Audit finds shortcomings in Home Affairs’ procurement of services for Manus Island

By Shannon Jenkins

Friday May 29, 2020

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The Department of Home Affairs failed to demonstrate value for money for procurements of garrison support and welfare services for an offshore detention centre in Papua New Guinea, according to the Australian National Audit Office.

The latest ANAO report, released on Thursday, found Home Affairs’ management of the procurement of services for the controversial Nauru and Manus Island facilities was “largely appropriate”, and mostly complied with the Commonwealth Procurement Rules (CPRs).

Home Affairs in 2017 entered into contracts with Paladin, JDA Wokman Ltd, NKW Holdings Ltd, and Canstruct International Pty Ltd, for garrison support and welfare services for the offshore immigration centres. Canstruct received $1.1 billion, Paladin won $532 million, NKW received $136m, and JDA received $77m.

ANAO found the department failed to document its reasons for requesting quotations from three of the companies, as required by the CPRs.

While the department showed value for money for the Nauru procurement, the audit identified issues with the Manus Island contracts.

“Although the department had limited options for comparing tenderer costs, most of the benchmarks it used were not appropriate. Negotiations with NKW achieved significant savings, noting that the initial tendered costs had been assessed as not representing value for money,” the report stated.

“The effectiveness of negotiation for Paladin was unclear as savings achieved for some items were offset by increases to others, the addition of a mobilisation payment and the department’s substantial expansion of the services required during the negotiation process.”

ANAO also found a probity management framework wasn’t effectively applied in all instances, contractor performance reporting and monitoring was only “partly adequate”, and an existing conflict of interest wasn’t acknowledged or managed.

“A departmental officer had multiple roles during the procurement process and the conflict of interest resulting from this was not acknowledged or addressed,” the report said.

ANAO called on Home Affairs to develop policy guidance to ensure that:

  1. Where a limited tender procurement is undertaken, decisions in relation to the providers to receive requests for quotation are properly documented,
  2. Where Letters of Intent are issued to contractors pending the finalisation of contracts, interim performance reports are prepared when an assessment of key contract risks and deliverables suggests it would be prudent to do so.

The department accepted both recommendations, but challenged some of the report’s conclusions.

“The department welcomes the ANAO finding that the department demonstrated the achievement of value for money for the Nauru procurement, that benchmarks used by the department were appropriate and negotiation processes effective,” it said.

“In relation to the PNG procurements, the department is of the view that negotiation processes were appropriate, in light of the changed sovereign nation’s operating model, the significantly restricted timeframe and the constantly changing operating environment.

“As part of the procurement process, a probity management framework was developed for these procurements requiring each departmental officer involved in the procurements to complete a conflict of interest declaration at the outset of the procurement and declare any further real or perceived conflicts of interest that eventuate during the procurement process. From the department’s point of view, it is not unusual practice for a departmental officer to have multiple roles during a procurement process, both over the term of the procurement and concurrently, and we note the ANAO’s observation regarding officers’ ongoing obligations in terms of declaring real and perceived conflicts of interest.”

Two past audits into the department’s management of offshore garrison support and welfare contracts “identified a range of shortcomings and deficiencies”, the report noted. ANAO found Home Affairs had implemented the past recommendations by developing training programs to address skill and capability gaps, and by implementing procurement and contract management guidance and instructional material. It also “significantly improved” record keeping practices.

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