Introduction

1.1 The National Capital Authority (NCA) was established in 1989 under the Australian Capital Territory (Planning and Land Management) Act 1988 (PALM Act) following the introduction of self-government to the Australian Capital Territory. Its mission is ‘to shape Canberra as a capital that all Australians can be proud of by ensuring it is well planned, managed and promoted, consistent with its enduring national significance.’

1.2 The NCA is a non-corporate Commonwealth entity within the Infrastructure, Transport, Regional Development and Communications portfolio. As such, the NCA is subject to the Commonwealth Procurement Rules issued by the Finance Minister under section 105B of the Public Governance, Performance and Accountability Act 2013.

1.3 The accountable authority for the NCA is the Authority (also referred to as the Board).¹ The Assistant Minister for Regional Development and Territories has administrative responsibility for the PALM Act. The NCA reports having around 60 staff.

1.4 The functions of the NCA are set out in section 6 of the PALM Act and are as follows:

• to prepare and administer a National Capital Plan;
• to keep the Plan under constant review and to propose amendments to it when necessary;
• on behalf of the Commonwealth, to commission works to be carried out in Designated Areas in accordance with the Plan where neither a Department of State of the Commonwealth nor any Commonwealth authority has the responsibility to commission those works;
• to recommend to the Minister the carrying out of works that it considers desirable to maintain or enhance the character of the National Capital;
• to foster an awareness of Canberra as the National Capital;
• with the approval of the Minister, to perform planning services for any person or body, whether within Australia or overseas; and
• subject to subsection (2) and with the Minister’s approval, on behalf of the Commonwealth, to manage National Land designated in writing by the Minister as land required for the special purposes of Canberra as the National Capital.

1.5 In addition, the National Land (Road Transport) Ordinance 2014 established the NCA as the administering authority for enforcement of parking regulations on National Land.

NCA’s procurement activities

1.6 According to its financial statements, payments to suppliers represented 40 per cent of the NCA’s total expenses in 2020–21. Of its total budgeted expenses for 2021–22, 38 per cent are attributable to supplier expenses. In 2019–20 and 2020–21, there were 327 contracts with a total value of $69.9 million reported by the NCA on the AusTender website. Recently completed procurements have included a five-year $20.2 million contract to deliver open space management services, a five-year $7.4 million contract to operate and maintain Scrivener Dam, and a four-year $7 million contract for pay parking operations on National Land.²

Rationale for undertaking the audit

1.7 Procurement is core business to the NCA. It had been more than 13 years since the NCA has had a performance audit focused on it (Auditor-General Report No.33 2007–08 The National Capital Authority’s Management of National Assets). This audit provides assurance to the Parliament over the effectiveness of the NCA’s procurement activities.

Audit approach

Audit objective, criteria and scope

1.8 The objective of the audit was to examine whether the NCA’s procurement activities are complying with the Commonwealth Procurement Rules and demonstrating the achievement of value for money.

1.9 To form a conclusion against this objective, the following high-level criteria were applied.

• Have open and competitive procurement processes been employed?
• Has decision-making been accountable and transparent?

1.10 The audit scope encompassed the NCA’s:

• procurement framework (such as processes and systems); and
• procurement activities for contracts entered into in the last two completed financial years.

Audit methodology

1.11 NCA records relating to procurement planning, conduct and decision-making were collected and analysed. All procurement contracts entered into during 2019–20 and 2020–21 with a start date on or before 30 June 2021 were included in the scope of the audit. Examination of a sample of 42 procurement contracts was undertaken to provide coverage across the different procurement approaches employed by the NCA.³ In addition, the ANAO had meetings with key staff from the NCA.

1.12 The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of approximately $310,000.

1.13 The team members for this audit were Tiffany Tang, Nicole Harrison and Brian Boyd.

2.1 Competition is a key element of the Australian Government’s procurement framework. Effective competition requires non-discrimination and the use of competitive procurement processes.

2.2 Generally, the more competitive the procurement process, the better placed an entity is to demonstrate that it has achieved value for money. Competition encourages respondents to submit more efficient, effective and economical proposals. It also ensures that the purchasing entity has access to comparative services and rates, placing it in an informed position when evaluating the responses. Openness in procurement involves giving suppliers fair and equitable access to opportunities to compete for work while maintaining transparency and integrity of process.

To what extent were competitive procurement approaches used?

2.3 Under the CPRs, procurement is conducted by open tender or by limited tender.⁴

• An open tender involves the entity publishing an open approach to market and inviting submissions. This includes multi-stage procurements provided that the first stage is an open approach to market. An open approach to market is any notice inviting all potential suppliers to participate in a procurement.⁵
• A limited tender involves the entity approaching one or more potential suppliers to make submissions. Limited tender includes the procurement approach previously termed as ‘direct source’.⁶

2.4 Under the CPRs, the expected value of a procurement must be estimated before a decision on the procurement method is made.⁷ When the expected value of a procurement is at or above the relevant ‘procurement threshold’ additional rules in the CPRs must also be followed unless an exemption applies. Primarily, those additional rules require that, except under specified circumstances, procurements valued above the threshold must be conducted by an open approach to the market. For non-corporate Commonwealth entities, the threshold for procurements of construction services is $7.5 million and for non-construction services the threshold is $80,000.

2.5 The Department of Finance advised the ANAO in December 2021 that:

Under the devolved Commonwealth Procurement Framework, it is up to the entity conducting the procurement to determine if the goods and services being procured meet the definition of ‘construction services’ in the CPRs. Where a procurement is made up of a mix of both goods and services that meet the definition and those that do not, it is again up to the procuring entity to determine to what extent the definition would apply (for the purposes of applying the construction threshold). It may be reasonable, for example, for a procuring entity to determine that, where the majority (but not all) of a procurement meets the definition of construction services, the construction threshold would be applied.

2.6 In applying the procurement thresholds, the NCA has adopted an interpretation of ‘construction services’ to encompass goods or services not explicitly covered by the definition as set out in the CPRs and relevant legislation.⁸ Examples of the types of goods and services procured by the NCA which it defined as ‘construction services’ include⁹:

• provision of sketch plan design, tender and construction documentation, participation on the NCA tender assessment panel and related superintendency services under a consultancy services contract valued at $152,432;
• supply and delivery of compost, drainage sand and mulch, with the NCA initially approaching two suppliers in an unsuccessful approach to market and then running a further limited tender that resulted in a $150,194 contract; and
• supply and delivery of granite plaques for the Old Parliament House Rose Gardens totalling $115,500.

2.7 In each of the examples listed above, a limited tender approach was used and justified on the basis of being procurements for construction services with an estimated value below the relevant procurement threshold of $7.5 million (see further detail on the NCA’s justification for using limited tender selection processes at paragraph 2.32).

2.8 It is worth noting that limited tendering is not always appropriate for procurements under the procurement threshold. Scope, scale, level of risk and market conditions must be considered to determine an appropriately competitive procurement process that will achieve value for money.

2.9 In March 2022, the NCA advised the ANAO that:

NCA undertakes its procurements in accordance with the Commonwealth Procurement Rules and its interpretation of the Department of Finance’s guidelines as they currently stand. In this case NCA may be assessed as undertaking non-competitive processes based on differences in the interpretation of threshold caused by the current policy.

Proportion of contracts reported as let by open tender

2.14 During 2019–20 and 2020–21, the NCA reported 327 contracts on AusTender valued at $69.9 million (excluding contract amendments) of which¹⁰:

• 11 per cent by number or 60 per cent by value were reported as being let through open tender;
• 11 per cent by number or six per cent by value through prequalified tender¹¹; and
• 78 per cent by number or 34 per cent by value through limited tender.¹²

2.15 The difference between the NCA’s contract number data and its contract value data is influenced by the top one per cent (top three) of the NCA’s contracts by number accounting for 47 per cent of the total value of its procurements.

2.16 For the same period, the NCA had internally reported in its financial management system a total of 347 contracts valued at $10,000 or more totalling $115.4 million.¹³ Of these 347 contracts:

• six per cent by number or 59 per cent by value were reported as being let through open tender;
• two per cent by number or one per cent by value through prequalified tender;
• 12 per cent by number or four per cent by value through standing offer; and
• 80 per cent by number or 37 per cent by value through limited tender.

2.17 As an indicator of whether the proportion of contracts let by open tender was relatively high or low, the ANAO compared the NCA’s data against that reported by other non-corporate Commonwealth entities (given they are also subject to the CPRs and to the same procurement thresholds). To increase the suitability of the comparator, the ANAO used the data reported for contracts valued at $80,000 or above in its analysis because the CPRs do not mandate (subject to exceptions and exemptions listed in the CPRs) the use of open tenders for procurements below $80,000.

2.18 As shown in Figure 2.1, the proportion of contracts valued at or above $80,000 reported by the NCA on AusTender as being let through open tender (23 per cent) is significantly smaller by number than that reported by all other non-corporate Commonwealth entities (63 per cent) during the same period. Whereas the proportion of open tenders reported by the NCA is relatively high by value (66 per cent compared with 46 per cent).

Figure 2.1: Contracts let by procurement method as reported on AusTender during 2019–20 and 2020–21 valued above the $80,000 threshold

 

 

Note: The data presented is as reported by the NCA on AusTender. The ANAO did not examine the accuracy of the information reported except for those procurements examined in detail as part of the audit sample (see further detail on the audit sample at paragraph 1.11 and detail on the accuracy of the NCA’s reporting at paragraph 3.32).

Source: ANAO analysis of AusTender data.

Panel arrangements

2.19 Under the NCA’s Accountable Authority Instructions, officials conducting procurements must:

• use any mandated whole-of-government arrangement; and
• consider whether there is an existing non-mandatory arrangement available that can be used for the procurement (such as a panel).

Establishment of a panel arrangement by the NCA

2.20 In mid-2015, the NCA established by open tender an Estate Services Panel comprising 60 suppliers.¹⁴ The nine business services provided for under the panel were: tree management; turf, irrigation and landscaping; quantity surveying; engineering; heritage advice; construction/accessibility advice; land and property valuation; construction project management; and land surveying.

2.21 The NCA entered into a Deed of Standing Offer with each of the suppliers on the panel for an initial term of four years with an end date of 30 June 2019. Under clause 2.3 and Schedule 1 of the original Deeds, the NCA had the discretion to extend each deed for a further term of two years (commencing on 1 July 2019 and ending on 30 June 2021) ‘by issuing a notice in writing to the Service Provider no later than 30 days before the expiry of the Term’. The ANAO’s analysis of NCA records indicates that variations to extend the term of the relevant deeds were not made until after the original deeds had already expired.

2.22 Six of the 42 contracts examined by the ANAO, totalling $567,378 at execution, had been issued under the panel after the relevant deeds had expired and then subsequently varied. One of the six contracts was reported on AusTender as being let through open tender. Of the remaining five contracts, one was reported as being let through limited tender and four through prequalified tender.

Use of procurement arrangements established by other entities

2.23 The NCA may join an existing coordinated procurement or cooperative procurement arrangement that has been established by another Australian government entity.

• Coordinated procurement arrangements are whole-of-government arrangements for goods and services in common use. Where established, these arrangements are mandatory for non-corporate Commonwealth entities.
• Cooperative arrangements involve more than one entity as the buyer and are optional arrangements for Commonwealth entities to use. Multi agency access to these arrangements can be achieved through either: a joint approach to the market, and/or where an entity establishes a contract or standing offer arrangement that allows other entities access (referred to as piggybacking).

2.24 Joining such arrangements can provide benefits including increased efficiencies in the procurement process; better prices, service and quality; increased transparency; standard terms and conditions; and improved contract management for entities and suppliers.

2.25 For six of the 42 contracts examined by the ANAO, the NCA used a procurement arrangement established by another Commonwealth entity.

• In one instance, the relevant panel was established via limited tender and the NCA approached only one supplier.¹⁵
• In one instance, the NCA ‘piggybacked’ off an existing contract originally let by limited tender between the supplier and another non-corporate Commonwealth entity.¹⁶
• In one instance, the NCA approached three suppliers on a panel established by open tender.¹⁷
• In three instances, the NCA approached only one supplier on a panel established by open tender.¹⁸

Attributing procurements to panel arrangements to avoid competition

2.26 For two of the contracts examined by the ANAO, the NCA had selected the supplier using a direct source approach and then afterwards sought to attribute the purchase to a panel arrangement. The records indicated that this was to avoid employing an open approach to market.

Were appropriate written records made of the justification for using limited tender selection processes and how value for money was achieved?

2.30 Under the CPRs, for each contract awarded through limited tender, an official must prepare and appropriately file within the entity’s records management system a written report that includes:

• the value and type of goods and services procured;
• a statement indicating the circumstances and conditions that justified the use of limited tender; and
• a record demonstrating how the procurement represented value for money in the circumstances.

2.31 Sixteen (38 per cent) of the sample of 42 contracts examined by the ANAO were let through limited tender. Of those contracts:

• nine (56 per cent) had written records on file that included a statement indicating the circumstances and conditions justifying the use of limited tender, and a record of how value for money was achieved;
• two had records documenting a justification for using limited tender processes but no record demonstrating how the procurement represented value for money;
• four had written records setting out how the procurement represented value for money but no justification for using a limited tender process; and
• one did not have sufficient documentation maintained on file.

2.32 For the 11 contracts where available documentation included a justification for using limited tender selection processes:

• ten were justified on the basis of being procurements for construction services with an estimated value below the relevant procurement threshold of $7.5 million (see further detail on the NCA’s interpretation of ‘construction services’ in applying the procurement threshold at paragraphs 2.6–2.7); and
• one was justified on the basis that the services would be direct sourced from the incumbent supplier ‘rather than undertaking a full tender process and incurring administrative expenses including legal costs associated with such a process, and in light of the standard of services which has been provided’ — a basis that is non-compliant with the CPRs.¹⁹

For competitive selection processes, were the approaches undertaken open, fair and non-discriminatory?

2.36 Openness in procurement involves giving suppliers fair and equitable access to opportunities to compete for work while maintaining transparency and integrity of process. The CPRs state that all potential suppliers to government must be treated equitably based on their commercial, legal, technical and financial abilities. Procurement practices need to recognise that, when an incumbent provider competes for new work, it may have (or be perceived to have) certain advantages, such as understanding of an agency’s needs, established relationships with agency staff, and knowledge that is not available to other potential suppliers.

2.37 The NCA used a competitive approach to establish 30 (71 per cent) of the contracts examined in detail by the ANAO, totalling $50.2 million at contract execution. Sixteen were by open tender and the other 14 by inviting more than one supplier to tender for the work.

Open tenders conducted

2.38 While open tenders (which at a minimum must be published on AusTender) mean any and all interested suppliers can view the opportunity, performance audits have identified that a procurement approach that commences with an open approach to the market does not necessarily mean that the procurement process promoted effective competition.²⁰

Conditions for participation

2.39 Relevant entities may specify conditions for participation with which potential suppliers must be able to demonstrate compliance in order to participate in a procurement. Care must be taken when specifying any conditions for participation, as the CPRs require entities to reject any tenders that do not meet those conditions.

2.40 Conditions for participation must be limited to those that will ensure that a potential supplier has the legal, commercial, technical and financial abilities to fulfil the requirements of the procurement.²¹ Additionally, conditions for participation are not to arbitrarily limit competition by introducing factors that discriminate against a supplier or group of suppliers that would otherwise be competitive and capable in the procurement process. For instance, conditions for participation may require relevant prior experience when that experience is essential to meet the requirements of the procurement but must not specify, as a requirement, that potential suppliers have previous experience with the relevant entity, with the Australian Government or in a particular location.

2.41 Of the 16 contracts examined in detail by the ANAO that were let by open tender, 14 listed in the request documentation conditions for participation and/or other mandatory requirements that potential tenderers were required to meet in order to participate in the procurement process. Common conditions included:

• compliance with relevant legislation including the Fair Work Act 2009 and/or the Workplace Gender Equality Act 2012;
• possession of the required insurances, including a minimum of [$20,000,000 or $10,000,000] Public Liability Insurance, [$20,000,000 or $10,000,000] Product Liability Insurance and Worker’s Compensation Insurance to the amount required by law;
• holding a Valid and Satisfactory Statement of Tax Record (or demonstrate that one has been requested from the Australian Taxation Office)²²;
• existence as a legal entity; and
• achievement of minimum content and format requirements (including submission by the closing time and provision of all returnable schedules).

2.42 For 10 contracts the request documentation contained conditions for participation which may have unfairly limited competition despite being open approaches to market. These conditions included:

• a requirement for suppliers to demonstrate financial stability over three years (which may have been detrimental for new market entrants), for contracts that were let for values ranging from $6,202 to $663,466 (average of $254,362);
• a requirement for suppliers to hold a baseline security clearance (as opposed to personnel being capable of obtaining a clearance), and a police check within the last three months; and
• a requirement to hold a current organisational or individual membership with the Australian National Committee on Large Dams (as opposed to tenderers being eligible to hold such membership).²³

2.43 In March 2022, the NCA advised the ANAO that:

The NCA has confirmed it was not its intention to reduce competition in the instances noted…

NCA was not intending to limit competition by the actions noted but agrees it may have had that effect…

These instances were the result of inadvertent wording of evaluation criteria in conditions of participation. Training that will accompany the revised procurement guidance within the NCA will specifically address this point…

On reviewing the conditions there [sic] were intended to protect the Commonwealth’s position by reducing risk, however we acknowledge this was done in error. Training that will accompany the revised procurement guidance within the NCA will specifically address this point.

Other approaches to market

2.44 For the 14 contracts where the NCA invited more than one supplier to tender for the work, the ANAO examined how potential suppliers were identified. For the majority of these contracts, the pool of suppliers approached was limited to those previously engaged by the NCA, or described by the NCA as being known to the NCA or its advisers.

2.45 The CPRs provide that conditions for participation may require relevant prior experience when that experience is essential to meet the requirements of the procurement but must not specify that potential suppliers have previous experience with the relevant entity or with the Australian Government or in a particular location. As per case study 1, the NCA breached this requirement in respect of the specified conditions for participation in one of its approaches to market. The records of the 14 sample contracts examined in detail indicated that the NCA commonly treated previous experience as an unspecified requirement for participation. This was reinforced when the ANAO extended its examination to include the basis for selecting the single supplier to approach in the 12 contracts let by non-competitive approaches. Of the 26 contracts examined, the records for:

• nine related to them being suppliers to the NCA;
• four related to being suppliers to the NCA and/or other Australian Government entities;
• one related to being a supplier to the NCA and within the Australian Capital Territory;
• two related to suppliers being based in, or working in, the Australian Capital Territory;
• two related to the suppliers being known by the NCA or by an adviser to the NCA;
• one related to market research undertaken by an adviser to the NCA;
• two advised that all members of the panel would be approached; and
• five were insufficient to identify the basis on which the NCA selected the suppliers to participate.

Conditions for participation

2.46 In two of the 14 contracts sampled, request documentation included a condition of participation that may have unfairly limited competition further. These conditions were:

• a requirement that potential suppliers attend a mandatory site visit (including pre-request for quote briefing) the week after the market was approached (giving an advantage to potential suppliers located close to the site’s location); and
• a requirement for ‘Proven track records of successful provision of similar services to Commonwealth entities’ (further details in case study 1).

Use of a panel arrangement

2.47 A panel is designed to deliver efficiencies for both agencies and the supplier when procuring regularly acquired goods or services. In a panel arrangement, suppliers have been appointed to supply goods or services for a set period of time under agreed terms and conditions, including agreed pricing. Once a panel has been established, an entity may then purchase directly from the panel by approaching one or more suppliers.²⁴

2.48 For three of the 42 contracts examined by the ANAO, the NCA purported to use the Estate Services Panel arrangement and circulated the request for quote (RFQ) documents to all seven panellists on Business Service Package 1 for tree management services. However, the RFQ documents were also sent to two other suppliers who were not on the panel, but had previously been engaged by the NCA, ‘to ensure sufficient competition in the procurement process’.

2.49 Although the Estate Services Panel had been originally established via open tender and value for money demonstrated for each of the seven suppliers to be on the panel, the basis of using the panel arrangement was undermined by the NCA approaching two other suppliers. By doing so, the NCA had potentially unfairly excluded other interested suppliers who had not been given the opportunity to compete for the work (that is, not all potential suppliers were able to participate in the procurement). As such, the approach undertaken was not open, fair and non-discriminatory.

Varying contracts

2.50 Contract variations pose particular risk to maximising value for money where they are negotiated in a non-competitive environment with an incumbent supplier. Of the 42 contracts examined by the ANAO, 23 contracts (55 per cent) had been varied at least once as at 30 June 2021. For three contracts, there was insufficient information maintained on file to confirm the total number of variations approved. For the remaining 20 contracts, the individual variations totalled 62 in number and $8.1 million in value compared with initial contract values aggregating $21.3 million (representing a 38 per cent increase in aggregate).

2.51 Of the top four contracts in terms of percentage increase, three had been established through competitive procurement processes and one by non-competitive processes. These four contracts were subsequently varied by between 165 per cent and 880 per cent of their initial contract value, increasing them in aggregate from $771,546 to $2.8 million.

Were relevant evaluation criteria included in request documentation to enable the proper identification, assessment and comparison of submissions on a fair, common and appropriately transparent basis?

2.54 The CPRs require relevant evaluation criteria to be included in request documentation to enable the proper identification, assessment and comparison of submissions on a fair, common and appropriately transparent basis.²⁵ Request documentation must include a complete description of evaluation criteria to be considered in assessing submissions and, if applicable to the evaluation, the relative importance of those criteria. Additionally, if the entity modifies the evaluation criteria during the course of a procurement then it must transmit all modifications to the potential suppliers (and allow adequate time for the modification or re-lodgement of submissions if required).

2.55 For four of the 42 contracts examined, NCA records did not include the relevant request documentation provided to potential suppliers. Of the other 38 contracts where request documentation was maintained on file:

• 25 included evaluation criteria (the level of detail varied — the application of the evaluation criteria during the evaluation process is discussed in paragraph 2.64); and
• 13 did not include any evaluation criteria.

2.56 The higher value procurements conducted by the NCA that were examined in detail by the ANAO tended to provide greater detail of relevant evaluation criteria and sub-criteria in request documentation, although the relative importance or weightings of the sub-criteria were not always advised to potential suppliers. For example, the procurement of operation and maintenance services for Scrivener Dam request documentation listed the high-level criteria and weightings but did not include relevant sub-criteria. Advising potential suppliers of the relative importance of evaluation criteria and sub-criteria encourages better responses and better outcomes as tenderers can focus their submissions to address the key requirements.

2.57 Inconsistency in records and insufficient information being maintained on file meant that the ANAO was not able to examine whether evaluation criteria had been modified during the course of the procurement for the contracts examined, and if any modifications were appropriately transmitted to potential suppliers. For example, for five contracts the tender evaluation report advised the delegate that: ‘During the tender process, the NCA released five addenda via AusTender. The addenda addressed requests for clarifications and provided responses to questions submitted by tenderers. The addenda also contained clarifications to the scope provided by NCA’. However only a copy of addendum 1 was found with no records of the other four addenda maintained on file.

Have contracts been awarded to candidates assessed as providing the best value for money, in accordance with the essential requirements and evaluation criteria specified in the approach to market and request documentation?

2.60 Under the CPRs, unless it has been determined by the entity to be not in the public interest to award a contract, a contract must be awarded to the tenderer that the entity has determined:

• satisfies the conditions for participation;
• is fully capable of undertaking the contract; and
• will provide the best value for money, in accordance with the essential requirements and evaluation criteria specified in the approach to market and request documentation.²⁶

2.61 The ANAO examined the NCA’s procurements in terms of whether the records demonstrated that successful tenderers were assessed as providing the best value for money, in accordance with the essential requirements and evaluation criteria specified in the approach to market and request documentation. The ANAO factored the scale, scope and risk of the procurement into its examination.

Screening of tenders

2.62 Further consideration must be given only to submissions that meet minimum content and format requirements. In all contracts examined where there was sufficient documentation maintained, tenderers assessed as meeting the requirements were appropriately progressed to evaluation. In two instances, the records indicated that tenderers who had been assessed as failing the minimum requirements were also progressed and assessed (although neither of those tenderers was ultimately successful). In both of these cases, the minimum requirements applied by the evaluation team members against received tenderers were not consistent with those in request documentation.

• Tenderers were assessed on a pass/fail basis against two mandatory participation requirements (‘Capable of integration with existing NCA ICT system and its successor’ and ‘Compatible and capable of sustaining minimum Protective Security Policy Framework (Minimum PROTECTED)’). Neither requirement was included in request documentation. Four of the five tenders received were failed against the second requirement. However, all five progressed through to the evaluation stage and were each scored and ranked against the evaluation criteria. In recommending the preferred supplier, the panel then noted that the other four ‘failed to meet tender requirements’.
• Tenderers were advised that the only mandatory criteria was ‘Proven track record of successful provision of similar services to Commonwealth entities’. The panel then screened the received tenders against two different requirements (personnel must hold minimum Baseline Security Clearance and be a legal trading entity). One of the three tenderers was assessed as failing to meet the first requirement but still progressed to evaluation. Further discussed in case study 1.

Evaluation of tenders

2.63 In evaluating tenderers, factors commonly considered by the NCA included the tenderers’ experience and capacity, financial corporate stability, the proposed approach/methodology, resources including key personnel, compliance with contract terms, price and associated risks.

2.64 For five of the 42 contracts examined (12 per cent), the criteria and weightings the NCA applied in the evaluation process were consistent with those advised to potential suppliers in the request documentation. Of the other 37 contracts:

• 27 (64 per cent) had some inconsistency evident (primarily due to the NCA not advising potential suppliers of the criteria and/or sub-criteria, and associated weightings); and
• 10 (24 per cent) had insufficient information on file to demonstrate consistency.

2.65 While there were inconsistencies in the application of evaluation criteria, the records adequately demonstrated that contracts were awarded to candidates assessed as providing the best value for money in 23 (55 per cent) of the 42 contracts examined in detail. For 14 contracts (33 per cent), while the contracts were awarded to the highest ranked or sole tenderer, value for money outcomes had not been demonstrated with insufficient analysis being presented by the evaluation committee commensurate with the scale of the procurement. For instance, tender evaluation reports did not adequately explain the basis on which tenders had been assessed or did not explain why paying above a budgeted or benchmarked price represented value for money. For the other five (12 per cent), insufficient information was maintained on file to enable reliable examination.

2.66 For competitive procurements, a value for money outcome was generally supported by the successful tenderer being the highest ranked against the evaluation criteria.²⁷ For non-competitive procurements, the contract was awarded to the single supplier approached.

2.67 Benchmarking is particularly valuable in non-competitive procurements, as it is more challenging to establish that a single bid is a reasonable market price and represents value for money. Benchmarking by the NCA was primarily undertaken by comparative analysis of the prices proposed by the competing tenders and against the pre-tender estimate. Occasionally, the NCA also used other benchmarks including industry or market rates.

2.68 The ANAO identified the following shortcomings in its examination.

• Where select tenderers were invited to tender, it was common for evaluations to be less robust with tenderers’ capacity and capability largely assumed to be sufficient. As set out in paragraphs 2.44–2.45, the pool of suppliers approached was often limited to those previously engaged by the NCA, or described by the NCA as being known to the NCA or its advisers (see also case study ‍2).
• It was common for records to provide limited or inadequate analysis when assessing price against benchmarks, particularly where the tendered prices were above the benchmark. For instance, in six of the nine instances where the successful tenderer’s price was above the benchmark the records did not adequately explain why the price was considered acceptable. In these cases, the accepted prices were between nine per cent and 35 per cent higher than the relevant benchmark.
• The NCA is generally a passive price-taker and often did not seek to negotiate on price to maximise/optimise value for money outcomes.

Were procurements conducted ethically, including identifying and managing any conflicts of interest?

2.69 Under the CPRs, officials undertaking procurement must act ethically throughout the procurement. Amongst other things, ethical behaviour includes:

• recognising and dealing with actual, potential and perceived conflicts of interest;
• dealing with potential suppliers, tenderers and suppliers equitably; and
• carefully considering the use of public resources.

2.70 Officials must also act ethically in accordance with the Australian Public Service (APS) Values and Code of Conduct, as set out in sections 10 and 13 of the Public Service Act 1999 (Public Service Act).

2.71 Section 15 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) requires the accountable authority to govern the entity in a way that promotes the proper use and management of public resources. The PGPA Act defines ‘proper’ as efficient, effective, economical and ethical.

Conflict of interest

2.72 Effective management of conflicts of interest should be a central component of an entity’s integrity framework. Poor practice, or the perception of poor practice, in the management of conflicts of interest will undermine trust and confidence in an entity’s activities. The APS Code of Conduct requires that APS employees take reasonable steps to avoid any real or apparent conflict of interest. Where conflicts cannot be avoided, the relevant provisions of the Public Service Act, the PGPA Act, and Public Governance, Performance and Accountability Rule 2014 require that persons must disclose details of any material personal interest.

2.73 Department of Finance guidance to entities on ethics and probity in procurement states that ‘persons involved in the tender process, including contractors such as legal, commercial or probity experts, should make a written declaration of any actual, potential or perceived conflicts of interests prior to taking part in the process’.

NCA policy

2.74 NCA policy requires staff to complete both an Acknowledgement of Conflict of Interest Policy and a Declaration of Material Interests form at the commencement of their employment. Senior employees (Senior Executive Service and Executive Level 2) are required to provide an annual Declaration of Material Interests. Additionally, personnel involved in procurements from time to time, but not as a regular component of their role, need to complete the relevant Conflict of Interest declaration specific to each process.

Evaluation members

2.75 In the 42 contracts examined by the ANAO, the following patterns were observed.

• In 20 instances (48 per cent) records of completed conflict of interest declarations were maintained for all listed evaluation team members:
  • a perceived and/or potential conflict was declared in four instances. In each case, the tender evaluation report included the following statement (or similar): ‘Conflict of interest declarations were signed by all TEC members. It was assessed and agreed between the parties present that there was no conflict of interest’. No other records documenting whether any management actions were required or taken were maintained;
  • a perceived/potential conflict was not appropriately declared in one instance.
• In 13 instances (31 per cent) declarations were not completed by all listed evaluation members.
• In nine instances (21 per cent) there were insufficient information on file to enable reliable examination.

2.76 High value procurements examined in detail by the ANAO tended to have more complete records of completed conflict of interest declarations for evaluation team members maintained on file compared to lower value procurements.

Advisers

2.77 Where advisers were listed as being appointed during the procurement process, it was common for there to be no clear statement as to the extent of the advisers’ involvement and role in the evaluation process, and missing records of completed declarations. This shortcoming was found in both high value and lower value procurements.

2.78 In the sample of 42 procurements examined by the ANAO, the following patterns were observed.

• Thirteen had advisers appointed during the procurement process:
  • two had completed conflict of interest declarations for all listed advisers maintained on file; and
  • 11 did not have completed declarations for all listed advisers.
• Twenty did not have advisers appointed.
• Nine had insufficient information to enable reliable examination.

2.79 The ANAO also identified one instance in which a perceived or potential conflict was not appropriately declared.²⁸

2.80 In March 2022, the NCA advised the ANAO that:

The NCA has increased its use of probity advisers to improve management of procurements and to specifically assist staff manage any real or perceived conflicts of interest.

External probity advisers

2.81 Probity advisers may be appointed where justified by the nature of the procurement.

2.82 Of the sample of 42 procurement contracts examined by the ANAO, 12 had an external probity adviser appointed during the relevant procurement process.²⁹ These were generally the higher value and/or more complex procurements with the estimated value of the procurement prior to the approach to market ranging from $550,000 to $26 million. The role of the probity adviser was set out in the relevant Probity Plan and included:

• receiving completed Conflict of Interest Declarations and Confidentiality Declarations;
• conducting probity briefings;
• providing probity advice as required; and
• providing ‘confirmation that all probity aspects of the Procurement have been satisfactorily followed’ at various stages of the Evaluation Phases.

2.83 Despite the NCA identifying a need for a probity adviser during planning, it was common for there to be limited information maintained in the relevant procurement files evidencing the probity adviser’s involvement. Additionally, the evaluation reports did not contain a clear statement to decision-makers as to the extent of the probity adviser’s role (see case study 3 for example). Available records indicate that probity advice sought largely related to reviewing the tender evaluation plans and/or tender evaluation reports. Completed conflict of interest declarations by probity advisers were also not maintained in the relevant procurement files.³⁰ In all but one instance, there were no probity reports or sign-offs by the adviser on file confirming that probity had been maintained during the procurement process.

Note a: In February 2022, the NCA provided the ANAO with copies of the conflict of interest and confidentiality declarations completed by the probity adviser.

Gifts and benefits

2.87 The CPRs state that ethical behaviour includes complying with all directions, including relevant entity requirements, in relation to gifts or hospitality. NCA policy refers employees to the NCA’s Accountable Authority Instructions which require details of the gift/benefit and decision to be recorded on the NCA’s Register of Gifts and Benefits where one is accepted by a NCA official.

2.88 The NCA publishes a Gifts and Benefits Register on its website. For the period 18 October 2019 to 30 June 2021, the NCA reports that no gifts and benefits with an estimated value greater than $100 (excluding GST) had been accepted by NCA staff.³¹

3.1 Accountability means that officials are responsible for the actions and decisions they take in relation to procurement and the resulting outcomes. Transparency involves entities taking steps to enable appropriate scrutiny of their procurement activity, including by maintaining appropriate levels of documentation for each procurement and complying with the publishing and reporting requirements as set out in the CPRs.

3.2 To assess whether the NCA’s decision-making had been accountable and transparent, the ANAO examined whether:

• approvals had been obtained prior to entering into a contract and works commencing;
• procurement records had been maintained commensurate with the scale, scope and risk of the procurement; and
• contracts and amendments had been accurately reported on AusTender within 42 days of the contract being entered into or amended.

Was approval obtained prior to entering into a contract and works commencing?

3.3 The CPRs require officials to maintain for each procurement a level of documentation commensurate with the scale, scope and risk of the procurement. Amongst other things, documentation should provide accurate and concise information on relevant approvals.

3.4 Under section 23 of the Public Governance, Performance and Accountability Act 2013 the accountable authority may enter into, vary and administer arrangements and approve commitments of relevant money.³²

3.5 These powers have been delegated to NCA officials, as per the NCA’s Accountable Authority Delegations dated 17 April 2019, with the relevant financial limits varying depending on the individual’s classification and position. Delegates may only approve a commitment of money if the value of the contract (including any variations) is within the delegate’s delegation. Table 3.1 sets out the applicable financial limits for NCA delegates.

Table 3.1: Financial limits for NCA delegates

Note: ‘SES’ means Senior Executive Service and ‘EL’ means Executive Level.

Source: NCA’s Accountable Authority Delegations dated 17 April 2019.

3.6 The NCA’s Accountable Authority Instructions (AAIs) contains additional instructions to officials to:

• record any approval of a commitment of relevant money in accordance with section 18 of the Public Governance, Performance and Accountability Rule 2014³³;
• be aware the NCA has a policy that requires approval to be obtained before entering into an arrangement; and
• be aware that NCA has a requirement that a signed contract, agreement or other arrangement be in place before work starts under an arrangement.

3.7 Of the 42 contracts examined by the ANAO, 35 (83 per cent) had obtained approval from an appropriate delegate to both enter into the contract/contract negotiations and commit relevant money prior to entering into those arrangements. Of the remaining seven contracts:

• two had records of an approval to enter into the contract/contract negotiations but no approval to commit relevant money; and
• five had no records of relevant approvals.

Signed contract or other arrangement

3.8 Under the CPRs, relevant entities must have access to evidence of agreements with suppliers, in the form of a written contract, a purchase order, an invoice or a receipt. The Australian Government Contract Management Guide advises officials that ‘once signed by both parties, your contract is a legally enforceable document, governed by Australian contract law’ and that ‘this means there are legally binding obligations and rights assigned to both parties’.³⁴ Accordingly, it is a requirement for NCA officials to have a signed contract or arrangement in place before work commences under that arrangement.

3.9 The ANAO examined 42 arrangements that included standalone contracts, cooperative agency agreements, work orders associated with Standing Offers, and purchase orders associated with Deeds of Standing Offers.

3.10 Of the 42 arrangements examined by the ANAO, 41 had evidence of the agreements in an appropriate form. For the remaining contract, there was no signed contract available — rather, the letter of acceptance attached to the Commonwealth Purchase Order Terms, the quote provided by the supplier in response to the approach to market and the specifications has been used as evidence of the agreement with the supplier. This was not compliant with the CPRs.

3.11 Of the 41 arrangements that necessitated a signature (purchase orders and the nominated agency order form for the particular arrangement were not required to be signed), NCA officials had a compliance rate of 100 per cent. NCA officials failed to date documents on only three occasions, however overall were largely compliant with the CPRs and internal AAIs.

Table 3.2: Number of contracts signed and dated

Source: ANAO analysis.

Works commencing prior to contracts being signed

3.12 An entity takes on increased risk where it permits a contract to commence before its execution. Problems can arise when suppliers are instructed to commence services or works prior to a contract being signed such as if there is a dispute about what was agreed. While the NCA aims to have a low risk tolerance and has issued AAIs to instruct its officials in line with the PGPA Act, of the 42 contracts examined by the ANAO:

• 22 were scheduled to commence before the date of contract execution, of which 11 had evidence of works commencing before the date the contract was signed (see case study 4 for examples); and
• 20 were scheduled to commence on or after contract execution, of which three had evidence of works commencing before the date the contract was signed.

Table 3.3: Number of days between commencement and execution for eight discrete contracts

Note: The descriptions for each contract have been simplified for brevity.

Source: ANAO analysis of NCA records.

Approval to vary contracts

3.13 NCA officials must not vary an arrangement unless:

• it is within the scope of their delegation or authorisation; and
• a new commitment of relevant money has been approved.

3.14 Under the NCA’s Accountable Authority Delegations, delegates may only approve a variation to an arrangement and approve the commitment if the total contract value, as altered by the variation, falls within the delegate’s financial limits.

3.15 Of the 42 contracts examined, the ANAO observed evidence of 23 (55 per cent) being varied at least once as at 30 June 2021. For three contracts there was insufficient information to confirm the total number of variations approved. For the remaining 20 contracts, there were 62 individual variations of which:

• 55 (89 per cent) were approved by an appropriate NCA delegate; and
• seven (11 per cent) were approved by NCA officials without the appropriate delegation (see case study 5 for an example).

Were procurement records maintained commensurate with the scale, scope and risk of the procurement?

3.16 The CPRs state that officials must maintain, and retain in accordance with the Archives Act 1983, for each procurement a level of documentation commensurate with the scale, scope and risk of the procurement. Documentation should provide accurate and concise information on:

• the requirement for the procurement;
• the process that was followed;
• how value for money was considered and achieved;
• relevant approvals; and
• relevant decisions and the basis of those decisions.

3.17 Additionally, entities must have access to evidence of agreements with suppliers, in the form of one or a combination of the following documents: a written contract, a purchase order, an invoice or a receipt.

NCA record keeping policies

3.18 The NCA sets out its record management policies in two key documents: NCA National Archives Records Authority and NCA Information Management Policy.

NCA National Archives Records Authority

3.19 The NCA Records Authority authorises arrangements for the disposal of records and determines the classification of records to be retained in accordance with the Archives Act 1983. Under the NCA Records Authority the following must be retained as national archives:

• records documenting management, conservation and enhancement of significant NCA managed land and assets;
• arrangements, agreements or Memorandums of Understanding and contracts relating to the management, conservation and enhancement of significant NCA managed land and assets (includes agreements with external parties to undertake major works activities and projects, including those that do not proceed); and
• records documenting the preparation, management and approval of applications relating to major works and development applications.

3.20 Under the NCA Records Authority the following documents must be retained under certain conditions:

• agreements and contracts relating to the management, conservation, maintenance and use of NCA managed land and assets (not classified as significant or as major works) must be retained for 12 years after completion or termination of the agreement;
• records documenting the use of specialist consultancy services on projects, including master planning and planning advice must be retained for 15 years after action completed; and
• records documenting routine operational administrative tasks supporting the core business must be retained for seven years (for renewal and management activities) and 10 years (for planning activities) after action completed.

NCA Information Management Policy

3.21 The NCA Information Management Policy establishes a framework for the creation, management, roles and responsibilities of records within the NCA. This policy applies to all ongoing, non-ongoing, seconded employees, contractors and consultants engaged by the NCA and covers hard copy and digital records.

3.22 The NCA has one official business and administrative record keeping system called Content Manager (CM9/TRIM), which is designed to preserve and provide access to documents over time.

3.23 The policy assigns the following responsibilities to staff.

• Executive Management Team — authorisation and promotion of compliance of the policy within the NCA.
• Managing Directors, Directors and Executive Managers — management within their areas to ensure all staff comply with the policy.
• Director Business Systems — oversight of the design, implementation and maintenance of corporate record keeping systems.
• Records Management staff — monitoring compliance and managing the NCA’s records consistent with policy standards. As well as delivering record keeping training and advice to staff, managing the disposal of records under an authorised disposal and reporting annually on records management to the Management Committee.
• Information Communication Technology staff — maintaining technology used to support systems that capture and keep records electronically.³⁵
• All staff — understanding of record keeping obligations and responsibilities and adhering to established policies and procedures. Responsible for creating, receiving and keeping accurate and reliable records of daily work/business activities.³⁶

3.24 Non-compliance with documentation requirements can have a broader impact, particularly where goods and/or services are ordered or commenced without the authorisation for, or the price and conditions of, the purchase being documented and retained.

3.25 The ANAO examined 42 contracts in detail, which ranged in value from $6,202 to $18.7 million at execution. Of the 42 contracts, 35 (83 per cent) had one or more of the following documents either unsigned/in draft form or missing:

• procurement planning documents (including procurement plans, project plans and/or tender evaluation plans);
• request documentation;
• tender evaluation report (or similar document);
• probity related documents (including conflict of interest declarations and/or probity reports where an external probity adviser was appointed);
• relevant approvals by a delegate; and/or
• a formal contract.

3.26 Commensurate with their size and scale, higher value procurements tended to have a greater volume of documents on file and record keeping practices were more robust although some gaps in the records were identified. To illustrate the extent to which documents were missing or unsigned and to provide a sense of scale, Figure 3.1 shows the number of documents missing or unsigned per contract examined. For the purposes of this analysis, the types of documents considered were limited to four key documents being: planning documents, tender evaluation documents, relevant approvals and contracts. These key documents collectively address the requirements under the CPRs as set out in paragraphs 3.16–3.17. Due to procurements requiring different levels of documentation depending on the scale as well as inconsistencies in documents used by the NCA and poor record keeping practices, the ANAO was unable to conduct this analysis in more granularity. Case studies 6 and 7 provide examples of where insufficient records were maintained and poor record keeping practices were evident.

Figure 3.1: Number of documents missing or unsigned per contract examined

 

 

Source: ANAO analysis of NCA records.

Have relevant contracts and amendments been accurately reported on AusTender within 42 days of a contract being entered into or amended?

3.27 Under the CPRs, non-corporate Commonwealth entities must report contracts and amendments on AusTender within 42 days of entering into (or amending) a contract if they are valued at or above the reporting threshold of $10,000 (including GST).³⁷ Key details to be included are entity details, supplier details and contract details.

3.28 Reporting entities are responsible for the quality and content of the data that they publish and report on AusTender. To effectively meet their publishing and reporting obligations, entities should implement appropriate measures to quality assure any data published on AusTender for completeness and accuracy. Accurate AusTender reporting achieves two important objectives: transparency for suppliers that the awarded contract was consistent with the representations made to the market in the approach to market and to meet Australia’s reporting obligations under various free trade agreements.

3.29 The NCA advised the ANAO that the NCA finance team manually enters in all contract details into AusTender based on information provided by the relevant line areas.

Contract reporting

3.30 During 2019–20 and 2020–21, the NCA published 541 contract notices on AusTender comprising 327 contracts totalling $69.9 million and 214 amendments totalling $29.3 million.³⁸ Of those 541 contract notices:

• 397 (73 per cent) were published within 42 days of the reported start date; and
• 144 (27 per cent) were published 42 days or more after the reported start date, with the maximum time taken being 441 days.

3.31 As shown in Figure 3.2, 26 (62 per cent) of the 42 contracts examined in detail were reported within 42 days of the contract being entered into (four of which had contract details accurately reported). The remaining 16 (38 per cent) were reported outside the required reporting period, with only one being accurately reported and the maximum time taken being 622 days.

Figure 3.2: Timeliness and accuracy of contract reporting

Source: ANAO analysis.

3.32 The accuracy of contract data published by AusTender is largely dependent on an entity correctly entering contract particulars. For the 42 contracts examined by the ANAO, accuracy of contract reporting was not to an appropriate standard with 37 (88 per cent) having one or more of the following errors:

• one reported the agency reference ID incorrectly;
• one reported incorrect supplier details;
• 12 reported a procurement method that differed from the ANAO’s analysis of NCA records;
• nine omitted to report they resulted from a standing offer/panel arrangement and the relevant Standing Offer Notice number³⁹;
• 20 reported a contract value that differed from the ANAO’s analysis of the NCA’s records⁴⁰;
• 21 incorrectly reported the contract start date⁴¹; and
• 26 incorrectly reported the contract end date.

3.33 The ANAO’s audit work indicates that the NCA does not have adequate internal assurance processes to monitor compliance with AusTender reporting and other CPRs.

Contract amendments

3.36 When reporting amendments to contracts to AusTender, entities should report the variation details separate to the parent contract and only after approval by an appropriate delegate. Relevant entities are not required to (although they may choose to) report amendments:

• valued under the reporting threshold of $10,000;
• that decrease the value of a contract; or
• to the contract term.⁴²

3.37 As at 30 June 2021, 23 (55 per cent) of the 42 contracts examined by the ANAO had been varied at least once. Three of the 23 contracts had insufficient information maintained on file in relation to the variations to enable reliable examination as to whether the associated amendments had been reported in accordance with the CPRs. For the remaining 20 contracts, the individual variations totalled 62 in number and $8.1 million in value. The NCA was obligated to report 45 of those 62 individual variations to AusTender (the other 17 fell into one of the categories listed in paragraph 3.36). Of those required to be reported, only 11 (24 per cent) were accurately reported within the required timeframe.⁴³

Reliability of records

3.38 The ANAO observed the following deficiencies in the NCA’s records:

• contracts being executed long after works commenced;
• the combined reporting of parent contracts and amendments;
• duplications in reporting due to inconsistencies in the treatment of variations (sometimes variations were reported both as standalone contracts and as a variation to an existing contract);
• human error when entering information into AusTender;
• insufficient understanding of AusTender reporting obligations as they relate to amendments/variations;
• poor contract management; and/or
• insufficient information being maintained on file.

Appendix 1 Entity responses

 

 

 

 

 

 

 

 

Appendix 2 Improvements observed by the ANAO

1. The existence of independent external audit, and the accompanying potential for scrutiny improves performance. Improvements in administrative and management practices usually occur: in anticipation of ANAO audit activity; during an audit engagement; as interim findings are made; and/or after the audit has been completed and formal findings are communicated.

2. The Joint Committee of Public Accounts and Audit (JCPAA) has encouraged the ANAO to consider ways in which the ANAO could capture and describe some of these impacts. The ANAO’s 2021–22 Corporate Plan states that the ANAO’s annual performance statements will provide a narrative that will consider, amongst other matters, analysis of key improvements made by entities during a performance audit process based on information included in tabled performance audit reports.

3. Performance audits involve close engagement between the ANAO and the audited entity as well as other stakeholders involved in the program or activity being audited. Throughout the audit engagement, the ANAO outlines to the entity the preliminary audit findings, conclusions and potential audit recommendations. This ensures that final recommendations are appropriately targeted and encourages entities to take early remedial action on any identified matters during the course of an audit. Remedial actions entities may take during the audit include:

• strengthening governance arrangements;
• introducing or revising policies, strategies, guidelines or administrative processes; and
• initiating reviews or investigations.

4. In this context, the below actions were observed by the ANAO during the course of the audit. It is not clear whether these actions and/or the timing of these actions were planned in response to proposed or actual audit activity. The ANAO has not sought to obtain assurance over the source of these actions or whether they have been appropriately implemented.

• Development of intranet guidance on procurement.
• Update of the Accountable Authority Instructions.