back a lot longer than just recent years.
So there’s a sense in which the committee — chaired by Labor MP Julian Hill, whose brilliant foreword to the report summarises its content in vivid terms — isn’t telling us much new in its bipartisan Report 498: ‘Commitment issues’ — An inquiry into Commonwealth procurement. But it is nonetheless one of the most important parliamentary committee reports of recent times, drawing back from individual examples of bad procurement by Commonwealth agencies to look at what is a whole — there are no other words for it — fucked up procurement system.
Around $80 billion a year of fucked up.
Public sector procurement is a wonky subject. Hell, even public servants’ eyes glaze over when it comes to procurement. But it’s where tens of billions of taxpayer dollars are spent every year buying goods and services for government, and then managing the contracts for those goods and services. There are the “parent” contracts — nearly $50 billion a year — and there are extensions to pre-existing contracts — another $30-odd billion. And contracts are getting bigger: over the past decade, the median value of procurement contracts has increased by 50% in real terms.
Defence is the biggest procurer, of course, and its inability to procure any major project without delays and cost overruns is well-known. But even if you omit the $200 billion spent by defence over the last decade, that still leaves hundreds of billions of dollars spent by the rest of the APS.
The core problem with procurement — I speak from direct experience — is that doing it well is not a priority for public servants. It’s not their money; demonstrating value for money is merely a requirement placed on them by the Commonwealth procurement rules. And those who are charged with doing it properly — procurement and internal audit areas within agencies — are seen as impediments to getting the job done by everyone else, finicky pedants more interested in box-ticking and process than in getting that much-needed contract or consultancy out the door.
As the committee report — go read it, or at least Hill’s wonderful preface — makes clear, however, it’s not just about the lack of priority accorded to doing procurement well. It’s the lack of capability to do it well at all; the lack of recognition that good procurement is a specific skill that the APS lacks almost completely. As former secretary Ian Watt noted in his evidence to the committee, “There’s no solution short of doing this systematically, across the board, for agencies as a whole. Unless that happens, I think you will be here for a long while to come, dealing with auditor-generals’ reports you’d rather not have”.
Another key factor — and an area where the report does present a new insight — is that the bureaucrats charged with overseeing procurement, the Department of Finance, are asleep at the wheel. Notionally, finance has “policy stewardship of the Commonwealth Procurement Framework”, but in practice it’s “devolved” to agencies. And finance doesn’t like to actually monitor procurement by agencies because “this would potentially damage finance’s strong relationships with procuring entities and place additional burden on procuring entities”.
What horrific outcomes would happen if these “strong relationships” were damaged? There’d be “less transparency and information sharing between entities”! Except, as the report notes, there’s minimal information-sharing now. And even when the auditor-general exposes appalling procurement practices, finance doesn’t do anything. Finance is even reluctant to ask agencies to comply properly with the information requirements for Austender, (as Crikey has recently noted, some agencies treat Austender as a joke) because it doesn’t want to add to their compliance burdens.
The other big target for the committee is panel procurement, when firms make “standing offers” or are pre-vetted to form a panel of preferred suppliers, streamlining procurement processes for departments. A decade ago, just 12% of the value of all procurement was via panels. Now it’s more than a third. And whatever the savings from “streamlining”, procurement panels might be the biggest rort in the Commonwealth.
The abuses are legion: if an agency approaches just one member of a panel, it gets to claim it has conducted an “open tender”, when it plainly hasn’t. Panels usually end up being dominated by one or a few providers (in one case, a panellist took 80% of all work given to the whole panel). It means departments simply hand out contracts (and extensions to contracts) to the same firms over and over. And panels can last up to a decade without being refreshed, meaning new competitors are frozen out.
And you’ll never guess who were the biggest beneficiaries of these dodgy panels: the Australian National Audit Office (ANAO) found “that the top four suppliers, by number, of standing offers were KPMG, Ernst & Young, PricewaterhouseCoopers, and Deloitte.”
While the committee makes some excellent recommendations, it doesn’t really get to grips with the core problem behind procurement in the APS: there are no consequences for bureaucrats and departments that waste taxpayer money on poor procurement. Until that happens — and until there is real professional procurement capacity in the public service, until finance starts doing its job, and until the use of panels is dramatically reined in — we’ll be stuck where Ian Watt predicts we’ll be.
Perhaps agency budgets should be docked a set amount each time the ANAO discovers poor procurement. Perhaps public servants responsible for poor procurement outcomes should be frozen at level for five years. But real accountability is needed.
Even so, Hill and his colleagues deserve praise for shining a light on the negligence that is costing us billions of dollars year in and year out.
