- DISR's procurement of delivery partners for the Entrepreneur's Programme
Auditor-General Report No. 42 2021–22
Introduction
Background
7.1The Entrepreneurs’ Programme was announced as part of the 2014–15 Budget with funding of $484.2 million. It was launched on 1 July 2014, and aims to support high‑potential business ideas by providing businesses with access to expert advice and grant funding. The Department of Industry, Science, Energy and Resources (DISER), now the Department of Industry, Science and Resources (DISR), is responsible for administering the program.
7.2A procurement process conducted in 2014–15 appointed 10 providers to deliver the program, with most of the contracts expiring on 30 June 2020. In September 2019, following a ‘redesign project’ that refocused the program delivery model to three outcomes of growth, innovation and commercialisation, DISR issued a Request for Tender (RFT) for the engagement of new delivery partners. The delivery partners’ role is to deliver expert business advisory and facilitation services for the Entrepreneurs’ Programme. The RFT sought:
- a single delivery partner to provide commercialisation services to customers nationally
- a single delivery partner to provide innovation and incubator support services nationally, and
- one or more delivery partners to provide expert business advisory and facilitation services in nominated geographic areas on a state and/or regional basis.
- The procurement had an estimated value of $182 million for the maximum contract term of five years. The tender received 55 responses, two of which did not satisfy the minimum requirements and were excluded from consideration. The remaining 53 progressed to evaluation. Seven tenderers were awarded contracts for a term of three years from 1 July 2020 to 30 June 2023, with two one-year extension options.
Audit findings
7.4Auditor-General Report No. 42 of 2021–22 Procurement of Delivery Partners for the Entrepreneurs’ Programme examined whether the design and conduct of the procurement process for delivery partners for the Entrepreneurs’ Programme complied with the Commonwealth Procurement Rules (CPRs), and whether the signed contracts are being appropriately managed.
7.5The audit focused on the conduct of the 2019–20 procurement process and DISR’s management of the resulting contracts. The audit scope did not include the procurement process of 2014–15 or the administration of grant funding under the Entrepreneurs’ Programme.
7.6The audit report concluded that:
The design and conduct of the procurement did not comply with the Commonwealth Procurement Rules (CPRs), and the signed contracts are not being appropriately managed.
7.7In relation to the department’s procurement process, the audit found that the department did not demonstrate the achievement of value for money, its approach was deficient in significant respects, and its conduct also fell short of the ethical requirements set out in the CPRs. In management of the delivery partner contracts, the audit noted that the contract management framework is inadequate, and the contracts do not include an effective performance management framework.
7.8The Auditor-General made 10 recommendations to DISR. The department agreed to all recommendations.
Chapter overview
7.9This chapter discusses key findings from the audit and DISR’s actions to address these findings since the tabling of the audit. The chapter focuses in particular on findings relating to:
- tender design, evaluation and assessment
- probity and ethics
- record keeping
- contract management
- procurement culture.
Tender design, evaluation and assessment
Evaluation criteria
7.10As required under the CPRs, the RFT issued by DISR in September 2019 outlined six criteria that would be used to evaluate the tender responses. Two of the criteria were weighted and the remaining four were not weighted. The RFT stated that the six evaluation criteria were not listed in order of importance. The criteria comprised:
- organisational capability (70 per cent weighting)
- promotion and marketing and industry knowledge (30 per cent weighting)
- price (not weighted)
- risk (not weighted)
- corporate and financial viability (not weighted), and
- Commonwealth policies (not weighted).
- The audit report noted that a tender evaluation plan, which would outline how the tender responses would be evaluated in accordance with the RFT, was not established before market responses were sought. Only a draft evaluation plan was in circulation at the time the RFT was published, which:
- was based on the plan used for the 2014–15 tender, and contained various comments from the probity adviser and departmental officers
- did not correctly identify who would conduct the evaluation, despite the fact that a three-person Tender Assessment Panel had already been established by the department
- did not reflect that four ‘internal experts’ would play a role in the conduct of the evaluations, and
- did not reflect the evaluation criteria set out in the RFT, with the draft plan indicating that there would be five weighted evaluation criteria that differed from the six listed in the RFT, only two of which were weighted.
- The draft evaluation plan was not signed off and approved before the RFT was issued on 27 September 2019 or before tender submissions were opened on 28November 2019. It was not also signed off and agreed by all Tender Assessment Panel members, the probity adviser, or the delegate for the procurement.
- Importantly, the audit report noted that the department’s evaluation plan outlined a two-stage approach to the tender process, but that this information was not provided to the potential tenderers in the RFT. According to the evaluation plan, tender submissions would be required to meet the first two weighted criteria to be shortlisted for further evaluation against the remaining criteria. The department also did not inform the potential tenderers that it only envisaged a shortlist of around 15 tender submissions to proceed to the pricing evaluation stage. This information was important for tenderers to determine whether to participate in the tender process, which can be a time-consuming and costly exercise, especially for small businesses.
Evaluation process
7.14A total of 55 tender responses were received by the department. The tender evaluation plan set out five stages in the evaluation process:
- stage 1: registration and screening
- stage 2: technical evaluation (assessment against the two weighted criteria)
- stage 3: pricing evaluation (assessment against the rest of the criteria)
- stage 4: contract compliance evaluation
- stage 5: value for money including overall risk evaluation.
- The audit report found significant issues at almost every stage of the evaluation process. At the registration and screening stage, the department determined that two tender responses did not satisfy the conditions for participation and/or the minimum content and format requirements, and these were excluded from further consideration.
- There were 13 other responses that required additional information to satisfy the conditions for participation and minimum content and format requirements. Of these, 11 were progressed to the next stage before the additional information was received, contrary to paragraph 10.34 of the CPRs.
- Another submission was recommended to be excluded by the probity adviser on the basis of it being non-competitive and non-compliant with the minimum content and format requirements, but the Tender Assessment Panel decided to shortlist the project. The ANAO found that the Tender Assessment Panel’s records ‘were inadequate to explain the decision that was taken’.
- Fifty-three submissions progressed to stage 2, which involved assessments against the two weighted criteria: organisational capability (70 per cent weighting), and promotion and marketing and industry knowledge (30 per cent weighting). The audit report noted that ‘[t]he [Tender Assessment Panel] did not employ a consistent and transparent process in evaluating each of the tender submissions’. Issues identified by the audit include:
- while all 53 tenders were evaluated against the first weighted criterion, six tender submissions did not receive an evaluation against the second weighted criterion
- only four tender responses (eight per cent) received an evaluation from all three Tender Assessment Panel members, while 26 (49 per cent) received an evaluation from two members, and 23 (42 per cent) received an evaluation from only one member
- how overall scores were determined was not transparent, with one assessor giving an overall score for the submissions they assessed while other two did not; the overall scores recorded in a ‘tracking document’ were also different to those recorded in the tender evaluation report
- there was no evidence of weightings having been applied
- a significant proportion of assessments were undertaken late in the two-week evaluation period and there was an uneven distribution of assessments conducted by individual members, with the assessor independent to the program undertaking the fewest assessments
- 30 tenders were rated as ‘acceptable’ or better against the two criteria, however only 14 of these 30 tenders were shortlisted.
- The 14 shortlisted tender responses were provided to the panel of internal experts for further evaluation. As noted above, this process was different to one outlined in the RFT, which did not indicate that a staged approach would be adopted. The ANAO observed that ‘[s]hortlisting did not provide for open and effective competition to be maintained’, and that ‘the shortlisting process had a significant bearing on the likelihood of tenderers being successful such that the department should have communicated in the RFT the extent to which shortlisting would be applied’.
- A consultancy firm was engaged by the department to conduct the stage 3 price evaluation for the shortlisted projects. Based on the results of the internal experts’ evaluation, the initial stage 3 pricing, and interviews with the 14 shortlisted tenderers, DISR reduced the shortlist to 10 tender submissions, which were provided to the Tender Assessment Panel for the overall value for money assessment.
- The audit report found that instead of ranking the tender submissions based on the technical merit, associated risks and the cost of each response, as required under the tender evaluation plan, the Tender Assessment Panel instead grouped the 10 submissions into ‘bands’ comprising: ‘competitive and recommended’, ‘competitive and not recommended’ or ‘uncompetitive’ against each of the three program outcomes (commercialisation, innovation, and growth). The audit report noted that:
This meant that DISER was not able to transparently demonstrate that the successful candidates were recommended based on their merits as determined by the evaluation against each of the six specified criteria.
7.22The audit found the process for identifying the preferred tenderers for the ‘commercialisation’ and ‘growth’ outcomes problematic. Of the two tender responses offering commercialisation services that were shortlisted for comparative assessment, the Tender Assessment Panel identified i4 Connect as the recommended tenderer despite the other tenderer ranking first. The audit report stated that ‘there was bias evident in the [Tender Assessment Panel’s] analysis to support the decision to recommend i4 Connect over Respondent 53’.
7.23For the ‘growth’ outcome, the ANAO noted the following inconsistencies:
- Additional opportunities were provided to three tenderers to revise or improve their tender submissions ‘with alternative delivery models to what they had initially proposed, along with additional pricing information in support of those alternative delivery models’.
- DISR tailored arrangements to select Deloitte, an incumbent provider that was not identified as the best candidate in any particular region, to provide growth services in Queensland on the basis that it was able to provide additional ‘national specialist roles’.
- A series of ‘errors’ in pricing assessments resulted in one submission, originally deemed non-competitive and non-compliant before being shortlisted by the Tender Assessment Panel, being ranked higher than it was warranted, and the tenderer was successful in being selected as the growth services provider for the Northern Territory.
- At the conclusion of the tender process, seven tenderers were awarded contracts: one to deliver commercialisation services nationally; one to deliver incubation support and innovation connection services nationally; and five to deliver advisory and facilitation services in nominated geographic areas. Five of the seven successful tenderers were incumbent providers. DISR’s management of incumbency advantage is examined further below.
ANAO recommendations and department’s response
7.25The ANAO made recommendations for DISR:
- when planning to employ a staged process to evaluating tenders, ‘clearly identify this in its approach to market along with the criteria that will be used to shortlist potential suppliers, and if applicable, any expected limits on the number of potential suppliers that will be shortlisted at each stage’
- when evaluating tender responses, ‘fully evaluate responses received consistent with the approach set out in the approach to the market, with the results of this work relied upon to select the successful candidate(s)’
- to not exercise the extension options in the awarded contracts, commence a new procurement process before the existing contracts expire in June 2023, and conduct the next procurement process in a manner that fully complies with the CPRs.
- DISR agreed to all recommendations, the last one ‘in principle’ noting that the continuation of the program will be subject to government consideration.
- At the public hearing held on 14 December 2022, DISR acknowledged the significance of the audit findings, and assured the Committee that it was taking them seriously:
We acknowledge there were significant deficiencies in the procurement process for the delivery partners, which fell short of the appropriate transparency, consistency and fairness as required under the Commonwealth Procurement Rules. I can assure you that, since the audit, the department’s taken strong action to ensure current and future procurements do not have the same deficiencies.
7.28Importantly, the department recognised the possibility of the issues being systemic, and informed the Committee that it had ‘commenced immediate assurance processes to make sure no other procurement breaches the CPRs’:
… we have started reviewing a sample of all of our existing procurements to make sure that we aren’t seeing the same things happening in other places, and I’m happy to let the committee know that we haven’t identified any of those failures in those others. We are continuing to do that work. … that work is being oversighted by our audit and risk committee, as well as the executive board in the department.
7.29The department also assured the Committee that in line with the ANAO’s recommendation it would not be exercising the options to extend the contract and that, if the government decided to continue the program, the contracts would be re-tendered and not rolled over.
7.30DISR acknowledged that ‘deficiencies right at the beginning around planning and design did not set this procurement up for success at all’. The issues in planning and design went onto impact the procurement’s value for money, as well as affect how small-and-medium businesses and incumbents engaged with the process.
7.31In a supplementary submission to the inquiry, DISR stated that its procurement policy has been updated to strengthen the relevant requirements, and that it now:
outlines the need to identify evaluation criteria in the procurement planning stage, which must also be included in the ‘approach to market’ documentation. This evaluation criteria must be used to select the successful candidate(s).
7.32The department also outlined a new ‘risk-tiering’ model for procurement that would differentiate the controls required for high value, high-risk procurement activities and simpler and smaller purchases.
7.33At the same hearing, the Auditor-General noted that it was positive to see DISR taking department-wide action in response to the audit findings:
I think one of the positive things is that, from what they’ve said, they’ve looked at the audit findings and not said, ‘Well, this is a one-off instance and we’ll just ignore it,’ but appear to be looking at it systematically and saying, ‘Is this the canary in the mine or whatever for what’s happening in the organisation as a whole?’
…
I just wanted to say that I think coming to the committee and talking about a departmental-wide response, rather than treating it as a narrow incidence, is a positive.
7.34DISR also informed the Committee that, in line with its model litigant responsibilities, it had provided all unsuccessful tenderers information on how to make a claim for compensation under the Government Procurement (Judicial Review) Act 2018. The Act provides a mechanism for seeking compensation for the cost of providing a tender when the CPRs are breached during the procurement process.
7.35DISR confirmed at the hearing that it had received eight applications under the Act, with two further applications being made through the Scheme for Compensation for Detriment caused by Defective Administration.
Probity and ethics
Probity adviser
7.36In August 2019, DISR appointed Mills Oakley as the probity adviser for the procurement process, ‘to advise on key documentation for the procurement process, conduct probity briefings for procurement personnel and advise on ad hoc probity and process issues’.
7.37The audit report noted that the engagement process ‘did not transparently demonstrate value for money and lacked probity’ itself. In particular, the audit noted that the process unfairly advantaged Mills Oakley by making its previous experience with the Entrepreneurs’ Programme a deciding factor in its decision:
Mills Oakley was the probity adviser on the previous procurement of industry partners for the Entrepreneurs’ Programme and was directly approached in June 2019 to provide probity advice on the redesign of the program. … while another candidate offered a lower estimated price, [the department noted that] ‘the Mills Oakley quote showed their greater relevant experience which indicated that they had a better grasp of what work was required of them.’
7.38The audit observed that:
Engaging the same probity adviser on an ongoing or serial basis over several related or unrelated issues increases self-interest and familiarity risks that may threaten the actual or perceived independence of the practitioner. DISER’s focus on the benefits of Mills Oakley’s previous experience in its evaluation also failed to consider whether this experience could adversely affect the independence of its probity advice.
7.39The risk to independence of probity advice was exacerbated when the scope of probity services requested by the department included the adviser’s involvement in procurement work, including drafting planning documents, RFT documentation, and draft contract forms and evaluation templates. This represented a significant conflict, as the probity adviser then provided assurance to the delegate that the documents that they were involved in drafting met the probity and procurement requirements.
7.40At the public hearing on 14 December 2022, the Auditor-General elaborated on this issue:
I think that the role of the probity adviser should be clearly set out and it should include what it can do and what it can’t do, and the probity adviser should be aware of what they can’t do. You can’t do things which would create conflicts, which is the concern that we had here.
7.41The ANAO recommended that DISR:
improve its procurement framework to specifically address the engagement of probity advisers, including ensuring that advisers are independent and objective by not engaging the same probity advisers on an ongoing or serial basis.
7.42DISR agreed to the recommendation. In its supplementary submissions, DISR stated that it was developing a new probity framework to address this recommendation, which will include:
… guidance on how to engage with probity advisers, the type of work they should undertake, what to do in response to their advice and how to support delegates and decision makers. This will strengthen current guidance on the key principle that the use of probity advisers does not remove the department’s accountability and obligations for a procurement process.
Conflict of interest
7.43In the audit, the ANAO examined DISR’s management of conflict of interest in relation to the procurement process, as well as its monitoring of the delivery partners’ conflicts of interest as part of the department’s contract management activities.
7.44The audit report found that DISR had not managed conflicts of interest relating to the procurement process as required by its probity plan and probity protocols. Key deficiencies included:
- not retaining on file all conflict of interest declarations, including that of the external financial analyst responsible for preparing pricing evaluations and corporate and financial viability checks of shortlisted tenderers
- not all members of the procurement team having signed conflict of interest declarations, including the procurement delegate and internal legal and procurement advisers who formed part of the specialist advice and support team
- not all conflicts of interest being identified, with one internal expert not declaring his known employment relationship of nine years with one of the tenderers
- no management actions being put in place to avoid or mitigate identified conflicts of interest.
- In relation to the monitoring of delivery partners’ conflicts of interest, the audit found that:
delivery partners have not consistently complied with their contractual obligation to ‘immediately’ notify DISER of conflicts of interest, and that DISER has failed to take appropriate action when delivery partners do not meet their contractual obligations, including when actual conflicts occur.
7.46Examples of potential and actual conflicts that arose included:
- a facilitator employed by one of the delivery partners submitting an expression of interest for a grant under one of the program initiatives. This was brought to DISR’s attention by another facilitator of the program, and DISR took action to ensure that the application for the grant was withdrawn
- a member of a delivery partner firm offering to invest in a company that was receiving facilitations services from the delivery partner and applying for a grant under the Entrepreneurs’ Programme. Despite receiving legal advice that identified this as an actual conflict of interest, the program delegate endorsed the declaration of interest without requiring any management actions to mitigate the conflict.
- The ANAO made a recommendation for DISR to ‘adopt a proactive approach to managing delivery partner conflicts of interest’, to which the department agreed. In a supplementary submission to the inquiry, DISR informed the Committee that, in response to the recommendation, it had undertaken the following actions:
- Probity & Conflict of Interest Training has been completed by all [Entrepreneurs’ Programme] branch staff.
- Delivery partner conflict of interest management has commenced and is required prior to the payment of all remaining invoices in the contracts.
- Management of actual or perceived conflicts of interest within [Entrepreneurs’ Programme] and across delivery partners has been reviewed.
- In relation to the last point, DISR elaborated on the review work undertaken in the 14December 2022 public hearing.
We conducted a review on current state—that was what is currently happening. … We took the seven delivery partner findings and then we identified areas for improvement and recommendations. And, more importantly, we designed a future state, and that was the place that we wanted to get to, and we provided recommendations that were then tied into the annual work plans. … Some of the findings that we found in there were: the timeliness of reporting of conflicts of interest—that was something we really focused on; and how the department is alerted to those but also how the delivery partner intervenes early, whether that be reassignment of duties, notification to the business or removal from that process altogether.
Incumbency advantage
7.49As mentioned in the beginning of the chapter, the 2019–20 procurement process was preceded by a ‘redesign project’ that sought to ‘improve the operation of the program, including the delivery mechanism and the structure of the program’. The audit report noted that DISR engaged five of the 10 existing providers to assist with the redesign to draw on their ‘deep knowledge of customer needs/program experience.’ This engagement was not conducted via a new contract, but through the existing arrangements with the suppliers. Further, although probity advice was received regarding the engagement of incumbents for the redesign work, the audit found that ‘some key probity controls … were not implemented or eroded during the redesign process’.
7.50The audit found that there was an actual breach of probity during this process. Around four weeks before the RFT was released, the department effectively advised the incumbent providers involved in the redesign project that the delivery model had been decided based on the work they had performed, rather than their work being the basis of concept development that presented options for the department to consider and make a decision on. The audit noted that ‘[t]his breach provided those incumbent providers with information about the tender process before the RFT was released’.
7.51Along with their involvement in the redesign process, the audit report noted that ‘the department’s approach to the procurement resulted in incumbent providers receiving greater consideration’, especially during the shortlisting process. Tender submissions from incumbents represented 73 per cent of shortlisted submissions for the growth and innovation outcomes despite only comprising 20 per cent of the tenders submitted. After shortlisting, there was no competition from non-incumbents in New South Wales/Australian Capital Territory, South Australia, Tasmania, Queensland, and Victoria. As noted earlier in the chapter, five of the seven successful tenderers were incumbent providers.
7.52Other shortcomings in management of incumbency advantage identified by the audit report include:
- no records being made of the probity issue that arose from the probity breach outlined above, and how it was handled
- recommencing the redesign project that had been paused during the tender evaluation process, based on ‘probity advice’ that was received via a phone call and not recorded
- consultation being held with one of the incumbent providers (Deloitte) three months before the delivery partners were selected, as part of the recommenced redesign project; this engagement was not recorded in the probity register. Deloitte was chosen as one of the delivery partners for ‘growth’ services.
- The ANAO made a recommendation for DISR to ‘improve its procurement framework to specifically address how it will manage the risk of any incumbency advantages when conducting procurement processes’. DISR agreed to the recommendation and noted that its updated procurement policy will ‘include additional advice on managing incumbency’. It also received probity training delivered by Maddocks that specifically covered risks of incumbency bias.
Record keeping
7.54The audit report raised a number of findings in relation to the department’s record keeping practices for the procurement. Some of these findings are outlined earlier in the chapter, including key documentation relating to the procurement not being signed or approved by the Tender Assessment Panel or the delegate, and insufficient records being retained regarding the probity of the procurement process. Other key deficiencies included:
- incorrect or misleading statements being included in the tender evaluation report to the delegate, such as that each response was reviewed by two of three assessors when 23 of 53 responses only had one assessment
- no records being made of Tender Assessment Panel meetings to evidence their deliberations
- key procurement records not being stored in the secure procurement library, with the audit report noting that around 200 records were added to the procurement library by the department during the course of the audit. These records included conflict of interest declarations, with six of 14 declarations added to the department’s records management system during the audit
- not retaining a copy of the necessary approvals for 10 of the 19 contract variations signed to date.
- The ANAO made a recommendation to the department to:
improve its procurement record keeping so that accurate and concise information exists on:
- the process that was followed
- how value for money was considered and achieved
- relevant approvals, and
- relevant decisions and basis of those decisions.
- DISR agreed to the recommendation. In its supplementary submission, the department stated that its updated procurement policy ‘now better highlights record keeping requirements’, and that delegates have access to a ‘checklist to assist with document identification and required justifications’.
- At the 14 December 2022 public hearing, DISR elaborated on the work it was doing to improve record keeping:
In my view, the work we really need to focus on when it comes to record keeping is that capability and training uplift, particularly around the importance of record keeping because without the record keeping you cannot prove the value-for-money decision was made. … The delegate checklist we have put together for all our delegates specifically goes to the types of records that must be kept and the level at which they need to be kept. That’s been a key focus. The longer term focus for us is that capability uplift and better training.
Contract management
7.58According to the audit report, the delivery partner contracts are ‘fee for services’ arrangements, with six of the seven delivery partners paid quarterly for services delivered, and the remaining delivery partner paid monthly. As at 31 October 2021, the ANAO calculated the total cumulative expenditure for the seven contracts to total $70.8 million, with $62.5 million comprising regular service charge payments.
7.59The audit report found that ‘DISER’s contract management framework for the program is inadequate’. It noted that despite the fact the delivery partner contracts were DISR’s largest value procurement in 2019–20, representing 37 per cent of the total value of contracts entered into by the department in that financial year, DISR did not develop contract management plans for the delivery partner contracts.
7.60The audit report further found that the department’s approach to managing the contracts did not enable it to secure provision of contract deliverables on time, or verify that services had been provided to an appropriate standard before payments are made.
7.61The contract specified the following deliverables and milestone dates by which they must be delivered:
- engagement of all required specified personnel to deliver program services — by 1 July 2020
- draft work and communications plans, which detail how the delivery partner will deliver the services, including activities, targets and qualitative measures — within four weeks from the services commencement date of 1 July 2020 for the 2020–21 financial year, and then at least six weeks prior to the start of the new financial year
- quarterly management report, which contains updates on the delivery partner’s year-to-date performance against the work and communications plan — 30 days after the conclusion of each quarter.
- The audit report outlined shortfalls in the provision of each contract deliverable:
- five of seven delivery partners did not engage the required number of specified personnel by the milestone date. There were no deductions made from the first quarterly payments, with DISR citing ‘discretion’ and lack of options to vary payments under the contract without suspending payment due to contractual non-compliance.
- no delivery partner has complied with the contractual deadline for the draft work and communication plans, with the average delay for submission across all delivery partners being 94 days in 2020–21, deteriorating to 163 days in 2021–22. The longest time taken to submit the plans was 247 days late. As the work plans outline the services that will be delivered in the relevant financial year, ‘[t]he delay means that the services for the financial year have not been agreed at the beginning of the financial year’.
- 51 per cent of the quarterly reports submitted were outside of the contractually required deadline with an average delay of 15 days. While two delivery partners submitted all reports within the deadline, one provider has never met the deadline for the submission of the quarterly reports. The audit noted that although the contract stated that payment of invoices is subject to DISR’s acceptance of the quarterly reports, ‘60 per cent of invoices [were] recorded as having been verified and processed for payment without submission of the quarterly reports by the delivery partners’.
- The department’s contract management activities were further weakened by the lack of an effective performance management framework in the contract. The audit report noted that the draft contract released as part of the RFT documentation did not include a performance management regime to assess the deliver partners’ performance, with the document stating that a performance framework ‘will be developed by the department in consultation with prospective delivery partners during the contract negotiation stage’.
- The performance framework was delivered in December 2019 by a consultant engaged by DISR. The audit report noted that the engagement of the consulting service did not comply with the CPRs and did not transparently demonstrate value for money. Notably, DISR conducted a limited tender and only approached a single firm for a quote using ‘short timeframe’ as its justification, despite the fact that ‘the short timeframes were not brought about by unforeseeable events given the RFT had foreshadowed that the performance framework would need to be developed’.
- The audit report noted that the contracts outlined three types of services to be provided: business facilitation and advisory services; promotion and marketing for the Entrepreneurs’ Programme; and provision of market and business intelligence to the department. However, the contract did not contain:
- specific service levels that each delivery partner must achieve or exceed
- any performance measures to assess delivery partner performance, or
- a provision by which DISR could reduce quarterly payments for failure to meet contracted service levels. This provision was included in the draft contract, but was removed by DISR in the final contract on its own initiative.
- The audit report noted that the contracts referred to a ‘performance and capability policy’ to provide details on the process for performance management. However, while the policy contains ‘a mix of qualitative and quantitative measures and “expected behaviours” the delivery partners will be assessed against’, the audit found that ‘[n]o targets are set in the policy against the performance measures and no process is set out to assess performance’.
- Further, the audit noted that the ‘targets and qualitative measures’ included in the deliver partners’ work and communication plans had ‘a clear disconnect’ with the performance and capability policy, with ‘[n]one of the delivery partner work and communications plans includ[ing] targets for all measures contained in the performance and capability policy’.
- The audit report concluded:
Without targets or any basis for comparison, the department is unable to assess whether delivery partner performance is satisfactory and is also unable to demonstrate that the contracts are delivering against the expectations that informed the decision to select the successful tenderers.
7.69The ANAO made three recommendations relating to DISR’s contract and performance management framework, for DISR to:
- develop contract management plans for each of the delivery partner contracts
- strengthen its management of the Entrepreneurs’ Programme delivery contracts, including by taking prompt action in circumstances where delivery deadlines are not met and verifying that services have been provided before payments are mad, and
- apply competitive pressure when establishing performance expectations, and how these will relate to contractual payments.
- The department agreed to all three recommendations. It informed the Committee in a supplementary submission that:
- contract management plans have been developed for each of the seven contracts, and implemented in March 2022
- a delivery partner Contract Compliance Schedule has been implemented to support contract management
- a Service Verification process has been implemented for the payment of all remaining invoices in the contracts, and
- a delivery partner Performance Capability Framework was developed and implemented in June 2022, which includes annual and quarterly performance discussions, the deployment of client satisfaction surveys, delivery partner and section manager performance assessment reviews and feedback.
Procurement culture
7.71The importance of culture and leadership in shaping an organisation’s behaviour has been outlined in previous chapters. Recognising the seriousness of the audit findings, DISR advised the Committee in its submission to the inquiry that it is expediting ‘a program of work to focus on improving procurement culture and capability’.
7.72The department elaborated on its initiatives to improve its procurement culture and capability in a supplementary submission. Along with changes to its procurement and probity frameworks, DISR acknowledged the importance of senior leadership in driving cultural improvements:
All Senior Executive Service (SES) staff are expected to lead by example in modelling appropriate ways of working. They do this by leading the changes within their groups and being held accountable for decisions being taken. To support accountability new reporting is being developed to provide whole of portfolio visibility of procurement activity being undertaken and its adherence to policy. A number of SES staff are also involved in overseeing the program of work to bring about cultural change, including development of the probity framework.
7.73In relation to capability, DISR stated at the 14 December 2022 public hearing that:
What the audit has highlighted to us is that strengthened processes need to be backed by improved staff capability, and we’re working to improve staff capability, particularly in the procurement practice. The department has ensured all its senior executives have undertaken additional probity training, and we have now a particular focus on supporting our delegates involved in complex procurements. In addition, we’ve been working with other agencies on best practice reforms in procurement and program management. Further, the ANAO has presented lessons learned from procurement audits to all of our senior executives and a range of our executive level staff.
7.74DISR acknowledged that ‘driving and embedding cultural and capability uplift is a longer term commitment’, and stated that it will continue to monitor its progress via indicators such as the APS staff census.
Committee comment
7.75The audit report on the Entrepreneur’s Programme presented very serious findings in relation to DISR’s procurement and contract management processes. As the department acknowledged, the procurement process was flawed from the beginning, with the risks arising from the incumbents’ involvement in the program’s redesign project not properly managed. More issues occurred throughout the rest of the planning and design phase, with the RFT document containing incorrect statements about the evaluation criteria and process, and the tender evaluation plan not being finalised, signed off or approved by key procurement personnel.
7.76The Committee finds it particularly concerning that the shortlisting process was not communicated to potential tenderers, hindering their ability to make an informed decision on whether to participate in the tender. The Committee notes the department’s advice regarding the compensation claims it had received from unsuccessful tenderers, and hopes that such steps will not be required for future procurements it undertakes.
7.77The probity issues raised by the audit are alarming. It is a requirement of the CPRs that procuring entities act ethically throughout the procurement, including by recognising and dealing with actual, potential and perceived conflicts of interest and by dealing equitably with potential suppliers, tenderers and suppliers. The department met neither of these requirements.
7.78The extent of the issues raised by the audit report indicated to the Committee that there are systemic failures in the department. Not only was the procurement of delivery partners deficient in almost every respect, but the ANAO also found that supporting procurements such as the engagement of the probity adviser and other consultants during the process were also found to be non-compliant with the CPRs and did not demonstrate value for money.
7.79In light of these findings, the Committee welcomes the department’s advice that it had commenced an immediate assurance review of its other procurements to ensure that there are no further breaches of CPRs and thanks the witnesses who appeared for their frank and open approach which is likely to have a positive impact on cultural change. The Auditor-General’s comment that the department’s response to the audit findings has been positive further reassures the Committee that appropriate actions are being taken in response to the audit recommendations.
7.80Although the Committee acknowledges that DISR accepted all of the report’s recommendations and have already made progress in addressing the findings, this inquiry’s evidence highlighted the scope and scale of the work the department must undertake to improve its procurement culture and capability to ensure that these failures are not repeated.
7.81The Committee recommends that the Department of Industry Science and Resources report back on:
- the progress and outcomes of its assurance review of its other procurements including advice as to any other breaches of the Commonwealth Procurement Rules identified
- the outcomes of all claims under the Scheme for Compensation for Detriment caused by Defective Administration, and
- what additional activities the department’s Audit and Risk Committee has undertaken and is undertaking in relation to procurement reforms
7.82The Committee recommends that the Australian National Audit Office conduct a follow-up performance audit of the Department of Industry, Science and Resources to assess the effectiveness of its recent procurement reforms.
Mr Julian Hill MP
Chair