The current outsourcing model used by the Department of Immigration and Border Protection to deliver offshore detention services in Nauru and Manus Island is risky and inefficient, argues Melbourne School of Government public management expert Professor Janine O’Flynn.
Her comments follow an extraordinary report issued by the national auditor on Monday criticising the handling of welfare and garrison services for the refugee detention centres, which suggests DIBP spent $2.2 billion without proper authorisation, lacked effective contract and risk management mechanisms, had poor record keeping processes, and even failed to insure a $75 million facility in Nauru that ultimately burned down in a riot.
The department, while accepting the Australian National Audit Office’s recommendations for improving its management of the offshore detention regime, has blamed “immense” political pressure “to simultaneously manage thousands of asylum seekers, negotiate with host governments, engage the service providers and operationalise all the logistics for the regional processing centres, whilst continuing to manage the immigration detention network in Australia”.
The offshore detention system has the added problems of dealing with foreign governments, which can make decisions affecting the centres at any time, meaning decisions and actions sometimes need to be taken in “very short” timeframes, says DIBP. The department’s response argues:
“The garrison support and welfare services contracts were originally established during great uncertainty and over the last four years the department has worked very hard to establish sustainable contractual arrangements.
“The environment around RPCs remains extremely complex and the scope of services is rapidly evolving. … The department must therefore adopt procurement and contract management practices that are sufficiently agile to respond to new requirements and emerging security issues.”
DIBP has ‘fallen well short of effective contract management practice’
Notwithstanding the undoubtedly challenging environment in which the department operates, the report makes for remarkable reading.
Due to the haste with which the contracts were put in place, ANAO found “the department did not have a detailed view of what it wanted to purchase or the standards to apply”.
There were widespread shortcomings in most aspects of basic contract management. The department did not put in place effective mechanisms to manage the contracts, and there was no documentation of the means by which the contract objectives would be achieved, ANAO states. Inspection and audit of services delivered did not occur in a systematic way and risks were not effectively managed.
The department “has not maintained appropriate records of decisions and actions taken in the course of its contract management” and does not hold a complete set of guidelines in its own records, the auditor says, so DIBP cannot fully evaluate whether contracts were complied with or value for money was achieved.
A comprehensive risk-based performance framework for contractors was created, but its development was delayed, it relied on self-reporting by contractors with limited checks by the department — an approach that has created serious problems — and has not been applied consistently to providers. Contracts were designed to incentivise appropriate risk management, but a failure to effectively monitor and act on risks by the department undermined this. ANAO reports:
“Delays in the department’s review of self-assessments and the provision of feedback on contractor performance eroded the link between actual performance and contract payments. Risk assessment was a key component of the performance reporting processes and while risk assessments were conducted, DIBP did not review risk ratings or determine if controls and mitigations were in place and working.”
The audit found appropriate controls were in place for payments, including payments needing to be authorised by delegates, but that the system was often not properly implemented. As a result, the auditor was unable to verify that $2.2 billion in payments had been properly authorised. $1.1 billion was approved by DIBP officers who did not have the required authorisation, and for another $1.1 billion, there was no departmental record of who authorised the payments.
The auditor appears unconvinced by the department’s argument that it was caught on the hop by sudden pressure from the government of the day, arguing that contracting is core business and that similar problems have been highlighted in previous audits.
“Contract management is core business for Australian government entities, and the department has managed detention contracts since 1997.
“Previous ANAO audits of the department’s contract management have found that: its contracting framework had not established clear expectations of the level and quality of services to be delivered; and its ability to monitor the performance of contractors was compromised by a lack of clarity in standards and performance measures and reliance on incident reporting to determine when standards were not being met.
“This audit has identified a recurrence of these (and other) deficiencies, which have resulted in higher than necessary expense for taxpayers and significant reputational risks for the Australian government and the department.”
Outsourcing and lack of capacity increase risk
“If we listed the range of ways in which outsourcing could go wrong, the ANAO report shows most of these are met,” says O’Flynn.
She finds it difficult to understand why the department continues to take the approach it does given how persistent these problems have been.
“Successive Australian governments have operated offshore processing centres for around 20 years. This is not a new undertaking. They also have decades of experience in contracting. It is difficult to understand why these persistent issues remain. If they do, then outsourcing seems like an incredibly risky venture, in terms of costs, relationships, and strategic/political risks,” she told The Mandarin by email.
She concedes that operating in other countries can make for a difficult working environment, not least due to “blurry” lines of responsibility and accountability. But the current approach actually worsens many risks, O’Flynn thinks.
“Relying on external parties to work on your behalf in fast-moving, unpredictable, or uncertain situations is risky and, if done at all, is most effectively (and efficiently) done using very different contractual forms — much more relational, genuine partnership-based models, which are rarely used in the Australian context.
“Even if a department has exceptional contract/relationship management capabilities these could be tested in such settings; where there are persistent, ongoing capability failures this represents a toxic mix. Deploying these weaknesses in a relationship with external parties in a complex, uncertain setting is an accident waiting to happen.”
Being rushed “cannot explain why the problems continue, why monitoring appears to be lax, and internal policies and procedures are not followed, or why more independent inspections and monitoring, set out in contracts, are not taking place.”
There have been similar examples of widespread failure to effectively run services for the disadvantaged in other countries, too. O’Flynn is currently working on a book “examining international experiences with the creation and evolution of markets in misery and misfortune”, she explains.
“Australia is not alone in confronting these issues and there are many cases where this toxic mix has emerged. When this poor capability-high complexity mix is combined with misery and misfortune (detention centres, child protection, youth justice, border control, prisons etc) then the impacts can be catastrophic.”
She agrees with ANAO that getting the contracting basis right should be a core capability of organisations that engage in multi-billion dollar outsourcing to external parties.
“Specifying what is to be purchased, setting out standards for providers, designing and implementing monitoring regimes that allow the department (and politicians and taxpayers) to know that the external provider has actually done what it has been asked to do and been paid for — these are outsourcing 101,” O’Flynn argues.
“Yes, these can be more difficult when we take into account what the department is contracting for, and where these facilities are located,” she says, “but if the Department of Immigration and Border Protection is consistently unable to manage the task, it needs to reconsider its whole approach.
“Contracting theory, and empirical evidence, would tell us that in situations of uncertainty, where we are unable to clearly specify and monitor, then the least effective, less efficient, and in this case, most risky, relational model is that one that has been adopted — commercial style outsourcing.”