No evidence to support APS staff cap, no idea how many contractors fill the void

By Stephen Easton

Tuesday February 20, 2018

Public servant-turned MP Julian Hill is on a mission to prove PS staff caps are irrational and lead to wasteful spending on contractors and consultants.

  • There is disagreement over whether agency-level, non-negotiable caps exist within the whole-of-government cap.
  • Politicians want AusTender to be more than it is.
  • Finance officials suggest an annual reporting overhaul might be a better way to enhance contract reporting.

The deputy chair of the Joint Committee of Public Accounts and Audit received very little new information out of senior executives from Finance and the Australian Public Service Commission, despite subjecting them to sustained questioning in the first hearing of an inquiry into contract reporting on Friday.

The APSC team could not tell him how many labour-hire contractors are working across the APS, and Finance officials could not explain exactly how the staffing cap is a net benefit to public service efficiency.

The department also undertook to provide a precise breakdown of what it normally costs to employ a temp from a body shop, compared with a member of the APS. It will be interesting to see how they answer.

Finance has not done any work on this issue. But it “works with individual agencies on what resources are available to them, what needs they have, what government decisions impact them [and] what pressures they have”, according to deputy secretary Stein Helgeby.

“And we monitor their financial position on an ongoing and regular basis,” he said. “Our primary focus is to ensure that government priorities and agency resourcing stay related to each other.”

Hill thinks the decision to keep the overall APS average staffing level (ASL) arbitrarily to where it was in 2006-07 has caused an “extraordinary explosion” in the use of temporary labour hire and consultants that is implied by AusTender data. But the online tendering system is not set up to accurately report on how much APS work is done by staff from private-sector companies, according to an Australian National Audit Office report that led to the inquiry.

Reliable data in question

The Labor MP said AusTender data suggested “enormous growth” from 2013-14 to 2016-17 in two categories: “temporary personnel services” almost tripled from about $250 million to $741 million, while “personnel recruitment” outlays soared from $47m to $128m.

“On the face of it, that’s an explosion in temporary labour scattered throughout Commonwealth agencies,” he said. “Is that data reliable?”

Julian Hill

The question was another tricky one for the Finance executives. AusTender is mainly there to inform prospective suppliers about opportunities to win government contracts, an evolution of what was once a printed gazette.

Any transparency its reporting function provides is secondary. It does not show full expenditure, as annual reports do, and the data is easily updated by agencies at any time.

“The information is live,” deputy secretary John Edge said. “It is what it is.”

Edge and Helgeby explained the two categories were broad; recruitment services are used to hire APS employees or by the ADF, for example.

Just as an AusTender report on contracts labelled as “consulting” might not list all that meet the ordinary definition of the term, and contracts with the big four accounting firms are sometimes labelled as procurement from SMEs, the data can’t provide the accountability Hill demands.

Hill put a simple question to all the witnesses from the three agencies, who sat before the committee in one group: “How do I as a parliamentarian find out how many labour-hire contractors there are working across the Commonwealth?”

Nobody immediately answered, so the deputy chair leapt into the silence.

“Who can tell me? Is it a thousand? 5000? 10,000, 20,000, 30,000? Anyone? Sorry, we need to talk into the microphone, not gesticulate.”

More silence. “So no-one can tell anyone in the Commonwealth parliament or the public how many temporary contractors are working in government departments?”

APSC first assistant commissioner Kerryn Vine-Camp said the commission had no information about any independent contractors with their own ABNs or staff from labour-hire firms.

“So the public service commission has no plans to look at this?” asked Hill. It does not.

The commission does not have “a view or a rule” that can guide agencies on when external staff are appropriate, either, according to Vine-Camp. Nor is there any guidance on how to be an “expert buyer” of external labour and expertise, to avoid hollowing out their internal capability over time through outsourcing.

Prepare for an outbreak of APS joy

Hill’s key exhibit was evidence given by the Commonwealth Director of Public Prosecutions in Senate estimates last August.

DPP Sarah McNaughton confirmed labour-hire contractors were more expensive to employ than public servants and were paid about 3% less. The small agency essentially swapped 20 APS positions for 20 labour-hire positions, funded through its normal ongoing budget.

McNaughton said her office had been told to get its ASL down from the 2006-07 figure of about 390 “by way of the estimates notification process” — the same way it was advised of its individual staffing cap every year.

McNaughton said the decision was only “partly in response” to the cap and partly due to a need for flexibility. “We like to have a flexible workforce and be able to respond to the various issues that arise in terms of volume and complexity,” she told Labor senator Murray Watt.

Hill said this case study showed “hard limits appear to be driving … a slightly a perverse resource allocation” in the case of the CDPP’s office and the agency had no way “to go back to government and negotiate a different ASL”. But that is not the case for all agencies, according to Helgeby.

Tables in Budget Paper 4 each year showed that “in fact there is quite a lot of movement in the ASL attributable to individual agencies” over time, within the whole-of-government cap, Helgeby argued, although he had nothing to add on the CDPP’s specific situation.

Individual agency ASL figures could clearly change as “government decisions and management decisions” required, he contended — without shedding any light on how that process works.

“I think the idea that one cannot go back and look at that issue — I don’t think as a system, that’s right,” Helgeby stated. Hill suggested that should be good news for any agencies like the CDPP’s office, which are apparently given a non-negotiable ASL cap to work with.

“I think there’ll be an outbreak of joy across the APS from that statement,” drolled the deputy chair.

Think outside the ASL

Stein Helgeby

The Finance official defended the ASL cap by saying it “forces” agencies to think carefully about their resourcing needs to fulfil their various roles for the government.

“And sometimes the answer to that question is that you need ongoing staff, and sometimes the answer to that is that ongoing staff is not the right way to meet that need,” said Helgeby.

He said the CDPP’s office had “basically found itself having to ask itself that question” but avoided trying to explain why it was a good idea to swap 20 public servants for labour-hire staff in that particular case.

“What we wouldn’t want to see — or rather, what would be difficult to justify – would be that an agency, which had a resource base that was a constraint on it, made decisions that locked in the numbers of ongoing permanent staffing that it couldn’t sustain.

“And the focus on ASL is a way of prompting the question: what can you sustain, what do you need to do to meet the government’s objectives?”

To illustrate his frustration, Hill went to his own experience as a senior executive in the Victorian public service, when an ASL cap was introduced. Incidentally, he added, Helgeby was deputy secretary for the state budget at the time.

The MP said he had been allocated “a couple of hundred million dollars to do some work” and set about hiring staff, but his only choice was getting in “some labour-hire contractors and some consultants” to get around the cap.

In his view, this was irrational and would “waste literally millions of dollars” of his budget; his secretary advised him not to worry about it because there was no other option.

“So I’ve lived in the middle of this reality, and this seems to be exactly what we’re replicating here with the resourcing framework because you’re controlling one input, arbitrarily, and not the others,” said Hill.

Talking points under fire

Helgeby regularly fell back on one of the Finance Minister’s central claims supporting the smaller government agenda: departmental expenses have been decreasing as a proportion of total government expenditure.

Hill quibbled with Finance’s evidence for that factoid — Defence operations and the National Disability Insurance Scheme are excluded from the administrative expenses, but included in total “general government sector” expenditure. He dramatically declared the figures “complete nonsense” but did not deny the general trend is real.

The Finance submission explained it wanted to avoid the graph being skewed by the very large and variable cost of ADF military operations, or the large and growing amount of money provided to people with disability each year. Regardless, this talking point does not prove the ASL cap has forced efficiency gains.

Former APS commissioner Andrew Podger told the Australian Financial Review he couldn’t see why the two were excluded from the table. Both also just so happen to be key targets of criticism for excessive use of consultants and contractors, he pointed out, while the trend itself was “not necessarily an indicator of overall efficiency gains nor of the net benefits of the use of contractors and consultants” in his view.

Annual reporting reform could be a better answer

The key issue is clearly the lack of any arrangements to report on use of external human resources by the APS as a whole.

The government will never agree that its arbitrary limit on ASL forces agencies to waste money or contributes to capability decline, but it is more likely to consider some form of enhanced contract reporting mechanism, given the ANAO report showed inconsistency in how agencies classify contracts in AusTender, among a range of suspicious statistics.

Auditor-general Grant Hehir, for what it’s worth, reminded the committee his report did not actually contain official “findings” because it was not an “audit” but that distinction made little difference to the JCPAA.

Early signs are that Finance is reluctant to beef up AusTender – its view is that turning it into a “full expenditure reporting system” would be extremely expensive, the committee heard. And as it stands, the only way to get a clearer picture than AusTender can currently provide would be to combine data from all the individual agencies’ annual reports, Hill contended.

Helgeby added in his closing remarks that if there is a desire for enhanced public reporting of information about contracting — across the whole government, broken down into clearly defined categories – it might be better to look at updating the annual reporting system.

His former boss Jane Halton was talking to the JCPAA about getting rid of hardcopies back in 2016, as well as possibilities like continuous reporting via a dedicated web portal, which would allow the data to be presented in any number of ways.

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