Contracting out of Government Services Second Report

Table of Contents

CHAPTER 4

ACCOUNTABILITY

Introduction

In a much-quoted address to the national conference of the Australian Institute of Public Administration in November 1996, the Governor-General, Sir William Deane, stated:

Incorruptibility, accountability and fairness ... are ... basic values underlying public administration. They are in no way inconsistent with the processes of desirable change or the search for greater efficiency.

As government services of many kinds are increasingly being provided by non-government agencies, the challenge for governments is to translate those basic values to the new service providers. This is not to suggest that merely because contracted service providers may be concerned with operating to make a profit, they will automatically be corruptible, unaccountable or unfair. Nor does the committee draw any comparisons between the relative probability of ethical, accountable behaviour on the part of the public and private sectors. It notes, however, that the Commonwealth public sector is governed by a published code of ethics, the Guidelines on Official Conduct of Commonwealth Public Servants; similar documents exist in the state public services.

Accountability has been described in simple terms as the means by which those persons whose money is used to finance an undertaking are able to control the performance of those who act on their behalf. [1] In discussing the issue at a seminar jointly sponsored by the committee, the then Public Service Commissioner, Dr Peter Shergold, outlined what he described as an 'unambiguous' line of accountability:

That line of accountability of a public servant is to the government, through the government to the parliament, and through the parliament, to the Australian people. [2]

Dr Shergold explained that when a contractor, rather than a public servant, provided a given service and that service failed to meet the needs of a member of the public, that person could seek a remedy in a variety of ways, either directly with the contractor, with the government department oversighting the contract, with the Commonwealth Ombudsman, through parliament, through a parliamentary representative, or through the minister.

In the committee's view, this traditional view of accountability needs to be elaborated somewhat to accommodate the rapid technological, financial and administrative changes of the late 20th century. To retain the confidence of the people who elected them, governments still need to maintain a trustworthy and responsive public administration. Increasingly, substantial powers are being delegated. The practical constraints imposed by the size and complexity of government was recognised in the mid-1970s and led to the creation of bodies or structures to assist both parliament and ministers in their scrutiny of administration, with the Commonwealth Ombudsman, the Administrative Appeals Tribunal, the Freedom of Information Act joining the Auditor-General to undertake this role.

A central tenet in both the current government's - and its predecessor's - justification for the outsourcing of certain government services is that government accountability for those services is not lessened and may even be enhanced following their outsourcing. Critics of outsourcing, however, argue that accountability can be seriously compromised. Appearances notwithstanding, these views are not necessarily diametrically opposed. Much depends on what government services, and what aspect of accountability, are being considered and, of course, how well the outsourcing is undertaken. Despite the proliferation of literature on outsourcing and the growing body of international and Australian experience with it, the committee believes more still needs to be learnt on the accountability front.

Some witnesses support the argument that the cost-saving benefits of outsourcing are achieved in part because of a reduction in accountability and that that is the price society must pay for a similar standard of service. For example, as Professor Mulgan told the committee:

Contracting out inevitably involves some reduction in accountability through the removal of direct departmental and ministerial control over the day-to-day actions of contractors and their staff. Indeed, the removal of such control is essential to the rationale of contracting out because the main increases in efficiency come from the greater freedom allowed to contracting providers. Accountability is also likely to be reduced through the reduced availability of citizen redresss under such instruments as the Ombudsman and FOI. [3]

One company with considerable experience with government contracts was quite direct in its assessment of the accountability implications of outsourcing:

Overlaying best practice contractual arrangements with additional provisions for Ministerial accountability and intervention and/or detailed parliamentary scrutiny can only increase the costs and reduce the efficiency of contracting out. [4]

Even the Commonwealth Department of Finance and Administration, whose Competitive Tendering and Contracting Unit is responsible for much advice to other government agencies on these matters, voiced what in the committee's view is a reduced accountability model:

Although contracted service providers must be accountable for outcomes and service quality, care should be taken to ensure that the value of contracting out is not reduced by duplicating public service reporting and monitoring in the private sector (emphasis added). [5]

The Victorian Auditor-General addressed this argument head on:

The various checks and balances in the public accountability process may be costly to administer and may, as some would argue, be a bureaucratic hindrance in the effective management of a function such as purchasing, but they are designed to protect a Government's reputation and the interest of the public at large. [6]

Proponents of outsourcing emphasise that, although a particular service might be delivered by a contractor, the government agency responsible for the contract remains accountable for the proper provision of that service. The then Department of Finance considered that accountability in an outsourced environment could be enhanced because performance expectations would be made explicit and value-added outcomes could be achieved. [7] In theory, this makes eminent good sense. In practice, it is much less clearcut. In particular, whether the relevant minister should take responsibility for any deficiencies in the handling of a contracted-out service is a grey area. The committee believes that, irrespective of the service delivery method adopted, there should be no reduction in accountability.

In this chapter, the committee examines issues related to the chain of accountability, to the question of redress for maladministration on the part of a contractor, to access to information and to the privacy ramifications.

The accountability chain

The traditional model of accountability holds ministers responsible for the public and parliamentary advocacy and defence of government policies and administration, while public servants' responsibilities are to assist ministers to fulfil their accountability obligations by providing full and accurate information to the parliament about the factual and technical background to policies and their administration. The division between policy and administration has never been clearcut and the introduction into the equation of the contracting out the provision of services formerly provided by government has the potential to blur the dividing line even further. There are a number of recent examples of disputed responsibility when contracts or contracted services have gone quite dramatically wrong: the Cave Creek viewing platform disaster in New Zealand; the Child Support Agency problems and prison breakouts in the United Kingdom. Did the failings result from defective policies, thus pinning responsibility at the minister's door, or from defective administration, in which case the agency head needed to shoulder the blame? Or is it too difficult to apportion precise responsibility? The British Home Secretary who declined to answer parliamentary questions about the outbreaks from privatised prisons on the grounds that he was not responsible for operational matters was subsequently shown to have been personally involved in operational decisions as well as setting the policy and budgetary framework. [8]

A MAB/MIAC report on accountability argued that ministerial responsibility did not extend to individual liability for every action of public servants and that ministers should not be expected to tender their resignation in the event of an administrative failure. [9] The Australian National Audit Office supported this generally accepted view:

any decision to contract the delivery of services or maintain the service delivery in-house does not diminish the normally accepted level of Ministerial responsibility. That is, the nature of the service delivery does not change Ministers' responsibility in regard to the overall management of their portfolio and the delivery of services as part of overall program outcomes. [10]

Professor Mulgan argues that the public is accustomed to holding elected politicians, not non-elected managers, to account for prison disturbances or breakdowns in hospital services – and the public wants to see heads roll for blatant maladministration. [11] When politicians absolve themselves from any part in the failure, the public is unlikely to be aware – or to accept - that the minister perhaps had no right to intervene in a contracted out service. And a failure to act has the potential to damage the reputation of a government and its electoral prospects.

The committee recognises that responsibility for aspects of outsourced services may not always be clearcut. The committee believes that portfolio agencies on behalf of the minister should so monitor the operations of those services that all reasonable parliamentary questions on process or outcomes can be handled. Whether ministers should resign in situations of service failure will depend on the extent of their involvement which should be documented, the seriousness of the failure, their own sense of propriety and the political realities of the day.

One contentious area is the selection of the successful tenderer, although the handling of the contract, the monitoring of outcomes and the resolution of disputes can also present accountability problems. As noted in chapter 2, if ministers involve themselves directly in the tender process, they should accept responsibility if that process is subsequently shown to be flawed. A better option, in the committee's view, would be the use probity auditors, and/or acquisition councils for contracts over a certain monetary figure, so that the process is fully documented and responsibility for the decision is unequivocal.

Accountability through parliament

As governments increasingly contract out or commercialise their services, there is the potential for less information to be made available to the parliament and, through the parliament, to the people who are paying for the services. Reporting by agencies will continue to be a vital mechanism for public sector accountability to parliament. Current public sector annual reporting requirements may need to be modified to ensure that reporting of contracted out services provides sufficient information to the parliament. This committee will monitor the effectiveness of reporting on such services in the 1997-98 annual reports and, if necessary, may report again on this aspect of its reference.

Part of the reason for the provision of less information to parliament may be that the responsible minister and his or her portfolio agency has failed to negotiate appropriate access to contractual operations and may, indeed, not have the answers. In part, it may be because of legitimate commercial confidentiality issues, which are addressed in the next chapter.And in part, it will be because of public interest immunity claims on the part of government.

Considerable tension has always existed between executive government and the parliament over the latter's claims of 'right to know' for accountability reasons and the former's claims of 'executive privilege' or 'public interest immunity'. It has been suggested that:

There appears to be a consensus that the struggle between the two principles involved, the executive's claim for confidentiality and the Parliament's right to know, must be resolved politically. In practice this means that whether, in any particular case, a government will release information which it would rather keep confidential depends on its political judgment as to whether disclosure of the information will be politically more damaging than not disclosing it, the latter course perhaps involving difficulty in the Senate or public disapprobation. [12]

There is never likely to be complete consensus on public interest immunity matters and it is generally recognised that, as former Chief Justice Gibbs indicated, `it is inherent in the nature of things that government at a high level cannot function without some degree of secrecy. No Minister, or senior public servant, could effectively discharge the responsibilities of his office if every document prepared to to enable policies to be formulated was liable to be made public' – but the object of such protection from disclosure is `to ensure the proper working of government, and not to protect Ministers and other servants of the Crown from criticism'. [13]

Chief Justice Gibbs also suggested that even where a legitimate need for secrecy existed, it would cease in some cases after a short time had elapsed.

In the committee's view, this principle also applies with equal force to contracts. Once a contract has been awarded, the bulk of its provisions should be in the public domain. The few matters which might be deemed commercially confidential are discussed in the next chapter. The need for confidentiality for even those limited aspects should not exist at the outside beyond the life of the contract and the onus should be on the contractor to argue for confidentiality at any level. Other jurisdictions have no problems with publishing contracts. It is routine practice in the United States, the committee was told. The Western Australian Public Sector Management Office in its submission to the committee also indicated its commitment to make public sector contracts publicly available. [14]

Government claims of public interest immunity and claims of commercial confidentiality in relation to contracted out services are handled in a similar way, at least in the Senate. The committee addresses the implications for accountability in the following chapter, when it examines specific cases.

Accountability through audit

As the business of government has become increasingly complex, parliaments have turned increasingly to independent agents, and particularly to audit offices, to assist them in monitoring the activities of governments. In the last three years, the Australian National Audit Office has tabled 19 audits of matters relating in whole or in substantial part to tendering or contract monitoring and the number is increasing steadily. State and Territory audit offices have been similarly active, with a number of reports highlighting deficiencies in contracting processes.

In order to function effectively, auditors need access to records of contractors. Their United States counterparts have such access to records, including those of subcontractors, for contracts to a value of $10 000 or greater. Such access has not been provided for under the Auditor-General Act 1997 (C'wealth). The ANAO first experienced access difficulties in the course of its 1992 audit of amendments to the Defence contract with the Australian Submarine Corporation. Some $500m of contract amendments were let uncompetitively by the department to the ASC yet the ANAO was refused access to the records of amounts paid by the ASC to its own subcontractors to check on the validity of the prices. [15] The reasons advanced by the department for not supporting audit access were that the contractors would not like it, it would create extra costs for the contractors, it would involve a change in philosophy in the way that government procurement was carried out, and it had the potential to create an adversarial relationship with the contractor.

The committee was informed that the 4000-strong US Defense Contract Audit Agency, by virtue of its access to such records, has maintained `quite a substantial return' from such access. [16]

At a practical level, the ANAO currently lacks the power to access the premises of third party providers to look at records relating to Commonwealth contracts, unless such access is specified in the contract. It recognises that unfettered access is a highly sensitive issue. To overcome such difficulties in the least obtrusive way, the ANAO has expressed a preference for the use of standard contract clauses, tailored as necessary by specific clauses to reflect the particular circumstances of each contract, as the means of providing access to relevant third party information and records. [17]

Such an approach has the support of the Attorney-General's Department which also considers standard clauses in contracts as the best way to ensure the maintenance of appropriate records, ownership of material supplied by the Commonwealth or produced in the course of providing the service, and other matters. [18] Given the Auditor-General's broad systemic responsibility for maintaining the integrity of government, it is vital that the ANAO not be inappropriately fettered in its access to contractors' records.

The committee therefore recommends, as a bare minimum, that standard contract clauses, tailored as necessary by specific clauses to reflect the particular circumstances of each contract, be used as the means of providing audit access to relevant third party information and records.

Accountability for the resolution of complaints and disputes

While many contracts are performed without problems occurring, others are not. Contractual disputes may occur between the government agency and the contractor; they may also occur between the citizen using the service and the contractor. Complaint and dispute resolution practices are normally outlined in the broad in contracts. In practice, both types of dispute can generate issues unthought of in tender documentation. The committee is concerned that genuine concerns of both contractors and citizens using contracted out government services may not be addressed as readily or as thoroughly as they would have been, had the service been provided directly by government. This is not necessarily an argument against contracting out, but a reminder that workable complaint and dispute resolution avenues need to be provided in every contract.

Government agency – contractor disputes

The standard contract clauses advanced by the Commonwealth's Legal Practice establish procedures under which disputes are firstly handled by direct negotiation between senior persons on each side; if not resolved, they go to a mediation-type resolution or to arbitration; in the last resort, they may go to litigation.

It is unclear to the committee how well such provisions operate. It is aware of instances of protracted and expensive litigation over the TAAATS and coastwatch contracts, for example, as described in chapter 2. In a contract situation in which both sides were in genuine partnership as advocated by the Department of Finance and Administration, any problems which arose would be settled amicably. In the event, however, that the `best of all possible worlds' scenario failed to materialise, the committee suspects that the government agency, and hence the taxpayer, would tend to come off second best, particularly in major procurement exercises.

Evidence was received from Dr Seddon, a contract law specialist from the Australian National University, suggesting that while most such contract disputes are settled without going to litigation, the settlement generally favours the contractor. [19] The Administrative Review Council in its issues paper on the subject also highlighted a number of potential failings of dispute resolution provisions. Both pointed out that there may not be appropriately moderated penalties for modest contractual failings, short of termination for breach of contract which might be too drastic in the circumstances and which might also present problems in terms of finding a substitute service provider. Even in routine procurement contracts, a damages claim for late provision might not succeed if the contracting agency could not prove that it had suffered loss as a result – and in many cases, it probably could not do so. Liquidated damages clauses in contracts, while sometimes useful, are not always enforceable or enforced. And, inevitably, the political penalties for an obvious contract failure are such that the contracting agency will generally wear a certain level of non-compliance or inefficiency on the part of the contractor rather than cause trouble.

The drafting of the contract is extremely important. If it is not drafted with sufficient clarity to pinpoint where responsibility lies in certain situations, endless arguments can ensue. And as the then Ombudsman pointed out, specifications for certain government services can be difficult to word precisely. A contract to provide services to the intellectually disabled, for example, requires detailing circumstances in which the exercise of discretion could apply, a much more difficult exercise than, say, specifying requirements for a garbage collection contract. It is correspondingly more difficult to ensure fair and consistent application of provisions, and to determine whether or not those provisions have been met.

Citizen complaints against contractors

Citizens who suffer loss or detriment at the hands of a contracted service provider have no contractual remedy as they are not a party to the contract. Contracts which fail to delineate service requirements precisely may lead to the possibility of disputation about the responsibility for service failure.

Two now-famous cases illustrate the problem: the damaged letterbox; and the feral goats. In the first case, an Australia Post contracted mail deliverer damaged a pensioner's letterbox. He approached Australia Post about compensation and was offered a third of the cost of the repairs, as the contractor did not want to claim on his insurance cover as the cost of the repair was less than the excess on the policy. Australia Post indicated it could neither compel the contractor to meet the cost of the damage nor compel the contractor to reach a settlement with the complainant. Nor would it admit vicarious liability. The Ombudsman was ultimately able to break the deadlock, with Australia Post agreeing to reimburse the pensioner for the damage and seeking recovery of the cost from the contractor. [20]

The mail delivery contract in question was apparently deficient in at least two respects: it did not specify what might be regarded as implicit in a contract, namely that contracted mail deliverers should exercise due care and attention in the conduct of their work; and it did not provide a clear means of redress for individuals adversely affected by the service. The committee understands that Australia Post has amended its contracts so that, where necessary, it makes restitution to aggrieved customers and seeks reimbursement from the contractor.

In the second case, the Australian Geological Survey Organisation (AGSO) contracted out an aerial survey. It was alleged that the aircraft conducting the survey flew so low that it terrorised a large flock of angora goats and kids, which broke through an electrical boundary fence and were never seen again. The goats' owner wrote to AGSO, claiming compensation. AGSO denied liability and directed her to the contractor, who also denied liability. After an investigation by the Ombudsman, the contractor made a compensation payment to the goats' owner but on a `no admission of liability and without prejudice' basis. [21]

Although these cases might be regarded as relatively insignificant, they serve to highlight a number of accountability issues associated with the contracting out of services. Members of the public adversely affected by the way in which a service is delivered should never be passed from contractor to contracting agency and back again in an attempt to find redress. Contracts for services which affect members of the general public must specify complaint or redress mechanisms and those mechanisms must be simple, accessible, and monitored by the contracting agency.

Such cases call into question the need for the extension of administrative law remedies to contracted out services. Responsibility for administrative decision-making in Commonwealth government agencies was enunciated clearly from the mid-1970s, with the passage of the Commonwealth Ombudsman Act, the Administrative Decisions (Judicial Review) Act and the Freedom of Information Act. Variously, they provide:

• merits review of administrative decisions by the Administrative Appeals Tribunal and/or other specialist tribunals;
• judicial review of administrative decisions to ensure the decisions are made according to law;
• investigation of complaints about maladministration by an independent Ombudsman; and,
• the right to gain access to documents and information held by government.

The level of use of the administrative law provisions attests to their value. For example, the number of complaints handled in 1996-97 by the Commonwealth Ombudsman's Office was 25,876, representing a 19 per cent increase over the previous year. Of the complaints under the Ombudsman Act investigated to an outcome, 72 per cent were substantially or partially in favour of the complainant. [22] This represents a considerable body of justifiably dissatisfied Commonwealth agency 'customers' and, while the Ombudsman does not have determinative powers to provide redress, the Office can exert considerable moral suasion on agencies which have erred. The committee recognises that there may be a certain level of dissatisfaction with the provision of any service, given that no service gets it right the whole time.

The values the administrative law provisions were intended to achieve are, in the words of Professor Marcia Neave, President of the Administrative Review Council:

ensuring that public administration is lawful; that people behave fairly, rationally, openly and efficiently in their dealings with the community ... we are concerned to ensure those values will be maintained as government services are increasingly delivered in new ways. [23]

As a matter of principle the committee believes that, if a service previously provided by government was subject to administrative law protection, then the same service provided by private contractors should not be exempt. As the Attorney-General's Department stated:

members of the Australian community would expect there to be no dilution of administrative law rights merely because the goods and services previously supplied directly by the Commonwealth are in future supplied by the private sector under contract with the Commonwealth. [24]

Administrative law functions both to improve the quality of primary decision-making and to ensure the correction of errors. It appears that the administrative law provisions most 'at risk' in the case of contracted government services - and the committee is considering particularly here citizen-oriented services previously provided by the government itself - are access to the Ombudsman and FOI.

The Commonwealth Ombudsman's current jurisdiction is limited to coverage of Commonwealth agencies or those deemed to be Commonwealth agencies for the purposes of the Ombudsman Act. With rare exceptions, contractors are not so covered and hence aggrieved service recipients would probably not have a complaint handled by the Ombudsman's Office through want of jurisdiction. Complaints can be made to the Ombudsman about `a matter of administration', for example how the relevant agency dealt with the contractor, but the Ombudsman in most circumstances could not deal with a complaint about the actions of a contractor directly.

Other legal review mechanisms could be closed off as well, because service recipients are not parties to the service contract, which is between the government agency and the service provider. A service recipient who suffers loss or damage as a result of the activities of a contractor might be able to sue under tort law; that individual might also be able to take legal action under section 82 of the Trade Practices Act if the loss or damage resulted from misleading representations by a service provider – but such private law remedies lack the ease and simplicity of an appeal to an ombudsman and may be beyond the financial or other capacity of the service recipient.

If service recipients have easy access to other government-funded service providers, the option of voting with their feet arises. In the committee's experience, this is rarely the case, either through geographical isolation, cost differentials, or government-designated providers. Another potential equity problem arises in situations where both government-provided and contracted services exist, with service recipients in the former case having appeal rights the latter lack.

Where complaint-handling mechanisms are provided in contracts, they typically include referral to industry or professional complaint-handling bodies, if those exist. Internal complaints scrutiny is an obvious first step, but may lack the authority of an external and independent review mechanism. Another problem is that they are typically not available to persons other than service recipients who are adversely affected by the activities of a contractor.

The advent of service charters may have a positive influence in this area. All government agencies which provide services to the public directly or indirectly through contractors are now required to develop service charters. The charters are plain language documents detailing the services provided, the standards of service which can be expected, clear statements as to who is responsible if the service is not provided at the level promised, and guidance on how to complain if something goes wrong. [25] Charters can be expected to address, where relevant, such service quality issues as reliability, tangibles such as the appearance of physical facilities and equipment, responsiveness, assurance and empathy. The committee believes that service charters, where appropriate, should contain a code of ethics, or at least address ethical issues.

The committee has examined a number of service charters, all relating to services currently provided by government. They vary considerably in their quality and the level of detail they provide. [26] All provide, as a last resort, recourse to the Ombudsman, an option which may not be available in the case of a contracted service.

The committee is required by its terms of reference to consider whether the Ombudsman's jurisdiction should be extended to cover government services provided by contractors. The majority of government agencies were opposed to the extension of the Ombudsman's jurisdiction, believing that sufficient safeguards can be built into contracts to cover all eventualities. As the then Department of Administrative Services indicated, `Including more detailed specifications of objectives and responsibilities in contracts makes accountability more readily identifiable, which means the intervention of an independent arbiter should not be necessary'. [27] The then Department of Finance pointed out that the Ombudsman had the ability to investigate actions taken by government agencies in administering and monitoring contracts, including the adequacy of steps taken to ensure quality of service, to resolve complaints and to protect the right of clients. [28] It agreed with Administrative Services in suggesting that specific provisions be included in contracts relating to client complaints, including the allocation of responsibility for financial compensation to clients when warranted. The then Ombudsman supported this approach as well. [29] The committee notes that the Ombudsman was able to deal with the problems that arose over the pensioner's letterbox and the feral goats, as outlined above.

The Department of Finance acknowledged that for some large or particularly sensitive areas of service delivery, however, dealing with client grievances through contractual arrangements might be considered insufficient. It advocated specific extension of the Ombudsman's powers to accept and investigate complaints about contracted out services directly, rather than through an investigation of the activities of the purchasing agency, in such sensitive cases, on a case-by-case basis. As an example, Finance cited the Employment Services Act 1994, which extended the coverage of the Ombudsman Act to include persons contracted to provide case management services to job seekers; [30] current reforms to employment services will extend jurisdiction to a wider range of service providers.

The then Ombudsman criticised the ad hoc approach of extending her jurisdiction on a case-by-case basis, on the grounds that it failed to provide general support for the principle of preserving public sector accountability. [31] She recommended that the Ombudsman Act be amended to include a `deeming' provision similar to section 13(9) of the Parliamentary Commissioner Act 1974 (Qld), which states:

If administrative action of an authority or body that is not an agency is taken under functions conferred on, or instructions given by, an agency, the action is taken, for the purposes of this Act, to be the action of the agency.

In essence, the proposal is that where government functions are provided by the private sector, the actions of the private sector contractor are `deemed' to be the actions of the government agency which has delegated its functions and hence would fall within the Ombudsman's jurisdiction.

The committee believes strongly that complaints against service providers must be dealt with by those service providers in the first instance and `jurisdiction shopping' must be discouraged. This will require service providers to develop adequate complaints handling mechanisms, the details of which should be spelt out where possible in the provider's service charter. Where service recipients fail to receive satisfaction from the service provider, they should have the right to complain to the Ombudsman. Recourse to the Ombudsman is a well-known and simple procedure and, as the committee found in a previous inquiry, remarkably cost-effective. However the likely level of complaint and the cost implications of a decision to extend the Ombudsman's jurisdiction to private sector contractors providing services to the government is unknown. As an interim measure, the committee recommends an extension of the Ombudsman's jurisdiction on a case-by-case basis for sensitive areas of service delivery. It will monitor carefully the usage of the Ombudsman's services and revisit the question at a later stage as to whether a legislative extension of the Ombudsman's jurisdiction to cover all contracted out government services is warranted.

Accountability through the Freedom of Information (FOI) Act

A recent review of the operations of the FOI Act [32] noted that contracting with private sector bodies for the provision of services on behalf of the government posed a potential threat to the government accountability and openness provided by the FOI Act. Access to government information under the FOI Act is premised on the fact that the government holds the information. When a service is provided by a contractor, information relating to an individual service recipient would in all probability be held by the contractor and not the government directly and hence would fall outside the ambit of the FOI Act. There is no general right of access to information held by private sector bodies.

After a thorough canvassing of the matter, the review recommended that there be no general extension of the FOI Act regime to the private sector. A recent discussion paper by the Administrative Review Council [33] elaborated on the need to balance the desirability of maintaining accountability through information access rights in a contracting situation and the interests of the contractors, who might fear disclosure of commercially sensitive information. Access to information does not come free, and it was recognised that any increased costs borne by contractors, were they obliged to provide FOI rights similar to those applicable to government agencies, would be offset by increased contract costs.

The ARC discussion paper reviewed the available options to ensure that access to information was not lost or diminished by the contracting out of services. Five possible means of ensuring this were outlined:

• extend the FOI Act to contractors;
• deem specific documents in the possession of the contractor to be in the possession of the government agency;
• deem specific documents in the possession of the contractor, relating to the contractor's performance of his contractual obligations, to be in the possession of the government agency;
• incorporate information access rights into individual contracts; and
• establish a separate information access regime.

The ARC preferred the third of these options, despite the obvious problems of the foresight required to pinpoint in advance the types of documents which might ultimately be required to be disclosed and despite the potential for disagreement between Commonwealth agency and contractor over whether a particular document could be so categorised.

Evidence was canvassed before the committee on this question, with the example of the New Zealand Official Information Act being advanced as a means of ensuring access to contractor-held information. The committee understands that that Act provides that documents in possession of the contractor be deemed to be in the possession of the government agency, so that the standard rights of access pertain.

The committee accepts that any means of providing access to even some records of contractors would be costly, just as providing FOI access to government records is costly, despite user charges for requests. Exactly how costly is unclear. The FOI Annual Report prepared by the Attorney-General's Department found that in 1994-95, for example, the cost of providing information under FOI was estimated to be $10 383 956, only 3.7 per cent of which was recovered by way of fees and charges. [34] Certainly contractors would seek to cover such costs in the pricing of their tenders, if FOI provisions were extended to cover their operations.

On balance, however, the committee believes that the contribution the FOI Act has made in enhancing scrutiny of government activity is such that it should not be weakened in an outsourced environment. Service recipients should be able to access sufficient information to ascertain whether contractors are acting within the terms of their contract in dealings with them or to obtain evidence of service delivery problems. It supports the ARC third option of an amendment to the FOI Act deeming documents in the possession of the contractor that relate directly to the performance of the contractor's contractual obligations to be in the possession of the government agency and hence FOIable, with the current exemptions. As the Council pointed out, this is not a perfect solution. Disagreement could exist as to whether a particular document related directly to the performance of the contract. Its success depends on the contractor's adherence to his record-keeping obligations, [35] which can be monitored by periodic auditing.

Privacy

Governments are accountable to their citizens for the protection of information concerning those citizens obtained, often compulsorily, by government. As the committee noted in its first report on IT outsourcing, the contracting out of government services has the potential to place into the hands of the private sector much sensitive private information. With the technological advances of recent years, all contracting will rely on electronic records generation, potentially facilitating access to information by unauthorised persons or for unauthorised purposes.

As the Privacy Commissioner has pointed out, Australian common law recognises no general right to privacy. Some statute law offers protection in some circumstances but the coverage is patchy; litigation options for persons affected by privacy intrusions such as defamation law and action for breach of duty of confidence can be slow and expensive. Questions as to the security of personal information held by, or on behalf of governments, right of access to it, and redress in the case of misuse, were raised before the committee.

Commonwealth agencies are legally obliged by the Privacy Act 1988 (C'wealth) to protect the personal information they collect; public servants are required by official conduct guidelines to protect such information and may be charged with misconduct if they misuse it and dismissed if the charge is proven. Unauthorised disclosure of information can be a criminal offence, covered by the provisions of section 70 of the Crimes Act (C'wealth) which provides for a maximum two-year term of imprisonment for the offence. The committee has been informed that there have been very few successful prosecutions under s.70 of the Crimes Act; it is unaware of the number of dismissals from the public service for misuse of personal information. It cannot, therefore, form an opinion as to the usefulness of these provisions in encouraging correct handling of personal information.

Individuals who become aware that their privacy has been breached by a Commonwealth agency may make a complaint about the matter to the Privacy Commissioner who has the power to investigate alleged breaches and, if warranted, make determinations regarding compensation. And as the Privacy Commissioner has indicated, there is evidence that people are concerned: in 1996-97 she received 499 formal written inquiries relating to possible breaches of the Act and about 15 000 general inquiries; the Telecommunications Industry Ombudsman received 1 350 complaints about privacy in 1995-96. [36] Various state privacy committees also receive complaints. The level of concern may be considerably higher than these figures indicate if one allows for the fact that people may not be aware that their information has been mishandled or how to complain about it. Fifty-four per cent of the complaint files opened by the Privacy Commissioner since the inception of the Office related to disclosure of data or use of data for another purpose than that for which it was collected. [37]

At present the private sector is covered by the Privacy Act only in relation to credit reporting and tax file numbers; in addition, the Employment Services Act 1994 (C'wealth) extends the provisions of the Privacy Act to eligible employment service providers of the long-term unemployed and the Hearing Services and AGHS Reform Act 1997 does the same for accredited hearing service providers. A number of voluntary industry-centered privacy codes exists in the private sector.

After canvassing the idea of extending the provisions of the Privacy Act to the private sector in 1996 [38] the government decided against pursuing that course, citing as its reason the need to consider the regulatory burden on industry. [39] The need to protect privacy standards in all sectors was recognised, however, and after extensive industry consultation the Privacy Commissioner issued a consultation paper addressing options for a self-regulatory national scheme for fair information practices in the private sector, one which would be compatible with existing Commonwealth privacy laws and with any further legislation considered necessary. Final principles were published in February 1998. [40]

A particular concern relating to security of information was the prospect that, with the contracting out of information technology services, data processing might occur offshore in countries which might not have the same respect for privacy as does Australia. This concern was recognised by the government; the then Chief Government Information Officer informed the committee that no offshore processing of information would be allowed under outsourced IT contracts. [41]

The necessity for appropriate information privacy protection has been reinforced by directive 95/46 of the European Parliament on the protection of individuals with regard to the processing of personal data and on the free movement of that data. National laws implementing the directive are to be in place by October 1998, after which date data should not be transferred to a non-EU country which fails to ensure an adequate level of data protection. [42] It is unclear whether Australia currently qualifies. Mr Boucher, representing the Attorney-General's Department, told the committee that an EU member country could authorise transfers of personal information where, for example, there were appropriate contractual clauses in place, whether or not the overall level of data protection existed. [43]

The Office of Government Information Technology informed the committee that the government had agreed to amend the Privacy Act 1988 so that it applied to 'contractors supplying services to government in relation to personal information held by them on behalf of the Government'. [44] The Privacy Amendment Bill 1998 is currently before the Parliament and, if enacted, should reduce the concerns expressed above. It is intended to extend the provisions of the Privacy Act to personal information held by contractors and sub-contractors in relation to services provided both to the Commonwealth and to private individuals. Subject to a few current FOI exemptions, individuals will be able to access personal information records held by contractors and will be able to complain to the Privacy Commissioner if they believe their personal information has been misused. The Privacy Commissioner will be able to investigate such complaints, conciliate to reach a settlement or, if a settlement cannot be reached, make a determination which may include the payment of compensation for damages resulting from the privacy breach.

If enacted, this legislation should resolve the question as to whether contractual clauses which aimed to protect personal data privacy are in fact enforceable.

In evidence to the committee, the Privacy Commissioner indicated that she would expect to see a similar range of breaches and complaints about contractors as she sees at present concerning government agencies. She noted, however, that most contractors were unlikely to have a conscious `privacy' culture and `until there is sufficient training of staff employed by the contractors, there may be some additional problems in relation to browsing and use of data for an unrelated purpose'. [45] The committee believes that the Privacy Commissioner must be adequately resourced to handle her educative role for contracted service providers, as well as potentially more audits and complaint investigations.

Conclusion

The committee supports the Australian Law Reform Commission in its call for stressing the crucial importance in establishing and entrenching amongst contractors the same culture of accountability as exists in the Commonwealth public sector and for reinforcing in the public sector that outsourcing should not involve any lowering of the existing levels of public scrutiny and parliamentary accountability of publicly funded enterprises. [46]

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Footnotes

[1] Industry Commission, Competitive Tendering and Contracting by Public Sector Agencies, Report No. 48, AGPS, Melbourne, 1996, p. 82.

[2] Senate Finance and Public Administration References Committee, Proceedings of a Round Table Discussion held on 7 February 1997 to consider the paper: Towards a Best Practice Australian Public Service, Canberra, 1997, p. 20.

[3] Submissions, vol. 3, p. 598.

[4] TNT, in Submissions, vol. 2, p. 307.

[5] Submissions, vol. 2, p. 410.

[6] Victorian Auditor-General, Purchasing Practices, Special Report no. 31, 1994.

[7] Submissions, vol. 2, p. 406.

[8] Submissions, vol. 2, p. 250.

[9] MAB/MIAC, Accountability in the Commonwealth Public Sector, 1993.

[10] Submissions, vol.2, p. 295.

[11] Submissions, vol.3, p. 610.

[12] Odgers' Australian Senate Practice, 7th ed., Canberra, AGPS, 1995, p. 481.

[13] ibid., pp. 482-3.

[14] Submissions, vol. 1, p. 52.

[15] Evidence, 3 April 1997, p. 67.

[16] ibid.

[17] Evidence, 4 July 1997, p. 591.

[18] Submissions, vol. 2, p. 372.

[19] Submissions, vol. 3, p. 557.

[20] Submissions, vol. 1, pp. 172-3.

[21] ibid., pp. 173-4.

[22] Commonwealth Ombudsman, Annual Report 1996-97, Canberra, 1997, pp. 83-90.

[23] Evidence, 16 May 1997, p. 235.

[24] Submissions, vol. 2, p. 374.

[25] Office of Small Business and Consumer Affairs, Department of Industry, Science and Tourism, in Submissions, vol. 2, pp. 425-6.

[26] In particular, the committee singled out for praise the Child Support Agency's Help us to get it right:How to complain.

[27] Submissions, vol. 2, p. 395.

[28] Submissions, vol. 2, p. 414.

[29] Submissions, vol. 1, p. 175.

[30] Submissions, vol. 2, pp. 414-5.

[31] Submissions, vol. 1, p. 193.

[32] Australian Law Reform Commission & Administrative Review Council, Open government:a review of the federal Freedom of Information Act 1982, 1995.

[33] Administrative Review Council, The Contracting Out of Government Services: access to information, December 1997.

[34] FOI Annual Report 1994-95, AGPS, Canberra, 1995, p. 16.

[35] Administrative Review Council, The Contracting Out of Government Services: Access to Information, 1997, pp. 15-16.

[36] Privacy Commissioner, A National Scheme for Fair Information Practices in the Private Sector, August 1997, Part 1, p. 2.

[37] Submissions, vol. 3, p. 583.

[38] Attorney-General's Department, Discussion Paper -Privacy Protection in the Private Sector, September 1996.

[39] Senate Hansard, 24 March 1997, p. 2232.

[40] Office of the Privacy Commissioner, National Principles for the Fair Handling of Personal Information, 1998.

[41] Evidence, 4 July 1997, p. F&PA 497.

[42] See Privacy Commissioner, A National Scheme for Fair Information Practices in the Private Sector, August 1997, Appendix A, paras 19-20 for discussion of the issue.

[43] Evidence, 16 May 1997, pp. F&PA 190-91.

[44] Office of Government Information Technology, in Submissions, vol. 3, p.660.

[45] Submissions, vol. 3, p. 584.

[46] Australian Law Reform Commission, in Submissions, vol. 3, p. 524.