Introduction

On 3 February 2008, the Prime Minister announced the Government would convene the Australia 2020 Summit at Parliament House on 19 and 20 April 2008. The Summit was to bring together 1000 leading Australians to Canberra to debate and develop long term options for the nation across ten areas.

The Department of the Prime Minister and Cabinet (PM&C) was responsible for Summit planning, logistics and secretariat support (but not the Summit program, content or facilitation arrangements).¹ A secretariat was established in the department on 8 February 2008 with responsibility for event planning and logistics, including technology support, transport, broadcasting, catering, scribing and reporting, protocol, liaison and security, along with accreditation and registration arrangements. To deliver on its responsibilities, PM&C entered into a range of contracts with various providers.

PM&C and other agencies subject to the Financial Management and Accountability Act 1997 (FMA Act) are responsible for procuring consultants in accordance with the Commonwealth Procurement Guidelines (CPGs). The CPGs require (with certain exemptions) that open tender processes be undertaken for procurements expected to cost more than $80 000,² and encourage the use of competitive procurement processes for less expensive procurements. Revised CPGs took effect in January 2005, which, amongst other matters, gave effect to the government procurement provisions of the Australia-United States Free Trade Agreement (USFTA).³ It was expected that the dominant impact of the revised CPGs would be an increase in the number and scope of procurement opportunities offered to the full market. At the time of the Summit, PM&C had taken some action to implement the new CPGs,⁴ but the department's Chief Executive's Instruction (CEI) relating to procurement was dated November 2001 and so did not reflect the January 2005 revision to the CPGs.⁵

PM&C's procurement strategy for the Summit was documented on 6 March 2008. Under the documented strategy, PM&C decided to rely on a clause in the CPGs which provides (for procurements expected to cost more than $80 000) that an agency may conduct procurement through direct sourcing where, for reasons of extreme urgency brought about by events unforeseen by the agency, the property or services are unable to be obtained in time under open tendering procedures. Against this background, while some contracts associated with organising the Summit were tendered, the majority were not.

On 6 March 2008, PM&C signed a contract with CMAX Communications for the provision of media management services for the Summit. This engagement was not tendered. The contract specified that CMAX Communications was to receive $1 300 per day (plus GST) for a period of no more than 40 working days. This was equal to a maximum payment of $52 000 (plus GST).

The CMAX Communications employee who provided media management services for the Summit is married to the Defence Minister's Media Adviser, who was at the time of the Summit the sole shareholder and Managing Director of CMAX Communications. He had established CMAX Communications in September 2004, more than three years prior to accepting the position as the Defence Minister's Media Adviser (on 28 December 2007).⁶ The company name was transferred in April 2008 to a new entity owned by his spouse (in which the Media Adviser is neither a shareholder nor director) with the company formerly known as CMAX Communications being deregistered in July 2008.

Concerns regarding the engagement of CMAX Communications were initially raised in media articles in late April 2008. In the May 2008 Estimates hearings, the Senate Standing Committee on Finance and Public Administration also raised concerns about the appointment process.⁷ Particular concerns revolved around the Managing Director of CMAX Communications being, at the time of the engagement, employed by the Minister for Defence as his Media Adviser, and that the engagement of CMAX Communications followed a suggestion from a Senior Adviser in the Prime Minister's Office, who was involved with the organisation of the Summit.

Audit scope and objectives

Senator the Hon Michael Ronaldson (Liberal Senator for Victoria and Shadow Special Minister of State) wrote to the Auditor-General in May 2008, requesting that the ANAO investigate the probity of the contractual arrangement between PM&C and CMAX Communications.⁸ Following discussions with PM&C, and after allowing for a review of staff conduct matters by the Government Staffing Committee to be undertaken,⁹ the Auditor-General decided in August 2008 to undertake a performance audit of the CMAX Communications contract for the 2020 Summit. The audit objectives were to:

• examine whether the appointment of CMAX Communications Pty Ltd as a provider of communications support and advice for the 2020 Summit was consistent with the Commonwealth procurement framework and sound principles of public administration; and
• assess the effectiveness of the administration of the CMAX Communications contract by PM&C.

The audit was planned and undertaken to obtain reasonable assurance that the audit conclusion is based on sufficient and appropriate evidence. Audit fieldwork commenced in early September 2008. ANAO officers met a number of times with officials in PM&C and interviewed officials and other relevant individuals concerning matters relating to the conduct of the audit. In addition, interviews were undertaken with the Project Director that had been contracted by PM&C, PM&C's Assistant Secretary in charge of the Summit Secretariat, the Senior Adviser in the Prime Minister's Office, the contracted CMAX Communications employee and the Defence Minister's Media Adviser. The audit methodology also involved examination of:

• relevant PM&C records as well as those of other Australian Government agencies that had engaged CMAX Communications;
• documentation held by the Australian Securities and Investments Commission in relation to CMAX Communications; and
• the three reports produced for the Government Staffing Committee, and documents associated with these reports.

Consistent with the focus of the audit objectives on PM&C's engagement and contract management practice related to the CMAX Communications contract, and having regard to the requirements of the Auditor-General Act 1997, the performance audit did not consider the actions of persons employed or engaged under the Members of Parliament (Staff) Act 1984 other than the extent to which their actions may have affected PM&C's procurement activities.

Copies of the proposed report were provided under section 19 of the Auditor-General Act 1997 to: PM&C; the Department of Finance and Deregulation (Finance); the Defence Materiel Organisation; the Department of Defence; the Senior Adviser in the Prime Minister's Office; the Project Director that had been contracted by PM&C; the Defence Minister's Media Adviser; and the contracted CMAX Communications employee.

Audit conclusion

Engagement process

Irrespective of the expected cost of a procurement, agencies have a responsibility under the CPG's to assure themselves that they obtain value for money. This is commonly achieved by comparing proposals from a number of potential service providers. For contracts with an estimated value less than $80 000, there is no requirement to approach the market if the agency is able to obtain assurance concerning value for money by other means. Further, there is no restriction on Ministers' offices suggesting particular consultants for consideration, providing it is clearly understood that the decision is a matter for the agency (taking into account the requirements of the CPGs). However, given the sensitivities which attach to suggestions of this kind from Ministers' offices, it will be in an agency's interests to have made its own inquiries, explicitly consider more than one option and accurately document its decision-making process. The use of competitive procurement processes by agencies can also protect the reputation of contractors where questions are raised about particular engagements.

Initial efforts by PM&C to obtain media adviser expertise for the Australia 2020 Summit focused on the availability of officials employed within the Australian Public Service (APS). In the limited time available, only one of the two media adviser roles was able to be filled by an APS official. There was no panel of prequalified consultants in place, and insufficient time was available for an open tender process to be conducted.

In these circumstances, it was reasonable for PM&C to consider the credentials of an employee of CMAX Communications who had been recommended to them by a Senior Adviser within the Prime Minister's Office involved with organising the Summit. A quote was obtained from CMAX Communications. PM&C did not consider an abbreviated approach to the market, such as seeking quotes from any other media management firms operating in the Canberra market, noting that the value of the contract was less than the $80 000 threshold at which agencies are required (with certain exemptions) to undertake open tender processes.

The decision to interview an employee of CMAX Communications for the senior Media Adviser role for the Summit was made by PM&C. On the basis of our inquiries, including evidence given on oath, there was no indication of any pressure on PM&C to appoint CMAX Communications. Following an interview at which previous work was discussed, and after consideration of the quotation provided by CMAX Communications, the decision to engage CMAX Communications was made by PM&C alone.

In deciding whether an actual conflict of interest existed, the first report provided to the Government Staffing Committee noted that there was no evidence found of any involvement on the Defence Minister's Adviser's part or of any influence exerted by him in relation to the letting or the carrying out of the contract.¹⁰ The report also concluded that there was no actual conflict of interest arising from the Defence Minister's Adviser's connection with CMAX Communications and his employment as a member of Ministerial staff. Nevertheless, it noted that there was the possibility of an appearance of conflict of interest arising from the Adviser's continued connection with CMAX Communications after he was employed as a member of Ministerial staff. Subsequent inquiries, and evidence taken under oath by ANAO, supported these conclusions.

The basis on which the PM&C delegate made the decision that engaging CMAX Communications represented value for money was not clear from the departmental record that had been made. In particular, PM&C's documentation did not accurately record the way in which CMAX Communications was identified to it as a possible provider, or the inquiries it undertook to satisfy itself that engaging CMAX Communications represented value for money. That said, ANAO analysis indicates that the fee paid by PM&C was comparable to contracts entered into by CMAX Communications with Australian Government agencies prior to the Summit, as well as being reasonable having regard to rates charged by media and communications consultants in other contractual arrangements examined by ANAO in recent years.

Overall, while there was scope for some improvements in PM&C's administration of the engagement process, there was no evidence of any external pressure being applied to PM&C in making the decision to engage CMAX Communications, or that the fee payable to CMAX Communications was not reasonable in the circumstances of the engagement.

Contract management

PM&C signed a contract with CMAX Communications to deliver the required services. In accordance with its contract, CMAX Communications worked to raise awareness of the Summit and its objectives and to encourage and manage media coverage of the Summit in the lead up to, and during, the event. Delivering these services involved CMAX Communications working with the Summit Steering Committee to organise interviews and have articles placed in national and local media. Positive feedback was provided to CMAX Communications in respect to the company's work by a number of key individuals involved in the Summit.

ANAO observed a number of shortcomings with PM&C's contract management. In particular, the contract document did not specify the name of the individual that was to deliver the contract services; and the total amount paid to CMAX Communications ($56 358 plus GST) exceeded the maximum amount specified in the contract ($52 000 plus GST), and there is no evidence that this issue was identified by PM&C prior to the payment being made.

Improvement opportunities

Each year, the Australian Government lets numerous contracts for services such as media advice, communications advice and public relations. A significant proportion of these contracts have been reported as not resulting from a competitive selection process, with urgency a factor in agencies direct sourcing. This situation does not sit comfortably with competition being a key element of the Australian Government procurement policy framework.

The CPGs state that effective competition requires non-discrimination in procurement and the use of competitive procurement processes. As noted earlier, open tender processes are generally required for consultant procurements expected to cost more than $80 000, with the use of competitive procurement processes encouraged for less expensive procurements. In this context, a panel¹¹ or multi-use list¹² of potential suppliers of media advice, communications advice and public relations services, each of which involves an approach to the market,¹³ could be expected to promote open and effective competition as a means of securing value for money. This approach could also reduce reputational risk to agencies and contractors where concerns are raised about the process through which they were engaged.

Accordingly, the ANAO raised with Finance the merits of implementing coordinated procurement arrangements (such as a panel or multi-use list) for media and communications adviser services that balances the time imperatives that can exist when contracting for these types of services and the importance of open and effective competition in Australian Government procurement processes. Finance advised ANAO that the amount of expenditure on media and communications advice consultancies across government does not appear to be at a level that would warrant the cost and complexity of centralising the procurement of these services.

ANAO has made one recommendation focused on PM&C improving its documentation relating to procurement decisions.

Agency responses

The following entities provided formal comments on the proposed report of this performance audit:

Department of the Prime Minister and Cabinet

The department notes the report's conclusions. In terms of overall performance of the CMAX contract, the report concludes that the contract price was comparable and reasonable, and that positive feedback was provided on the performance of CMAX Communications.

PM&C will be further improving its procurement and contract management systems. PM&C notes that, throughout 2008, strengthened governance arrangements have been put in place which will help ensure that the issues identified in the report in relation to PM&C are not repeated in the future. This includes updating the revised procurement Chief Executive's Instruction to reflect recent changes to the related legislation. PM&C further notes that a number of internal audits are being undertaken for the 2008 09 financial year in the areas of procurement and knowledge management, which will examine and provide assurance on aspects of the department's procurement and contract management processes.

Defence Materiel Organisation

During the period September 2004 to October 2007, CMAX Communications held several contracts with the Defence Materiel Organisation (DMO) to provide media and public affairs advice. The ANAO's report has highlighted examples of DMO contract procurement for the CMAX Communications contract which ANAO believes to be of concern. From DMO's perspective, the advisory work performed by CMAX Communications during the contractual period was of a high standard and delivered on schedule, often under time and resource pressures, and at a contract price that provided value for money for the Commonwealth. This performance and value satisfaction factor was a significant consideration regarding the additional contracts that DMO entered into with CMAX Communications.

Department of Finance and Deregulation

Finance does not believe that there is a compelling case to justify the establishment of a mechanism for the coordinated procurement of media and communications advisers.

2007-08 Annual Report data collated by the ANAO indicates that around two-thirds of media and public relations consultancies were competitively sourced. While other data derived from AusTender suggests that only half of reported contracts for media and communications advice over a nine month period involved competitive sourcing, the ANAO's own analysis suggests that these are likely to involve smaller value and therefore lower risk projects.

Finance is not convinced that the amount of expenditure on media and communications advice consultancies across government is at a level that would warrant the cost and complexity of centralising the procurement of these services.

Footnotes

^[1] Department of the Prime Minister and Cabinet, Annual Report 2007–08, p. 77.

^[2] Other than those for construction services where, prior to the introduction of the new CPGs in December 2008, the threshold was $6 million.

^[3] The Department of Finance and Deregulation advised entities of proposed changes to government procurement in June 2004, and issued a series of Procurement Updates providing additional information. A draft copy of the revised CPGs was issued in October 2004 for comment and the Department of Finance and Deregulation suggested that entities affected by the changes should prepare for the implementation of the revised government procurement framework, including reviewing and preparing to amend agency Chief Executive Instructions and internal procurement procedures.

^[4] Specifically, the department's Annual Report for 2004-05 indicated (at page 86) that an achievement in that year was reviewing and amending the departmental standard contracts to incorporate additional contract clauses relating to the new Commonwealth Procurement Framework. The 2004-05 Annual Report also indicated (at page 102) that Information Technology procurement processes, procedures and templates were reviewed and updated following the introduction of the USFTA. In addition, PM&C advised ANAO that further advice on changes to delegations, reflecting the new procurement thresholds and to streamline administration, was provided to departmental division heads in September 2006.

^[5] The CEI adopted indicative benchmarks for procurement with ‘intermediate decisions' for procurements expected to cost between $5 000 and $50 000 requiring sufficient oral and/or written quotes to be obtained to achieve value for money through open and effective competition, and ‘advanced decision making' for procurements expected to cost over $50 000 requiring senior officer consideration of the most appropriate methodology that would provide value for money through open and effective competition (including, arranging to appropriately test the market place). The procurement CEI was updated in August 2008.

^[6] The current Defence Minister's Media Adviser completed three Statement of Private Interests forms, dated 28 February 2008, 22 April 2008 and 5 May 2008. The first form disclosed both a shareholding and directorship of CMAX Communications. The second disclosed a shareholding and directorship of Maximum Communication, with his spouse having a shareholding and directorship of CMAX Communications. The third Statement of Private Interests stated that the Media Adviser had no shareholdings and held no directorships, and continued to disclose his spouse as having a shareholding and directorship of CMAX Communications.

^[7] In addition, the previous work of CMAX Communications and its Managing Director in the Department of Defence and the Defence Materiel Organisation was raised in June 2008 Estimates hearings of the Senate Standing Committee on Foreign Affairs, Defence and Trade.

^[8] A letter was also received from Senator the Hon David Johnston, a Liberal Senator for Western Australia, requesting that ANAO fully investigate this matter and provide a detailed report on the findings and any proposed further actions that should be undertaken by relevant authorities.

^[9] After being advised by ANAO that an audit was to be undertaken, the Government Staffing Committee suspended its consideration of Ministerial staff conduct matters related to the CMAX Communications contract. The Committee advised ANAO that it planned to resume its considerations once ANAO's report was presented to Parliament and inform itself of any relevant ANAO findings in reaching conclusions about staff conduct matters.

^[10] The report also noted that there was no evidence found that anything had been done in the letting or carrying out of the contract for the purpose of advancing the Adviser's interests.

^[11] A panel may be established following either an open or select tender with an agency entering into contracts or deeds of standing offer (panel arrangements) for the provision of identified property or services. A panel is defined in the CPGs as an arrangement under which a number of suppliers, usually selected through a single procurement process, may each supply property or services to an agency as specified in the panel arrangements. The CPGs state that the respective panel arrangements must contain minimum requirements, including an indicative or set price or rate as appropriate for the property or services to be procured in the period of the panel arrangement. When selecting a provider from a panel, there remains a requirement to obtain value for money.

^[12] The CPGs define a multi-use list as a list of pre-qualified businesses who have satisfied the conditions for participation for inclusion that is intended for use in more than one procurement process. A multi-use list involves an initial open approach to the market (to establish the list) being used to inform future select tender processes, through which value for money is to be obtained. Specifically, an agency may invite some or all businesses included on a multi-use list to participate in a procurement, providing that the property or services sought are consistent with those described in the approach to the market that was used to form the multi-use list.

^[13] A key difference between a multi-use list and panel relates to the stage in the engagement process at which tendering occurs. For a multi-use list, the request for application for inclusion on the list must either be published continuously or re-published annually and this list forms the basis for identifying potential suppliers some or all of which may at a later time be invited to tender for an individual engagement. By way of comparison, a panel is established through a procurement process and providers can be engaged without the need to conduct a further procurement process.