The NSW Auditor-General has publically admonished the Department of Health and the NSW Police Force (NSWPF) for a cavalier approach to managing major IT services contracts that fails to ensure the agencies are achieving value for money.
In a report released on 1 February, the Auditor-General Peter Achterstraat found that the agencies had at times directly negotiated contracts with a single supplier without approval, renewed contracts at a continuing price despite significant changes in the contractor workload and left the evaluation of contractor performance up to the vendor itself.
He has recommended that the agencies tighten up their contract management processes and has asked that the Department of Finance and Services (DFS) and the State Contracts Control Board (SCCB) crack down on non-compliance when it comes to request for quotation (RFQ) processes.
He has also recommended that the DFS start capturing the prices charged by suppliers contracting through IT services State Contracts (such as contract 2020) and to make these benchmarks available to procuring agencies.
Whilst the audit only looked into three contracts, two from Health and one from police, it suggested that it was more than likely that similar procurement shortfalls were taking place within other agencies.
It found that the estimated value of the contract in question at the NSWPF has risen over 200 per cent in 18 months, from $450,000 to $1.3 million per annum, without raising the alarm of the technology division, and had never been re-evaluated over its seven-year lifetime.
“We found that while Police claims that it is receiving satisfactory services from its supplier, it could not demonstrate that it continued to receive value for money. This is because the contract had been extended or renewed six times without Police reviewing whether the price being paid for the services was reasonable,” said the report.
It also revealed that the NSWPF didn’t independently monitor the contractor’s performance, rather relying on the contractor’s own assurances that it was meeting its obligations.
The contract, covering infrastructure maintenance services, is estimated to have been worth $8 million to the unnamed vendor between March 2005 and December 2008.
At Health, the audit found that the Department had directly negotiated two consecutive contracts with the same supplier without seeking approval to bypass a RFQ process.
The contracts were both charged at a fixed rate per month. This price was not renegotiated when the second term contract was signed, despite the demand to service activities having declined by 36 per cent.
The decline meant that Health went from paying an average of $4,200 for each service activity, to paying approximately $6,500 per activity. The Department claims, however, that extra IT enhancements made up for the shortfall.
In its own response to the report, the NSWPF hinted at the fine balance that agencies tread between monitoring value-for-money procurement mechanisms, and ensuring that the cost of resourcing this compliance doesn’t negate any savings achieved.
In response to the Auditor-General’s recommendation that the agency implement management structures for all of its services contracts, including non-ICT services, the Acting Police Commissioner Nicholas Kaldas said that this was too much to ask within its resourcing levels.
“The NSW Police Force has approximately 180 services contracts. These contracts vary in value from $10k per annum to $2m+ per annum, some are over extended periods and others are short term engagements only. The implementation of this recommendation would require significant investment in staff resourcing,” he said.
The publication of the report coincides with a commissioned review and a public consultation on NSW Government procurement currently being conducted by the DFS. The Department’s Director-General Michael Coutts-Trotter has already indicated that the findings will form part of the Government’s contemplation of procurement reforms.
According to the report, the NSW Government spends more than $2 billion each year on ICT, half of which goes towards ICT goods and services.
Health Support Services, the corporate services arm of NSW Health, estimates that half of its $60 million ICT budget for 2011-12 will be spent on IT services.