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ANAO report critical of NBN RFP process

by Staff Writers •
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Every once in a while, a major procurement process becomes the object of significant external scrutiny and is found wanting.  When such criticism is levelled in a public arena, there will almost certainly be systemic changes to procurement practice.

This was famously demonstrated following the 30 June 1997 decision by Justice Finn of the Federal Court of Australia in Hughes Aircraft Systems International v Airservices Australia.

This case led to ‘major changes in tendering law’.  Most current procurement policy and practice, the key tenets of of the Commonwealth Procurement Guidelines, the extensive use of probity auditors and other governance procedures for procurement stem directly from the findings of Hughes vs AirServices Australia.

The Australian National Audit Office (ANAO) report into the National Broadband Network’s (NBN) failed Request for Proposal (RFP) may yet prove to be another such trigger for change.

It concluded that the hurried preparation of the RFP initiative most likely contributed to the unsuccessful outcome of the RFP process.

The reportThe National Broadband Network Request for Proposal Process, was released by the ANAO on 3 February 2010.  It assessed the RFP process led by the Department of Broadband, Communications and the Digital Economy (DBCDE). 

Of particular interest to those participating in government ICT tendering processes, either as intending purchaser, or prospective supplier is that this report explicitly addresses the often raised, but rarely quantified issue of the cost of tendering.

Costs incurred to the Government and proponents exceeded $30 million.  DBCDE’s costs were some $17 million and the proponents’ costs (where advised) ranged between $1 million and $8 million, according to the report.

The Government chose to adopt a one-stage process for the NBN tender.  “The alternative,” said the report, “adopting a multi stage process, would have been the more conventional approach for conducting tender processes of this size, nature and risk, particularly when seeking innovative solutions”.

The report found that the Government failed to vary the RFP document when it became apparent that the information provided to proponents was insufficient, that proposals were unlikely to meet all the necessary criteria, and the Global Financial Crisis (GFC) was negatively impacting the proponents’ ability to finance their proposals.

The ANAO report suggested the following measures to increase the likelihood of a successful RFP process:

  • Greater clarity as to how the information requested was to be used when assessing proposals against the RFP’s multiple objectives and criteria;
  • Guidance as to the relative importance of the evaluation criteria and Commonwealth’s objectives; and/or
  • A clearer understanding of the Government’s regulatory intent for the NBN.

The audit report emphasises the importance of departments gaining, as early as possible, a sound understanding of the implications of those risks that are critical to the success of major tender processes, amongst the many risks that are required to be managed. The report assessed this as particularly challenging in a one-stage process that is seeking binding offers.

It could be argued that in recent history, there is another major tender with costs even higher than the failed NBN tender where a failure to adequately understand the risks related to the procurement was at the heart of the issue.  The failed Access Card initiative, and its associated procurement activities, cost an estimated $52m up to the point when the new Labour Government killed the project in November 2007.

The Access Card was announced in April 2006 and the card was to be phased in over two years, beginning in 2008 as a non-compulsory card for use with health and social services benefits administration.   

A large project team was assembled and the Office of the Access Card was established within the Department of Human Services.  Two major procurement processes (one for systems integration, and the other for card issuance) subsequently took place.  The risk was that all this activity was underway in parallel with the drafting of enabling legislation which ultimately was not passed.

Providing guidance on how to identify and manage procurement risk in large scale, procurements designed to enable new government policy is therefore a critical and major challenge.  

Major procurement reforms are underway in the Australian Government.  The role of Procurement Co-ordinator has been established within the Department of Finance and Deregulation.  It remains to be seen now just how the ANAO’s report impacts Australian Government procurement practice.

The full report is available on the ANAO’s website.

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