Background

1. Since 1994, the Migration Act 1958 (the Act) has required that all non citizens who are unlawfully in Australia must be detained. The purpose of immigration detention is twofold; to determine the immigration status of an unlawful non-citizen, and to allow for the removal of an unlawful non citizen who is not permitted to remain. The current Migration Amendment (Detention Arrangements) Bill 2005 proposes amendments to the Act to provide greater flexibility and transparency in the administration of the detention of persons known or reasonably suspected to be unlawful non citizens. ¹

2. Since November 1997, the provision of detention services at the immigration detention facilities has been outsourced to private organisations. For the period between November 1997 to February 2004 detention services were provided at all mainland immigration detention facilities by Australasian Correctional Services (ACS). ACS provided these services through its operational arm, Australasian Correctional Management (ACM). ACS/ACM are now known as GEO Australia Pty Ltd.

3. A new Detention Services Contract (the Contract) was signed between DIMIA and Group 4 Falck on 27 August 2003. Group 4 Falck subsequently changed its name to Global Solutions Limited (GSL). Between 1 December 2003 and 29 February 2004 the provision of detention services at Australia's immigration detention centres was progressively transitioned from GEO to GSL.

4. The term of the Contract is four years, with an option for the Commonwealth to extend for a further period of three years. The cost of providing detention services through the Contract is approximately $90 million annually, not including the cost of overheads and contract administration.

5. Management of detention centres through outsourced arrangements is a complex task since it involves the delivery of human services in a network of centres across Australia, and including Christmas Island.

Audit objective and scope

6. A performance audit of the management of the Detention Centre Contracts was listed in the 2003–04 Audit Work Program as a potential audit. The audit work program proposed that the audit would be conducted in two parts. The first part would focus on DIMIA's management of the detention centre contracts with the then detention service provider, GEO Australia. The second part would concentrate on how well any lessons learned from the first contract, were translated into improvements with the new contract.

7. On 18 June 2004, ANAO Audit Report No.54 of 2003–04 Management of the Detention Centre Contracts—Part A, (Report No. 54) was tabled in Parliament. In its response to Report 54, DIMIA stated that ‘experience with managing [the previous] contract identified areas where further improvements could be made. This experience informed the development of the new contract.'

8. The original objective of this second ANAO audit was to assess DIMIA's management of detention services through the Contract, including the tender process, transition period and implementation of lessons learned from the previous contract. However, in November 2004, it became clear that in order to provide a high level of assurance to DIMIA and to the Parliament over the probity of the tender process, a separate audit of the tender process would be required. An audit of the tender, evaluation and contract negotiation processes is in progress and it is expected that this report will be tabled separately, later in 2005.

9. The objective of this second audit was therefore amended: ‘to assess DIMIA's management of detention services through the Contract, including the transition period and the implementation of lessons learned from the previous contract.'

10. Specifically the ANAO considered:

• transition to a new service provider;

• the Detention Services Contract;

• risk allocation through liability, indemnity and insurance;

• performance information and contract monitoring; and

• contract administration.

11. The audit did not separately examine the outcomes of the detention program, nor the inherent quality of the services provided. The audit examined DIMIA's management of the contractual arrangements for the delivery of detention services and related performance measures.

12. The scope included Australia's mainland immigration detention centres, including the Christmas Island Immigration Reception and Processing Centre and the Residential Housing Project at Port Augusta, South Australia. The ANAO did not examine the arrangements in place for the offshore processing centres outside of Australia that are managed by the International Organization for Migration.

Proceedings in the Federal Court of Australia

S v Secretary, Department of Immigration and Multicultural and Indigenous Affairs [2005] FCA 549 (5 May 2005)

13. In February 2005, two detainees from the Baxter Immigration Detention Facility commenced proceedings in the Federal Court against the Secretary of DIMIA, alleging negligence. The judgement in relation to this case, contains a discussion of outsourced arrangements and the provision of certain aspects of detention services, which are relevant to the findings and conclusions of this audit.

The inquiry into the detention of an Australian permanent resident

14. On 8 February 2005, the Minister for Immigration and Multicultural and Indigenous Affairs announced that an inquiry would be conducted into the detention of an Australian permanent resident, Ms. Cornelia Rau. The Minister announced that ‘The Inquiry will investigate, examine and report on matters relating to the case of Cornelia Rau, including in particular the actions of DIMIA and relevant State agencies, during the period March 2004 to February 2005.' Although the inquiry is not being conducted publicly, the Minister has stated that the findings of the report will be made available publicly.

15. This audit did not examine whether individuals were lawfully detained. The ANAO does note however (in Appendix 2 to the report—Figure A2.1—schedule part 2, standard 2.1.2.1), that while all detainees should be held on DIMIA's advice, the appropriate performance measure in the Contract relies on the Services Provider satisfying itself that the person is lawfully detained.

Key audit findings

Transition to new provider (Chapter 2)

16. The ANAO found that the transition of the detention facilities to the new Services Provider was achieved without incident and with minimal disruption to the Detainees. Overall, there was sound planning and preparation. However the costs, at approximately $6 million, were significant.

The Detention Services Contract (Chapter 3)

17. DIMIA has supplied detention services through outsourced arrangements since 1997. In this purchaser/provider environment the department has a responsibility to ensure that the provider, currently GSL, is aware of its obligations. In the case of detention centres this involves the delivery of human services in a complex legal environment, including Commonwealth and State legislation.

18. The key legal instrument in articulating these obligations is the Contract. In general terms, the Contract is better structured than the previous detention agreements, in the sense that the high level obligations to be borne by the parties are at one level of the Contract. The Contract also contains more information about detention services than the old detention agreements. However, the ANAO found that the Contract does not adequately specify key responsibilities that are to be met, either by DIMIA or GSL. In particular, clear and consistent definitions are not provided for health standards that are central to detainee welfare. For example; Duty of Care, and the specific obligations for a subcontractor supplying psychological services are not consistent with the department's Immigration Detention Standards. The audit found that the Contract does not clearly specify mechanisms for the ongoing monitoring of subcontractor arrangements, for compliance with intended outcomes.

19. The provision of detention services is subject to a range of State specific legislation. Although detention services have been delivered under outsourced arrangements for the past seven years, DIMIA is yet to finalise more than half of the relevant agreements with State agencies. In addition, the extent to which the Services Provider can rely on agreements between the Commonwealth and other jurisdictions is not clear.

Liability, Indemnity and Insurance (Chapter 4)

20. Since 2000, claims of approximately $16.9 million have been paid out or settled by the Commonwealth following disturbances that resulted in damage to the detention centres. The terms and conditions attached to insurances, liabilities and indemnities are therefore of considerable significance in safeguarding the Commonwealth's interests.

21. The ANAO's examination of the liability, indemnity and insurance regime in the Contract revealed three significant shortcomings. First, the definition of an Incident in the Contract is unclear. The use of different descriptions of an Incident in various places in the Contract means that reporting can be subjective and lead to difficulties in interpreting liability, indemnity and insurance requirements.

22. Secondly, the Contract does not identify a mechanism to determine the amount that the Services Provider is liable for in respect of damages incurred. Nor does the Contract specify that the amount of damage as determined by the independent advisor is binding on both DIMIA and the Services Provider.

23. Thirdly, in the event of a claim arising from damage other than that caused by Detainees, the Commonwealth's interests are unprotected by the Services Provider's insurance.

24. The end result of an unclear liability, indemnity and insurance regime in the Contract, is that it is not possible for the Commonwealth to know with any certainty what events are covered by the Services Provider's insurance and to what extent the cover that has been obtained is limited or qualified.

Performance information and contract monitoring (Chapter 5)

Contract standards and measures

25. For service based contracts, such as that between DIMIA and GSL, performance indicators should be clear and measurable statements that assist both the purchaser and provider to assess whether or not performance has been satisfactory. While there is no ideal number of items of performance information it is important that agencies collect performance data that is focused on areas of highest significance and/or risk, timely, and relatively easy to interpret and manage. Clear specification of measurable performance indicators underpins monitoring and helps to minimise disputes between parties to agreements.
26. In developing the Contract, DIMIA sought to establish a range of standards and measures by which to measure performance. Schedule 3 of the Contract lists 148 standards and 243 measures and Schedule 2 contains more than 300 descriptions of detention services. The ANAO found that terms such as ‘timely', ‘appropriate', ‘relevant', ‘adequate' and ‘as soon as possible' are used in the standards and/or measures and these are not defined to allow their assessment. The standards also contain conditions and provisos, which mean that proving that the standard should have been met in a particular instance would be difficult. In some instances, experts rather than DIMIA general administrators, would be required to assess the standards relating to food, health, hygiene and Occupational Health and Safety.

27. The ANAO found that evidence to substantiate whether standards had been met or not would be difficult to collect. This will have an impact on the application of sanctions.

Contract monitoring

28. DIMIA has adopted an exceptions-based approach to assessing the performance of GSL, whereby the focus of monitoring arrangements is the reporting of Incidents. The department assumes that detention services are being delivered satisfactorily at each immigration detention centre unless the reporting of an Incident (or repeated Incidents) highlights a problem.

29. While assessment by exception enables DIMIA to identify extremely poor quality service delivery, there are two weaknesses with this approach. First, at a number of points in the monitoring and reporting process, DIMIA officials exercise considerable discretion as to what is reported. Secondly, the lack of clarity in the performance standards and measures in the Contract itself means that it is not possible for DIMIA's staff to assess the ongoing performance of the Services Provider objectively, based on the performance reporting.

Contract administration (Chapter 6)

30. Effective contract administration plays an important part in achieving successful outcomes under an outsourcing arrangement and is a way of ensuring ongoing value-for-money (VFM).

Financial framework and reporting

31. DIMIA's output 1.3.5 (detention) was funded at $120.5 million for 2004–05. The contribution that detention makes towards DIMIA's outcome is stated in the department's Portfolio Budget Statements as providing lawful, appropriate, humane and efficient detention of unlawful non-citizens. The ANAO found that DIMIA's internal monitoring and reporting arrangements did not further define, nor measure lawful, appropriate, humane or efficient detention.

32. One of the objectives of contract administration is to demonstrate on going VFM through the pursuit of objectives and strategies. The ANAO found no evidence that DIMIA's internal reporting arrangements monitored the extent to which expenditure under output 1.3.5 was contributing to the on going achievement of VFM, while assisting in the achievement of the overall outcome.

Cost of detention

33. The ANAO found that payments for detention operations have increased under the Contract. At the same time, the detention population has declined slightly since 2003. DIMIA does not have a routine management report that explains the increased costs. ANAO examination of the figures indicates that it is as a result of the new funding formula in the Contract, higher costs associated with the Residential Housing Project and the Christmas Island Immigration Reception and Processing Centre.

34. DIMIA's contract administration (overhead) costs have also increased substantially. These increases are in contrast to the slight decline in detainee days funded over the same period. In the last full financial year of the previous contract, the cost of detention overheads, which includes the costs of DIMIA central office staff, administration and travel, was $20 million. On current projections, overhead costs for year ended 30 June 2005 will reach $30 million. DIMIA does not have a management report that demonstrates whether or not the increased investments in contract administration are producing greater levels of operating efficiency.

35. The ANAO found that DIMIA's reporting of financial information does not allow DIMIA's executive to monitor key risks, such as the rising costs of contract administration. In particular, there is a lack of management information that separates the cost of the Contract from the cost of its administration. Such reporting documentation would enable DIMIA to clarify; first the need for increased investments in contract administration, and subsequently where these have produced improvements in efficiency and/or quality of service delivery.

Invoice procedures

36. The ANAO found that invoicing procedures were generally sound. Where difficulties have arisen as a result of ambiguities in the Contract, particularly with invoices for transport and escort of detainees; DIMIA is negotiating with the Services Provider to amend the Contract.

37. One ambiguity in the Contract that had not been fully resolved, as at January 2005, was the unclear distinction between what is to be considered an urgent and minor repair over planned maintenance. Although approximately $7.8 million has been paid for planned maintenance since the Contract began, the inability of both parties to agree on maintenance plans meant that, at December 2004, some $362 000 of invoices for urgent and minor repairs were unpaid. Finalisation of these invoices is causing ongoing administrative effort for the department.

Asset management

38. During the preparation of tender documentation, the question of ownership of assets at the detention facilities was acknowledged by DIMIA as an area that was not entirely settled. Prior to transition, GSL informed DIMIA that assets listed in the Contract at Schedule 6 at a total value of $1.4 million, were also listed on GEO's list of assets offered for sale to GSL.

39. Notwithstanding early indications of uncertainty of ownership of the assets in Schedule 6, DIMIA proceeded with the transition of the centres without clarifying further, the ownership of the equipment. During the transition, GSL made arrangements to purchase assets from GEO in order to begin operations. The assets purchased included a number of assets listed as Commonwealth Equipment at Schedule 6.

40. The ANAO found that at the time of contract signature, DIMIA did not have an accurate list of Commonwealth assets as stated in Schedule 6 of the Contract. At the time of audit fieldwork, DIMIA and GSL were involved in processes agreed between them to resolve the difficulties. This will involve compensation payments from the Commonwealth to GSL for the assets that were incorrectly shown as property of the Commonwealth.

Overall conclusion

41. In August 2003, DIMIA entered into a contract with GSL to provide services to people in detention. With operating costs approaching $100m per year, the Contract involves the delivery of security and transport services as well as human services including health and food in a sensitive manner. When it signed this Contract, DIMIA had more than 6 years of experience in contracting out detention services.

42. Lessons learned from the previous arrangements are apparent in the general structure of the Contract and it contains more information about detention services, but this has not provided the expected benefits. In particular, the Contract does not establish clear expectations for the level and quality of services to be delivered; mechanisms to protect the Commonwealth's interests are not clear; and there is insufficient information about the quality of services being delivered and their costs to allow a value for-money calculation.

43. Discussions with DIMIA senior management revealed that the quality of food and health services is considered to be central to the overall well being of detainees. However, DIMIA has put in place 148 standards, 243 measures and more than 300 descriptions of detention services with, up until January 2005, equal emphasis on each one. Assessing the performance of GSL would be more straightforward if these standards were risk based, better defined and more easily measured.

44. DIMIA advised that it is not possible to define these requirements in simplified ways, and that it was a misconception that services, standards and reporting can be simply and inflexibly stated. The ANAO considers that, although sometimes difficult, it is important to clearly define service requirements and standards to ensure there is a common understanding of the services required. The number of standards and performance measures included in the Contract is properly a matter for departmental judgement but, when specified, they should be able to be reliably measured.

45. DIMIA's monitoring of GSL's performance focuses on Incidents (with considerable discretion on reporting and what is an Incident) and, as a consequence, DIMIA is not able to provide assurance that all its standards are being met as expected.

46. An important element of the accountability framework in managing contracts on behalf of the Commonwealth is to ensure that the interests of the Commonwealth are protected as far as possible. The ANAO concluded that the terms of the liability, indemnity and insurance regime in the Contract are unclear to the point that it is not possible for the Commonwealth to know with any certainty what insurances are effected, what risks are covered, and to what extent the insurance cover that has been obtained is limited or qualified.

47. Although DIMIA has publicly stated the need to report on ‘efficient' detention, the cost and productivity data available indicate that contract administration costs have risen appreciably over the life of the Contract, against a falling detainee population. However, DIMIA does not have sufficient relevant and credible information about the quality of services being delivered and their costs, to determine whether the delivery of detention services is improving over time, or other factors are resulting in increased costs.

Agency Response: Department of Immigration and Multicultural and Indigenous Affairs

48. The Department welcomes the ANAO's audit of the current Detention Services Contract (DSC) early in the life of the contract, as this process will enable DIMIA to review its ongoing management of the detention function in accordance with ANAO best practice.

49. This DSC has built on the strengths of the previous contract, but provides the Services Provider with a greater clarity of the performance expectations and service standards to be delivered. The outcomes focus of the standards reflects the Government's expectations of appropriate service delivery, while also creating flexibility for the Services Provider to respond innovatively to the challenging environment of immigration detention.

50. The Department considers that the ANAO's report does not fully reflect or take account of the complexity of the detention environment. Within immigration detention, the needs of persons with a diverse range of backgrounds and a potentially infinite range of individual care and welfare needs must be managed within detention arrangements. The Department aims to provide services to these individuals that are effective and responsive to a changing detainee population, whilst also satisfying the Government's international obligations, extensive scrutiny from external bodies and the expectations of the Australian public and parliament.

51. The services and standards required in this environment cannot be simply and inflexibly stated in quantitative terms, which is at the core of many of the critical comments in the ANAO's report. The Department considers that a number of these issues identified by the ANAO are in fact differences of approach or opinion and cannot be easily resolved.

52. DIMIA considers that this DSC is a significant improvement from the previous contract. Under the DSC the Department has fostered strong and cooperative working relations with the Services Provider, based on a shared understanding of the outcomes to be achieved and with a focus on continuous improvement of service delivery on the ground.

ANAO Comment

53. The inherent challenges involved in the provision of detention services in a complex legal environment, and at centres widely separated from each other in different Australian States, has been acknowledged by the ANAO in this report and extensively in the earlier report in this series. The findings and conclusions of both reports have been formed in this context.

54. DIMIA has engaged an external provider (GSL Australia Pty Ltd) to deliver detention services, including security, health care, and other human services. The Contract term is four years and could operate for seven years, if extension options within the Contract are exercised. Payments for operations under the Contract for the year ended 30 June 2005 will reach $90 million, and contract administration costs will exceed $30 million.

55. DIMIA's response refers to a number of audit findings arising as a result of differences in approach or opinion. In particular, DIMIA has advised that the outcomes focus of the standards to be delivered under the Contract reflects the Government's expectations of appropriate service delivery, while also creating flexibility for the Services Provider to respond innovatively to the challenging environment of immigration detention. In addition, DIMIA has advised that the services, standards and reporting required in this environment cannot be simply and inflexibly stated in quantitative terms.

56. The ANAO acknowledges that a key issue in contractual arrangements is striking an appropriate balance between the degree of purchaser oversight of service delivery and the operational flexibility afforded to a contractor. By specifying service requirements in terms of contractual outcomes, not inputs, DIMIA has provided for the possibility of GSL innovation and consequent efficiency gains. However, DIMIA's approach is contingent upon the contracted outcomes being expressed in measurable terms.

57. In its assessment of the Contract the ANAO was, therefore, looking for service standards that articulated the expected level and quality of service to be delivered by GSL. The ANAO found that DIMIA's Immigration Detention Standards generally did not meet these criteria. Among other things, clear and consistent definitions are not provided for health standards.² DIMIA highlights the challenges it has set itself in evaluating GSL's performance, ‘given the volume of standards to be met'. The number and type of performance information is properly a matter for departmental judgement. However, when specified, performance information should be measurable and be designed to assist the department to manage the Contract, including monitoring GSL's performance.

58. In its response DIMIA concludes that this Contract is a significant improvement from the previous contract. The ANAO has acknowledged the consolidation of multiple agreements into one document and the inclusion of more descriptive information about detention services as improvements in the Contract. However, as noted in this report, the ANAO considers that there is scope to considerably improve key aspects of the Contract and contract administration. The four areas highlighted for improvement in ANAO recommendations are:

• the insurance, liability and indemnity regime in the Contract;

• the planning, performance information and monitoring arrangements, to provide a basis for systematic and objective monitoring and management of the detention function;

• the financial reporting of the detention function; and

• the management of Commonwealth Equipment and assets at each detention facility, specifically the development of a comprehensive asset register.

59. These recommendations are derived from sound principles used to guide the administration of complex service contracts and are intended to facilitate DIMIA's oversight of detention services in Australia. The department agreed with all four recommendations.

60. DIMIA's full response is attached at Appendix 3.

Footnotes

1 Migration Amendment (Detention Arrangements) Bill 2005, Explanatory Memorandum<http://parlinfoweb.aph.gov.au/piweb/view_document.aspx?ID=2058&TABLE=EMS>.

2 The Commonwealth Ombudsman has similarly expressed a view that the health standards could be more consistent.