The price of expediency: Nauru and Manus were exceptional circumstances

By David Donaldson

September 14, 2016

The Department of Immigration and Border Protection has defended itself against critical findings in an Australian National Audit Office report on its handling of procurement for the Nauru and Manus Island immigration detention centres, arguing that, given tight timeframes and a complex operating environment, “decisions taken in this period were reasonable under the circumstances”.

ANAO argues the department’s management of procurement activity for garrison support and welfare — including things such as security, cleaning, catering, educational and health services — undertaken since 2012 have “fallen well short of effective procurement practice”.

DIBP was unable to show it had obtained value for money for Australian taxpayers in three of four procurement processes it ran. Some aspects of the department’s activities in establishing the facilities, consolidating the Nauru and Manus contracts and running an open tender did not comply with the Commonwealth Procurement Rules.

The auditor found “serious and persistent deficiencies”, particularly in the department’s management of processes for contract consolidation and the open tender “which reduced competitive pressure and significantly increased the price of the services without government authority to do so”. The open tender process was eventually cancelled with no outcome.

In addition, there were skill and capability gaps amongst departmental personnel at all levels, including the central procurement and budget units, resulting in “persistent shortcomings” in the planning and conduct of the procurements, including in relation to record keeping and consistency and fairness in the treatment of suppliers.

But DIBP emphasised in a statement that the environment in which it worked is “extremely complex”, “high-tempo” and “complicated by logistics and procurement activities in foreign countries”. This meant the department’s delegates were required to make decisions on complex matters within very short timeframes.

DIBP also cites the sovereign governments’ decision-making as a factor:

“This has meant, in particular, adjusting the service levels throughout the tender and negotiation of the contracts to match changes on the ground. Services being procured must keep pace with emerging needs of people in the RPCs [regional processing centres]. The changes introduced were essential to the overall well-being of individuals at the RPCs and included measures such as increasing the number and type of meal choices and increasing the quality and availability of cultural liaison services to refugees and transferees.”

The department accepts the report’s recommendations “and has already taken steps to address areas of concern” which will strengthen procurement processes.

DIBP admitted its decision-making processes “in this complex and rapidly evolving environment were not adequately documented”. Reforms have already been made to DIBP’s capabilities in these areas, it argues — including additional training for staff and more robust assurance, probity and record-keeping processes.

The department “has invested significantly in consolidation of ICT systems, including record-keeping, during its process of integration with the former Australian Customs and Border Protection Service”, says the statement, adding that further reform work is underway.

Competition removed from the outset

In the case of its decision to consolidate the Manus and Nauru centres under one provider, which ended up being Transfield — later renamed Broadspectrum — ANAO found that the department worked backwards. DIBP “first selected the provider and then commenced a process to determine the exact nature, scope and price of the services to be delivered”, and did not provide reasons as to why it decided not to continue with the existing provider, G4S. This is despite Transfield charging more than its competitors:

“DIBP’s approach to engaging Transfield through limited tender procurement removed competition from the outset. The services to be provided and related costs were not agreed with Transfield prior to G4S and The Salvation Army being advised that they would exit from service delivery on Manus Island. The proposed costs submitted by Transfield were higher than the department had anticipated and exceeded those charged by G4S and The Salvation Army for service provision on Manus Island.”

The department responded that it had reasons for preferring Transfield:

“Throughout each stage of each procurement process, the department carefully considered the selection of tenderers. Factors such as the capability of tenderers to set up services quickly, the market, security needs and risk implications of having the same contractor delivering services to the RPCs and the Australian immigration detention network were considered before decisions were made.”

ANAO also notes there is no available record of specific conflict of interest declarations having been made by departmental officers who were responsible for the procurement.

The agreement unintentionally locked in high prices. The contract was designed so that economies of scale would be reached when there were a lot of detainees in the centres, leading to a higher per capita cost when fewer arrived than the department had assumed.

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