The central procurement divisions in the DCS and the DTMR provided support and advice to contract managers in their respective departments. Designated client representatives from business areas managed contracts on a day-to-day basis.116
The audit identified that demand and supply market analysis was done for only one contract from the 58 reviewed contracts. Report No. 10: 2013-14 also outlined that the DCS had not assessed its procurement capability and could not demonstrate that its contract managers had the appropriate skills to manage contracts. The Auditor-General advised that no plan had been developed to improve the skills of staff in business areas responsible for managing contracts. Of concern to the Auditor-General was that 13 from the 17 contracts reviewed were managed on a day-to-day basis by untrained contract managers.117
PSBA acknowledged that this has been an issue for the department for many years and agreed that getting a contract management framework in place is essential. The PSBA explained that they are:
.. working with PTD with the capability side to make sure that we have the ability to roll out stuff is practical. Certainly, a contract manager who is managing a low-risk, low-value contract needs to focus on what he needs to focus on as opposed to one at a higher end, which is high risk and high value. There are two different skill sets that you are looking for. You really need to pitch your training and your capability at those levels. If you do not, again, we will hit it with a sledgehammer rather than thinking what is practical.118
DHPW advised that BAS and housing services are the two main areas that they have to focus on are procurement and contract managers, as these are considered to be the future for the department. The department explained that the government’s decision to outsource 90 percent of housing to private providers means the department will have to be procurement and contract managers. Their housing services head office has also undergone a restructure so there is an increased importance of the procurement and contract management function at a central office level.119
113 Commonwealth of Australia, Australian National Audit Office, Developing and Managing Contracts Better Practice Guide, February
2012:86
114 Queensland Audit Office, Report No. 10: 2013-14: Contract management: renewal and transition, December 2013: 20 115 Ms Goodwin, Transcript 2 April 2014: 5
116 Queensland Audit Office, Report No. 10: 2013-14: Contract management: renewal and transition, December 2013: 21 117 Queensland Audit Office, Report No. 10: 2013-14: Contract management: renewal and transition, December 2013: 21 118 Mr Mangano, Transcript 2 April 2014: 10
DHPW also explained that in regards to housing where major procurement and contract management activities will be in the future, there has been a complete realignment and restructure in the head office. They stated:
So what we have done there is it is now an organisation that looks at the procurement life cycle. We have one area of that department that looks after policy, the next area looks after capability or market development, the next part of housing services is responsible for procurement and the other area of housing services looks after contract management.120
DHPW is providing and developing training for BAS on complete contract management life cycle as contract managers in regional Queensland are required to be fully engaged with suppliers, procurement and contract management.121
Queensland Health agreed with the audit findings and explained that they are working with PTD to roll out contract management training at all levels not just in the department and throughout the distributed health network across the state. They stated:
On the back of the redesign of the procurement operating model within Queensland Health, we are injecting high-level contract managers, particularly for some of those key clinical spend categories. We spend in excess of half a billion dollars for clinical consumables, $400 million for pharmaceutical drugs and in excess of half a billion dollars for medical related services. These are complex categories with some quite powerful supply bases and we need astute, commercially driven contract managers to be able to manage those contracts.122
DCCSDS considered that there was a gap between where their staff currently are in their capability and where they need to be. They stated that they are in the process of developing a procurement and contract management capability workforce strategy. DCCSDS advised:
As part of our implementation of the new Treasury guidelines, we had a look at just how many staff we had across the department who might be captured under the new procurement framework and we came up with an FTE number of over 600 staff who were either undertaking a procurement function or a contract management function across the agency. We have over 300 contract managers in the regions who are dealing daily with the non-government sector and looking at the performance requirements and certifying future payments for the sector. When we looked at the capability of these staff as part of the Procurement Transformation Division capability assessment, we realised that there was an enormous gap between where they currently are and where they need to be, and through our human resource area we have developed a procurement and contract management capability workforce strategy which we are currently implementing. We have delivered some preliminary contract management training into the regions, particularly at a team leader level to get that percolating down through the organisation, and we will be looking at future contract management training for those staff.123
The department also advised:
What we have done immediately is as part of our graduate program we have brought in a procurement graduate to try to boost up immediately our procurement skills, and from my perspective.124
120 Mr Castles, Transcript 15 October 2014: 8 121 Mr Castles, Transcript 15 October 2014: 8 122 Mr Mazzotta, Transcript 15 October 2014: 7 123 Mr O’Brien, Transcript 15 October 2014: 7 124 Mr O’Brien, Transcript 15 October 2014: 7
Public Sector Contract Extensions DSITIA also acknowledged that there was a gap in knowledge within their department. They advised the Committee that there was some very strong contract management in the CITEC side of the department and in managing the government wireless network contract, but experience varies across other parts of the department. They explained:
I am currently doing a range of presentations to staff right across the department and I am showcasing these sorts of skills and saying, ‘If you’ve got them and we don’t know about them, tell us, and if you are interested in building capability, please talk to us as well.’ So I am trying to get the message right down throughout the department.125
A new process is being rolled out at DTMR around how the department make purchases. The department informed the Committee that they have trained over 1,100 people across the organisation in procurement, which also includes contract management. In addition, DTMR explained that they have tools on the intranet to support staff and have had very positive feedback on the training tools.126
DTMR also advised the Committee that since the audit, the department has implemented targeted contract management training on a regular basis. In addition, mandatory online training is available for procurement awareness and delegations, and specific training provided on the new procurement process. The DTMR requires that new procurement delegates are not able to exercise their delegation until training has been undertaken.127
DETE conceded that there have been some challenges in their department. The department noted that one of their challenges has been that they have had difficulties in obtaining dedicated full-time contract managers, particularly when the economy is in an upswing. The other challenge within DETE is that:
… we have people who do contract management as part of their everyday activity. There is a challenge for our agency, and again I suspect for most, to raise the level of contract management awareness and expertise with those staff, who do not do that sort of activity all day, every day; they do it as part of another deliverable or outcome.128
The Committee queried whether fraud controls within contract management has been addressed by the departments and in particular by PTD. The DHPW advised that they are very focussed on fraud prevention in their department. The department stated:
We have greatly reduced the level of general purpose vouchers, so everything is much more automated. There is far greater automation, with approvals being online and so forth, which significantly reduces the likelihood of that.129
DHPW acknowledged that there has been a lot of emphasis across all departments in the area of fraud prevention.130 The department advised that the practice of extensive data mining is now
embedded in their business, and this process examines the anomalies such as name of payer or payee, number of times these appear, addresses and the absence of an ABN.131
125 Ms Rickerby, Transcript 15 October 2014: 8 126 Ms Hawkswood, Transcript 15 October 2014: 9-10
127 Correspondence from Director-General, Department of Transport and Main Roads, to FAC dated 14 August 2014: 3 128 Mr Heard, Transcript 15 October 2014: 9
129 Mr Castles, Transcript 15 October 2014: 10 130 Ms McDonald, Transcript 15 October 2014: 11 131 Mr Castles, Transcript 15 October 2014: 10
DTMR advised the Committee that on developing their training of fraud awareness, they worked closely with their internal audit, legal and prosecution as well as their financial accounting areas to ensure that their processes address all of the risk. They stated:
It was all focused on delivering an outcome and making sure that, in terms of delivering that outcome, we did not drop any of the controls.132
The Committee also heard that all managers at DCCSDS had undergone an internal-controls-at-work training program, which included some focus on fraud prevention.133
5.1.1 Contract management governance
Report No. 10: 2013-14 noted that all aspects of the contract life cycle including establishing contracts, delivering contracts to ensure objectives are realised and extending, renewing or re- tendering contracts should be included as part of effective governance. The audit reviewed whether departments had plans to enable effective delivery of contracts and whether they had effective processes for governing the extension and renewal of contracts particularly since the government’s decision to outsource 90 per cent of housing to private providers.134
DHPW noted that service maintenance contracts are a significant issue for BAS. They advised:
BAS is a building regional capability and capacity to ensure local control and ownership of service maintenance contracts, previous centralisation of these has resulted in large, complicated packages being developed without adequate consultation with regional customers and suppliers.135
They explained that a review had been undertaken. As a result of this review, service maintenance contracts have been streamlined into aggregated packaged arrangements (down from 638 contracts to 175 contracts). These were put out to the market in April 2014, and over 90 per cent have been awarded. The department outlined that the remainder were due to be awarded by the end of August 2014.136
5.1.2 Contract management plans
The ANAO considered that a contract management plan (or simple check list) even for relatively simple, low-risk contracts will ensure that important obligations are adhered to and the intent of the contract is achieved.137
The ANAO suggested that contract management plans should include contract details such as:
key contacts
dates and milestones
roles and responsibilities of personnel in the acquiring entity and supplier
contract terms and conditions
communication and reporting schedules
performance indicators and measures
pricing and payment conditions and
risk assessments.138
132 Ms Hawkswood, Transcript 15 October 2014: 11 133 Mr O’Brien, Transcript 15 October 2014: 12
134 Queensland Audit Office, Report No. 10: 2013-14: Contract management: renewal and transition, December 2013: 22 135 Correspondence from Director-General, Department of Housing and Public Works, to FAC dated 19 August 2014: 10 136 Correspondence from Director-General, Department of Housing and Public Works, to FAC dated 19 August 2014: 10
137 Commonwealth of Australia, Australian National Audit Office, Developing and Managing Contracts Better Practice Guide, February
Public Sector Contract Extensions The audit found that only 13 of the 62 contracts reviewed had a contract management plan, whilst the remaining 49 had no plan in place to enable effective contract administration during the term of the contract or to put in place necessary processes before the contract expired. The Auditor-General also identified that departments with either policies or templates to develop contract management plans did not enforce the plans systematically.139
The Auditor-General emphasised that 25 contracts worth more than $1 million each had no contract management plan.140
DHPW explained that:
… the contract management framework developed by PTD articulates the importance of performance management activities as a fundamental element for delivering the expected value from contracts.141
They also stated:
Many of the existing contract arrangements from areas within DHPW, including Housing Services, Strategic Asset Management, QBuild and Project Services were novated to the new Building and Asset Services (BAS) organisation on 1 July 2013. BAS is working with PTD to further develop its contract management capability to ensure contracts are managed efficiently and effectively.142
During the course of the Committee’s additional survey for further information on procurement contracts, the DETE advised that the gathering of the data requested required a ‘manual’ review of contracts.143 The department noted that they have implemented the Q-Contracts (Open Windows
Contract Life-Cycle Management) which will commence from July 2014.144 They also advised that
they have had an ongoing procurement reform initiative since 2010 when a specific branch was created to ensure professional conduct of procurement activity.145
5.1.3 Approval process and policies for contract expiry
The ANAO’s guide suggests that any negotiation for contract extensions should commence and be agreed before the expiry date of the contract. Contract extensions that start late can place the entity in an inferior negotiating position. The ANAO proposed that examination of possible contract extensions should commence at least six months before the contract expiry date to allow time for consultation with stakeholders and value for money assessment.146
The Auditor-General considered that the review process in planning for contract expiry should be outlined in the policies and procedures of the department. The Auditor-General recommended that the review process ought to include an analysis to determine how best to achieve value for money before making the decision to extend, renew or re-tender contracts.147
138 Commonwealth of Australia, Australian National Audit Office, Developing and Managing Contracts Better Practice Guide, February
2012:36
139 Queensland Audit Office, Report No. 10: 2013-14: Contract management: renewal and transition, December 2013: 22 140 Queensland Audit Office, Report No. 10: 2013-14: Contract management: renewal and transition, December 2013: 22 141 Correspondence from Director-General, Department of Housing and Public Works, to FAC dated 19 August 2014: 4 142 Correspondence from Director-General, Department of Housing and Public Works, to FAC dated 19 August 2014: 5 143 Correspondence from Director-General, Department of Education, Training and Employment, to FAC dated 6 August 2014: 1 144 Correspondence from Director-General, Department of Education, Training and Employment, to FAC dated 6 August 2014: 3 145 Correspondence from Director-General, Department of Education, Training and Employment, to FAC dated 6 August 2014: 4
146 Commonwealth of Australia, Australian National Audit Office, Developing and Managing Contracts Better Practice Guide, February
2012:101
Report No. 10: 2013-14 found that the departments did not have in place effective governance structures to identify and correct systematically where contract managers requested contract extensions or renewals without demonstrating how value for money would be achieved. Although policies and procedures were in place, their focus was mostly on how contracts should be established but not on how contract managers should prepare for contract expiry.148
The Auditor-General noted that DCS and PTD did not have any policies and procedures on contract expiry. At DTMR and BAS, procedures on contract expiry were in place but they were not sufficiently detailed in describing how value for money should be tested. QAO noted that these procedures were not applied when extending or renewing contracts and the governance processes were ineffective in identifying and correcting when this occurred.149
Report No. 10: 2013-14 also outlined that all audited departments had approved submissions for contract extension with minimal analysis to support the extension and lacking detail on why an extension presented the best value for money option.150
The Auditor-General acknowledged that PTD had developed a draft, outlining how it expects its contract managers to review a supply arrangement both during the contract term and before approving extensions.151
DHPW advised that PTD’s checklist contract review report template and frequently asked questions for use in procurement teams in the decision-making process of whether contracts are extended or renewed.152 The department explained that the checklist also includes an explicit section for
approval by the relevant delegated authority in the respective agency before proceeding. They also noted that this checklist is already being utilised by a number of agencies and was being progressively incorporated across government from July 2014.153