Contestability and consolidation: Finance head outlines agenda

By Stephen Easton

February 27, 2015

The Commonwealth’s new contestability regime is nearing the end of its pilot phase and will soon begin rolling out across the whole government, according to testimony in a wide-ranging Additional Estimates hearing on Tuesday.

Finance Minister Mathias Cormann said the first two “functional and efficiency reviews” under the framework — looking at the departments of Health and Education, under the respective leadership of Ernst and Young partner Jim Birch and Business Council of Australia chief Jennifer Westacott — would be completed in time for this year’s budget process. The other elements of the framework, including portfolio stocktakes and contestability reviews, are also nearing full-scale rollout.

Jane Halton
Jane Halton

In response to questions from Labor Senator Joe Ludwig, Department of Finance secretary Jane Halton explained the pilots were not aimed at deciding whether to apply the contestability tests to the entire public service — that decision has already been made — but how best to do so. Her own department’s officials are among the “guinea pigs”, she said:

“The challenge will be to make sure that the methodologies and/or the guidance that’s provided to individual agencies is as useful as it can be.”

The process, she told Ludwig, meant Finance was developing a methodology to improve the public service, which would include making some activities contestable. She explained contestability did not simply mean outsourcing, as some of the government’s opponents have suggested:

“Not everything has to be outsourced but what you want is for everything to be as efficient and effective as possible, and in some cases that might mean it’s contestable to others. In some cases, it’s a question of saying, how can it be re-designed?”

Halton said the Commonwealth’s “grasp of how to manage an extraordinarily large enterprise” had improved significantly over time, and gave the example of whole-of-government procurement increasing buying power for purchases like airfares and accommodation:

“… but we also need to look at the things which are done inside the departments which are not in themselves amenable to either group purchase or collective purchase, in order to make sure we drive the best value for the taxpayer in how we do the business of the government of the day.”

Later in the day, Labor Senator Kate Lundy suggested that while shared procurement delivers value for money, it could also be stifling innovation in the digital technology space:

“I’m interested in the tension between the need for prescriptive contracts to extract economies and efficiencies up against the need to allow agencies and departments the flexibility to innovate with their IT, to be able to access perhaps disruptive technologies or methodologies to ensure that they keep pace with what is happening out in the real world.”

Halton replied by drawing a distinction between buying bulk commodities and “the little bit of excitement and extra on top”, but acknowledged the challenge in keeping the way open for new and improved service delivery at the same time as getting the best value for taxpayers by appointing exclusive supplier panels for products like mobile phones, internet connections and computer hardware. Some technological solutions perform a basic function and most users don’t mind how they work, the secretary pointed out:

“And government needs to get that message as well, but there are also times … when you actually need to innovate in a particular service domain or whatever it might be, and you need the flexibility to do that.”

Halton acknowledged that assessing the best value is far more complex than simply picking the cheapest option:

“What is meant by value, that is part of the thing that we need to educate people about … and I don’t think we can articulate for you quite where that’s going to end up because we’re going through an exploratory process. But it’s certainly front-line.”

Lundy continued her line of questioning by asking how the department intended to build the capacity to innovate, which she said was “really hard under the current system” due to barriers in procurement policies keeping out disruptive technology products. Halton replied:

“I can’t say that there is a plan, but I can say there is an acute awareness of the issue.”

Savings and sell-offs

Senators probed other elements of the Coalition’s moves to streamline the bureaucracy, although Ludwig struggled to extract any new figures for the savings achieved by abolishing or merging hundreds of small entities. “Was it worth the effort?” he asked. Halton replied:

“Let’s be clear, Senator. There are two kinds of savings here, one of which is a saving that is back to the budget and then there are other savings, and all of these circumstances by definition were consolidated functions in one agency, as opposed to having a lot of micro-agencies with all the overhead that they each bring. So whether or not you take all of the savings back to the budget, or you actually use some of it inside the portfolio, by definition you are streamlining the way government actually acts.”

“That may be the case but it’s not necessarily the case,” said Ludwig, declining to argue the point further. Cormann moved to assure him that the entities were not abolished “out of some sort of ideological pursuit” but “to achieve tangible, beneficial outcomes”.

Scoping studies looking at the potential sale of Australian Hearing Services, the Mint, Defence Housing Australia and the Australian Securities and Investments Commission’s registry business were also probed by Ludwig, and Western Australian Liberal Senator Dean Smith.

Cormann told Ludwig the government did not have “predetermined views” and would “consider any advice with a completely open mind” after the scoping studies were complete. He said the Coalition would not take the Commission of Audit’s advice to fully privatise other assets like Australia Post, Australian Submarine Corporation, Snowy Hydro and the National Broadband Network, without announcing its intentions publicly and undertaking similar scoping work.

Interestingly, Halton also made a point of saying that the studies would be highly valuable tools for the entities concerned, regardless of whether they were sold off as a result. According to the experienced public administrator, the scoping studies often “create a picture that nobody else has ever actually seen” by pulling together a range of internal and external views and thoroughly looking over the financials. She said:

“So we discover things about the way these businesses operate which even the management of those businesses really don’t fully understand … it is absolutely the case that the combination of both the expert insight [and] financial analysis, and the issues that are of very real concern to stakeholders, give you a much richer perspective than anyone else actually holds.”

Cormann said this was a “very important point” and that he expected the agencies would improve in service delivery and general performance as a result of going through the scoping studies, regardless of the outcome.

Liberal senator Bridget McKenzie also managed to score a small hit on the opposition with the help of information provided by Commonwealth procurement boss John Sheridan. Sheridan informed her the new policy to allow credit card payment for bills up to $10,000 was estimated to save the government’s suppliers around $900,000 a year, compared to the old system of 30-day invoices.

“Our analysis suggests that … if we set it at $20,000 we could perhaps save [suppliers] as much as $4 million [per annum], so the gap is $3 million,” said Sheridan. Cormann said he had sought Labor’s support to lift the threshold but did not receive it. Asked by McKenzie if he was given a reason, he replied: “Not particularly, no.”

More at The Mandarin: Jane Halton on central reform from her new Finance fiefdom

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