Managing Conflicts of Interest in Procurement

Video presentation

Video transcript

1. Overview

This report looks at four separate allegations of conflict of interest in procurement and considers whether agencies followed relevant procurement policies and procedures when they engaged services.

This chapter provides context for this limited assurance review, its four case studies and the common themes that emerged from the review. There are lessons from these that can be applied to any procurement process.

1.1 Limited assurance reviews

The Victorian Auditor-General's Office (VAGO) regularly receives topic suggestions for performance audits from members of Parliament, government and non-government agencies and the Victorian public. We assess these topics for inclusion in our work program based on risk, materiality, and public interest. We then consider the level of assurance required that would meet the public’s information needs.

A limited assurance review provides a lower level of assurance than a performance audit. We rely primarily on an agency’s representations and other evidence generated by that agency to understand matters and develop a meaningful conclusion. We typically express conclusions for a limited assurance review in negative terms. For example, we may say ‘nothing has come to our attention to substantiate an allegation’.

We conduct limited assurance reviews under section 20 of the Audit Act 1994.

1.2 Case studies

Between July and October 2020, VAGO received four separate referrals alleging conflicts of interest in procurement. In examining these allegations, we considered the referrals as four separate case studies.

We reviewed the evidence tendered to support these alleged conflicts of interest in procurement and decided to conduct a limited assurance review. In the course of our review, we also considered whether the departments followed relevant procurement policies and procedures.

1.3 What we concluded

Nothing came to our attention to indicate self-interest unduly influenced the procurements we reviewed.

However, none of the agencies fully followed their policies and procedures (including critical incident policies) in procuring those services. This made it difficult for them to demonstrate that their procurement decisions:

• were fair and impartial
• obtained value for money
• were transparent

Our review highlighted there is a need for improved staff awareness, training and compliance with procurement policies and procedures. Staff need to consistently declare and manage any actual, potential or perceived conflicts of interest that could arise from personal or professional relationships with a supplier. Each department needs to support its staff to do so by providing appropriate guidance.

1.4 What we found overall

The community puts their trust in the public service to effectively and efficiently administer public funds. They expect public servants to follow policies and procedures when they procure goods and services, and they want value for money. Victoria’s public servants are also bound by a code of conduct with guiding principles of integrity, impartiality, accountability, and respect.

In investigating the allegations, we found that staff did not fully follow procurement policies and procedures.

We also noticed some challenges and opportunities that are worth considering:

• Staff experienced challenges that hampered their compliance with policies and procedures.
• Staff missed opportunities to monitor and review contracts after the initial procurement.
• Staff showed a lack of regard for how the public might perceive conflict of interest.

Challenges to compliance

When we engaged with the agencies, their staff explained how they interpreted the procurement policies and procedures, or why they did not fully follow them. Staff variously told us they:

• were under pressure to achieve outcomes within short timeframes
• had not undertaken this type or scale of work before
• were not aware of procurement procedures or policies.

Encountering challenges like these may provide context for a procurement decision that does not comply with policies or procedures. It does not, however, justify it.

Coronavirus (COVID-19) pandemic and critical incident policy

When the COVID-19 pandemic began, Victoria’s public servants were under pressure to initiate and deliver projects quickly.

Two of the case studies occurred when the government asked departments to establish services for the Hotel Quarantine Program.

Departments have critical incident procurement policies for such circumstances. However, in one case, we found staff who made decisions were not familiar with their department’s critical incident procurement policy or did not use the mandatory mechanisms that were in place to support them.

Critical incident procurement policies provide a framework that offers staff flexibility in their market approach to expedite delivery. However, staff still need to uphold the basic principles of probity, integrity, impartiality, and transparency in procurement.

Monitoring and review

On the Buying for Victoria website, the Victorian Government Purchasing Board supplies information to support public servants to understand, apply and measure value for money in procurement. The website states the best outcomes are achieved when value for money is a key driver in planning procurement. However, considering value for money at later stages in the procurement process can drive continuous improvement.

The Buying for Victoria website also notes that an organisation can adopt streamlined and flexible procurement processes to facilitate an immediate response to an emergency, crisis or disaster. However, after the immediate response, organisations may have an opportunity to review their decisions.

In two of the case studies, we found staff missed opportunities to review their decisions. We saw evidence of innovation, creativity and effort spent to get the initial job done, despite the challenges. Yet there was less interest in monitoring and reviewing those decisions to make sure they achieved value for money.

Public perception

The Victorian Public Service Commission (VPSC) requires public servants to declare and manage risks associated with conflicts of interest. All conflicts, whether actual, potential or perceived, must be identified and registered.

In two of the case studies, we found staff did not fully consider how the public might view potential or perceived conflicts of interest.

Declaring and managing perceived conflicts of interest is fundamental to ensuring public trust and confidence in the public sector. It is as fundamental as declaring and managing actual conflicts of interest.

Back to top

This chapter looks at how the Department of Health and Human Services (DHHS) managed the procurement of a service provider to deliver medical services to people in the Hotel Quarantine Program, during the COVID-19 emergency response.

2.1 Chapter snapshot

Did DHHS follow its procurement policies and procedures when it engaged a service provider to deliver medical services to people in the Hotel Quarantine Program?

Key Facts

Source: VAGO.

2.2 Background

Victorian Government Purchasing Board policy states that during a critical incident, an organisation may adopt streamlined and flexible procurement processes to facilitate an immediate response to an emergency, crisis or disaster.

COVID-19 Hotel Quarantine Program

On 16 March 2020, in response to the serious public health risk posed by COVID-19, the Victorian Minister for Health declared a State of Emergency under the Public Health and Wellbeing Act 2008. At the time of writing, the declaration is in force until 26 August 2021.

On 27 March 2020, the National Cabinet agreed that, from 11:59 pm on 28 March 2020, all travellers arriving in Australia would undertake mandatory 14-day self isolation at designated facilities.

On the same day, the Victorian Premier announced Victoria would accommodate its returned travellers in 5 000 hotel rooms. The Victorian Government expected the Hotel Quarantine Program to run 24 hours per day, seven days per week, for an indeterminate length of time and for an indeterminate number of people.

The then DHHS made arrangements for the health and wellbeing of the people in the Hotel Quarantine Program. It decided to procure an Accredited Medical Deputising Service (AMD Service) to deliver out-of-home general practitioner services for returned travellers.

DHHS's procurement policy

DHHS had procedures for routine procurement and a separate critical incident procurement policy that guided procurement in the event of an emergency within the meaning of the Emergency Management Act 2013. We present its definition of ‘critical incident’ and the procedures relevant to this procurement in Appendix D.

2.3 What we found

Timeline

The timeline of the decision to establish the Hotel Quarantine Program and engage medical services for people in quarantine was short. The time from when National Cabinet agreed to establish the Hotel Quarantine Program to the time the entity (Medi7) started to provide medical services was eight days.

Figure 2A illustrates the timeline of providing medical services for people in the Hotel Quarantine Program.

Critical incident decision-making

At the outset of the COVID-19 emergency, when the government established the Hotel Quarantine Program, DHHS staff operated in a high-pressured and uncertain environment. They had not previously arranged medical services for a Hotel Quarantine Program.

On 28 March 2020, DHHS decided to procure a single entity under the critical incident policy. DHHS asserted that this decision was based on advice from the Australian Government Department of Health and to accommodate travellers who were due to arrive within two days.

To expedite the choice of a medical services provider, it asked the Australian Government Department of Health and the North West Primary Health Network (NWPHN) to suggest potential AMD Service providers. The NWPHN advised DHHS that two AMD service providers operated in Victoria (Doctor Doctor and National Home Doctor Service). DHHS told us it understood only Doctor Doctor had the capability to deliver the services, and it did not contact National Home Doctor Service.

DHHS told us it could not recall whether it was the NWPHN or the Australian Government that provided contact details for an employee of Doctor Doctor. However, DHHS did not become aware until early April 2020 that the Doctor Doctor employee was engaging with DHHS on behalf of their own company, Medi7.

DHHS initially estimated the engagement of medical services for the Hotel Quarantine Program would last two months and cost $4.2 million.

Ultimately, Medi7 provided medical services to people in the Hotel Quarantine Program between 4 and 27 April 2020. Medi7 invoiced DHHS a total of $416 826 (for services between 4 and 19 April 2020).

After the Victorian Premier announced a testing blitz on 27 April 2020, the required services expanded, beyond the Hotel Quarantine Program, to include COVID-19 pop up testing, a call centre, and a hotline for the broader community. The cost of medical services for the Hotel Quarantine Program plus these additional medical services, between 27 April and 31 December 2020, was $48.7 million.

The owner of Medi7 established Onsite Doctor on 28 April 2020. At the time we tabled this report, over a year later, Onsite Doctor was still providing medical services, including for the Hotel Quarantine Program. The value of the extended contract was $86.4 million.

DHHS originally intended to engage an AMD Service. Onsite Doctor was established because Medi7 was not adequately insured. However, Onsite Doctor is not an AMD Service.

At any point after DHHS’s initial engagement of Medi7, it could have:

• reviewed the process it had undertaken to ensure it was in line with DHHS's critical incident procurement policy
• invited tenders for ongoing services.

DHHS could have sought quotes from the two AMD Services that the NWHPN recommended. Or, concurrent with the initial engagement, DHHS could have run a tender process to identify whether the current entity, or another, would deliver the best value for money.

Rather than going to tender or seeking other quotes, DHHS continued to use Onsite Doctor.

Specifically, DHHS had the opportunity to test the market for an alternate provider on three occasions:

DHHS told us it will review its critical incident procurement policy and consider including a review stage after the initial engagement. The review is intended to confirm that single entity engagements align with principles of value for money, accountability, and probity.

DHHS's exposure to risk

According to the Victorian Managed Insurance Authority, risk management must be an integral part of an agency’s culture. It needs to be reflected in policies, systems, and processes. Agencies are responsible for identifying, assessing and managing all risks to which they are exposed.

Medical indemnity insurance

On 23 April 2020, DHHS confirmed that its medical indemnity policy could be extended to indemnify the doctors it engaged to provide medical services, but it did not cover Medi7's role in recruiting doctors. DHHS agreed to pay Medi7's insurance.

At the same time, to address the insurance gap, Medi7's insurer suggested it establish a new entity. DHHS understood the reason the owner of Medi7 established a new entity was because Medi7 was not insured for the activity of recruiting and providing credentialed doctors to DHHS for the Hotel Quarantine Program. On 28 April 2020, the person who had previously represented Medi7 established Onsite Doctor.

On 1 May 2020, Onsite Doctor secured medical indemnity insurance backdated to 4 April 2020. On 2 May 2020, DHHS asked Onsite Doctor to submit an invoice for the total cost of the insurance policy for seven years.

DHHS and Medi7 (and potentially Onsite Doctor) are exposed to risk from potential liabilities arising between 4 and 27 April 2020 because Onsite Doctor did not exist until 28 April 2020. They may not be protected from the financial consequences of those liabilities.

Contractual gaps

There are periods of time when DHHS, Medi7 and Onsite Doctor may not have been protected against legal liability because they did not have a signed contract.

DHHS never entered a contract with Medi7, yet Medi7 invoiced it for services.

DHHS took time to approve the initial contract with Onsite Doctor, and then the extension of that contract through a Deed of Variation. DHHS told us this was due to contract negotiations in a changing environment.

As a result, DHHS did not have a signed contract with a service provider, for a total of 263 days, between:

• 4 April and 20 September 2020
• 1 January and 16 March 2021
• 1 July and 21 July 2021.

In the absence of a signed contract, the legal liability of DHHS and Medi7 and Onsite Doctor is not clear.

Figure 2B shows the dates and periods of the contractual gaps when DHHS was, and remains, exposed to increased risk.

FIGURE 2B: DHHS's exposure to risk from contractual gaps

Source: VAGO analysis of DHHS data.

A lack of transparency and accountability in procurement

When DHHS engaged Medi7 and Onsite Doctor for the delivery of COVID-19 medical services, it did not:

• adopt a format for minimum records
• liaise with procurement from the outset
• ensure probity when approving expenditure
• adhere to contract disclosure requirements
• declare conflicts of interest in a timely manner.

Maintaining records

Under the critical incident procurement policy, DHHS was required to adopt a format to record the minimum information, which includes:

• the service being procured and its purpose
• the value of the procurement
• the contact details of the supplier
• a summary of the procurement process
• the details of the contact managing the procurement.

DHHS recorded some of this information in emails. In October 2020, six months after the initial procurement, DHHS recorded reference numbers for the procurement, a title of the procurement, the nature of the critical incident (COVID-19), the process undertaken (purchase), the value of the engagement, and the name of the supplier in its critical incident procurement register. However, this format does not include the purpose of the service, the contact details of the supplier, a summary of the procurement process, or the details of the contact managing the procurement.

Maintaining records is important for transparency and accountability. The referral for this review alleges that DHHS improperly awarded a contract to a medical services provider based on undisclosed conflicts of interest. DHHS did not record its conversation with the NWPHN and the Australian Government Department of Health and told us it cannot confirm who provided the contact details of the supplier it spoke to. This information was not required under the critical incident policy at the time but maintaining records of key information ensures staff have a view to being accountable for their decisions.

Engagement with DHHS Procurement

DHHS Health and Wellbeing did not initially inform DHHS Procurement of the engagement. DHHS Procurement first became aware of the engagement on 13 April 2020 (nine days after it began) when one of the doctors emailed DHHS asking how they would be paid.

DHHS Health and Wellbeing should have sought advice from the Chief Procurement Officer when it decided to engage a sole supplier under the critical incident procurement policy.

Probity in expenditure approval

The briefing note to the Minister for Health seeking approval of the contract did not mention the name of the service provider. This meant the minister could not conduct their own due diligence in approving the contract.

The Minister for Health also asked the Deputy Secretary in Corporate Services to sign the $48.7 million contract for hotel quarantine medical services, on their behalf. However, DHHS told us that, between March and September 2020, the upper limit of financial delegation for a deputy secretary was $5 million.

Contract disclosure requirements

DHHS's procurement policy had a mandatory requirement that contracts exceeding $10 million be fully disclosed on the Contracts Publishing System, within 60 days of the contract being awarded.

DHHS did not fully disclose its contract with Onsite Doctor on the Buying for Victoria website until 144 days after it awarded the contract.

Additionally, DHHS did not disclose the value of the contract for medical services purchased under the critical incident procurement policy in its 2019–20 annual report.

Conflict of interest

Two DHHS staff members did not initially declare any conflicts of interest when they coordinated the process of procurement. They signed conflict of interest forms in relation to the services provided by Medi7 and Onsite Doctor 74 and 305 days, respectively, after the engagement commenced.

Both staff members declared they had no conflicts of interest.

2.4 What we recommend

Back to top

This chapter looks at how DJPR managed the procurement of security guards for the Hotel Quarantine Program, during the COVID-19 emergency response.

3.1 Chapter snapshot

Did DJPR follow its procurement policy and procedures when it engaged a service provider to deliver security services for the Hotel Quarantine Program?

Key Facts

Source: VAGO.

3.2 Background

Victorian Government Purchasing Board policy states that during a critical incident, an organisation may adopt streamlined and flexible procurement processes to facilitate an immediate response to an emergency, crisis, or disaster.

COVID-19 Hotel Quarantine Program

On 16 March 2020, in response to the serious public health risk posed by COVID-19, the Victorian Minister for Health declared a State of Emergency under the Public Health and Wellbeing Act 2008. At the time of writing, the declaration is in force until 26 August 2021.

On 27 March 2020, the National Cabinet agreed that, from 11:59 pm on 28 March 2020, all travellers arriving in Australia would undertake mandatory 14-day self isolation at designated facilities.

On the same day, the Victorian Premier announced Victoria would accommodate its returned travellers in 5 000 hotel rooms. The Victorian Government expected the Hotel Quarantine Program to run 24 hours per day, seven days per week, for an indeterminate length of time, and for an indeterminate number of people.

DJPR handled the logistics of the Hotel Quarantine Program. In less than 36 hours, it identified hotels, arranged transport for travellers, and security to staff the Program.

DJPR's procurement policy

DJPR's procurement policy includes provision for management of procurement in the event of an emergency within the meaning of the Emergency Management Act 2013. We present these in Appendix E.

Under section 3.5.2 of DJPR's procurement policy (April 2019), a critical incident is automatic grounds for an exemption from the prescribed tender process. However, minimum record keeping and fundamental requirements in relation to probity remain in place.

State Purchase Contracts

State Purchasing Contracts (SPCs) are centralised contracts the Victorian Government uses to buy common goods and services. An SPC is designed to provide supplier choice and competition through a panel arrangement.

Section 5.1 of DJPR's procurement policy includes information about SPCs and states 'where the scope of a mandatory SPC … satisfactorily meets the procurement needs, these must be used unless an exemption from using the SPC is sought and approved.'

Section 3.5.3 of DJPR's procurement policy explains that an SPC exemption must be 'approved by the Executive Director of Finance and Procurement and the relevant SPC category manager'. The SPC exemption process requires the Project Manager to put forward their rationale for the exemption to a member of the Strategic Procurement Unit, by email. If supported by the Executive Director of Finance and Procurement, the Strategic Procurement Unit will then submit the exemption request to the SPC lead department and advise the Project Manager of the outcome.

DJPR's procurement policy (April 2019) did not provide guidance on using an SPC during a critical incident.

In October 2020, DJPR updated their procurement policy. It now states that 'During a critical incident the department will continue to use State Purchase Contracts (SPCs) and State Purchase Registers (SPRs) where relevant.'

Security Services SPC

The security services SPC (1 February 2018 to 31 January 2022) offers security services for static guarding, patrolling, mail scanning and alarm response, and includes a no less favourable mechanism to protect the pay and condition of security workers. The conditions of its use are mandatory, and it offers five suppliers:

• G4S Custodial Services
• MSS Security (MSS)
• National Protective Services
• SECUREcorp (Victoria)
• Wilson Security (Wilson).

DJPR signed a contract, for the delivery of security services to the Hotel Quarantine Program, with MSS, Wilson, and Unified Security Group (Unified). Unified is not on the security services SPC panel.

3.3 What we found

Timeline

The timeline of events in the decision to establish the Hotel Quarantine Program, engage security services and establish contracts was short. The time from when National Cabinet agreed to establish the Hotel Quarantine Program to the time Unified signed a contract was 13 days.

Figure 3A illustrates the timeline of providing security services for the Hotel Quarantine Program.

DJPR engaged a supplier who was not on the SPC panel for security services

On Friday 27 March 2020, the Deputy Secretary, Delivery and Recovery (COVID 19) asked the Executive Director, Employment and Inclusion, to source security services for the Hotel Quarantine Program.

On the evening of 27 March 2020, DJPR staff considered which security companies they would engage for the Hotel Quarantine Program. In broad terms, they were seeking a company that:

• was a good employer
• had access to enough personal protective equipment
• had the capability and capacity to scale up quickly.

They sought advice from the Employer Engagement Team, who provided the names of four security companies who were 'good employers', in the following order: Wilson, MSS, Unified and Monjons.

DJPR contacted Wilson and Unified. On the morning of Saturday 28 March 2020, Unified was the first to respond.

At a meeting on the morning of 28 March 2020, the Secretary confirmed that DJPR should proceed to engage Unified and Wilson. Unified was engaged to start work on Sunday 29 March 2020.

However, Unified was not on the Victorian Government's SPC panel for security services.

The DJPR staff who identified and engaged Unified told us they became aware of the SPC for security services three days later, on Monday 30 March 2020.

They also told us they had no training in procurement and no previous experience in procuring security services.

On 30 March 2020, DJPR also engaged Wilson and MSS, which are on the SPC panel for security services.

DJPR did not have an exemption from mandatory use of the SPC

On 30 March 2020, DJPR staff considered costings of security companies. They recorded that Unified was more expensive than Wilson and, separately, that SECUREcorp had the lowest rates, and Wilson had the second lowest.

On the same day, the DJPR staff who engaged Unified discussed the engagement with DJPR's procurement staff.

In line with procedure, a Strategic Procurement Specialist, Corporate Services, asked the Employment and Inclusion team to justify why Unified was engaged outside of the SPC, and to explain the rationale for continuing with them.

The Executive Director, Employment and Inclusion explained, in emails, that DJPR would continue the engagement with Unified because:

• of the immediate need, and Unified's responsiveness
• they were already in place
• they are an Aboriginal-owned and controlled business.

DJPR and DTF procurement provided advice that DJPR should use entities on the SPC or apply for an exemption from the SPC, with the former being their preferred option.

DJPR staff continued their engagement with Unified to provide security services to the Hotel Quarantine Program.

DJPR asserted their view that an automatic exemption from a prescribed market approach under the critical incident policy meant that clause 3.5.3 did not apply. That is, it was automatically exempt from the mandatory requirements of using the SPC.

DJPR had an exemption from going to market

DJPR did have automatic grounds for an exemption from going to market because a State of Emergency had been declared in Victoria. On 11 August 2020, DJPR prepared a post incident brief noting an exemption from the prescribed competitive procurement process had been approved.

DJPR breached probity when its employee contacted Victorian Trades Hall Council

On 28 March 2020, notes from a meeting that included the Secretary and the Deputy Secretary, Delivery and Recovery (COVID-19), record that the Deputy Secretary, Delivery and Recovery (COVID-19) would ‘call trades hall re 2 companies’.

The Executive Director, Employment and Inclusion asserted that in the week of 30 March 2020, they spent time ‘ensuring that Trades Hall was comfortable with Unified continuing to be engaged on an ongoing basis’. On the same day, in an email, the Deputy Secretary, Delivery and Recovery (COVID-19) referred to some security companies as ‘preferred by Trades [Hall]’ (Wilson, MSS, ISS) and others as not (Unified).

DJPR told us that it is not unusual for them to contact Trades Hall and unions. Although DJPR contacted Trades Hall and the Deputy Secretary, Delivery and Recovery (COVID-19) knows which companies Trades Hall prefer, the information before us does not indicate that the purpose of the contact with Trades Hall was to identify 'preferred firms' for engagement and receive Trades Hall’s approval for the preferred firm. DJPR's use of Unified suggests that DJPR was not seeking approval from Trades Hall.

DJPR asserts that it did not share confidential procurement documents or information from suppliers with Trades Hall. However, when DJPR discussed the identity of security services and their performance with Trades Hall in the context of the Hotel Quarantine Program, it breached the probity principle of securing confidential market engagement information.

A lack of transparency and accountability in procurement

When DJPR engaged security services for the Hotel Quarantine Program it did not:

• maintain records of the Secretary’s approval for the use of their signature on the Unified contract
• provide guidance for staff signing contracts remotely
• declare any conflict of interests in a timely manner
• disclose the contract within 60 days.

Signing contracts

On 9 April 2020, following a request from the Secretary's executive assistant, the Director, Office of the Secretary, added the Secretary's signature to the Unified contract. When the Director, Office of the Secretary, responded they said they did not feel comfortable witnessing a signature they had added themselves.

In his statement to the Quarantine Board of Inquiry, the Secretary said they gave their authority for the contract to be signed, but no records of their approval have come to our attention.

On 15 April 2020, the Associate Secretary asked the Director, Office of the Secretary to arrange for someone to witness the Secretary's electronic signature. The Director, Office of the Secretary, told us they had no guidance on how to witness documents remotely and witnessed the Secretary’s electronic signature themselves.

Conflict of interest

DJPR's procurement policy requires that all staff involved in procurement activities be briefed on their responsibilities with regard to conflicts of interest, both before and during the procurement process.

DJPR staff did not declare any conflicts of interest when they started the process of engaging security services for the Hotel Quarantine Program. Two staff involved in the procurement later completed DJPR's electronic conflict of interest form. One submitted a form on 15 July 2020 (109 days after Unified started). The other submitted a form on 27 July 2020 (121 days after Unified started). Their managers reviewed the forms on 11 and 12 August 2020, respectively. Both staff members declared they had no conflict of interest in this procurement.

DJPR told us that individuals who are not directly involved in the procurement process do not need to complete a declaration of conflict of interest. They told us, for this reason, neither the Deputy Secretary, Delivery and Recovery (COVID-19) nor the Executive Director, Employment and Inclusion made a declaration of any conflicts. Yet the Executive Director, Employment and Inclusion was integral to the decision to engage Unified between 27 and 30 March 2020.

Contract disclosure requirements

DJPR's procurement policy has a mandatory requirement for contracts with total estimated value equal to, or exceeding, $10 million (GST inclusive) to be fully disclosed on the Contracts Publishing System within 60 days of contract award.

DJPR did not disclose its contract (for hotel quarantine security services provided for 94 days, between 29 March 2020 and 30 June 2020) with Unified on the Buying for Victoria website until 7 September 2020 or 147 days after it awarded the contract. However, DJPR is yet to fully disclose the contract value due to ongoing litigation with Unified (that relates to this contract). Between 20 April 2020 and 31 July 2020, DJPR paid Unified $35.2 million for services provided to the Hotel Quarantine Program. DJPR told us it is yet to reach an agreement for the final contract amount.

3.4 What we recommend

Back to top

This chapter looks at how DHHS managed a tender process for the Victorian Family Preservation and Reunification Response (the response).

4.1 Chapter snapshot

Did DHHS follow its procurement policies and procedures when it engaged community service providers to implement the response?

Key Facts

4.2 Background

The response aims to support and build strong families with children who are safe, healthy, resilient, and thriving, and to support parents and other caregivers to create a safe and nurturing home environment.

DHHS's Victorian Family Preservation and Reunification Response

DHHS designed the response as a new way to support families to stay together or reunify them when children have been in care services, especially during the COVID 19 pandemic.

The response provides for a practitioner to work with families to understand their unique experience and support them with proven programs and strategies that make a difference for children and families.

Community service organisations deliver the response in partnership with Aboriginal Community Controlled Organisations.

Tendering for child and family service providers

In June and July 2020, DHHS invited tenders from Victorian-registered child and family service providers to implement the response. DHHS needed one provider to cover each of its 17 areas.

DHHS received 86 bids from 29 bidders.

For the tender process, DHHS established one evaluation panel for each area, except for the Brimbank Milton Area and the Western Melbourne Area, where one evaluation panel covered both.

DHHS's tender evaluation process

DHHS's information sheet for evaluation panel members on funding (see Appendix F) describes the tender evaluation process.

The process involves a panel chair, panel members, and a financial delegate who endorses the panel's recommendation. A procurement officer is also involved and provides advice. Uniquely, this tender process includes an additional step so that a central moderation panel can review the recommendations.

Figure 4A shows the key steps in DHHS's process for evaluating tenders.

4.3 What we found

The results of the response tender evaluation process

DHHS's call for funding submissions closed on 2 July 2020 and the formal recommendations of the panel were due on 15 July 2020. This provided each panel with less than two weeks to conduct the tender evaluation process.

Appendix G provides a table with a summary of the bids received for each area and the six successful bidders.

Staff conflicts of interest

When DHHS evaluated the tenders for the response, it did not:

• manage a perceived conflict of interest
• ensure all personnel involved in bid evaluation declared any conflict of interest.

Managing a perceived conflict of interest

On 21 November 2019, the Deputy Secretary (South) completed and signed their annual Declaration of Private Interests form (DOPI). Their signature was 'witnessed' on 3 April 2020, 135 days later. This form states:

Family member holds middle management role with funded organisation that delivers services in the catchment I am responsible for. The role is not one that I would have any direct contact with, nor am I directly involved in allocations etc, however it might give rise to a perceived conflict.

That funded organisation is Provider A in Appendix G. It would become the successful bidder in two of the four areas in the South region.

In the DOPI, the Deputy Secretary's (South) manager—the Deputy Secretary, Children, Families, Communities and Disability Division—assessed this declaration as 'no Conflict of Interest identified' and did not document a plan to manage this risk.

Seven months later, Provider A declared the potential conflict of interest with the Deputy Secretary (South) in their submission for the response.

The Deputy Secretary (South) approved the evaluation panel's recommendation of Provider A as the successful provider in two cases.

Provider A was successfully awarded contracts in nine of the 17 areas across Victoria.

Conflict of interest declaration forms not completed

During the tender process, seven key people did not complete a conflict of interest declaration form. These were:

• two panel chairs
• the Acting Deputy Secretary, Children, Families, Communities and Disability Division (a member of the central moderation panel)
• four regional Deputy Secretaries (North, South, East, West) who endorsed the recommendations of the panel.

DHHS told us that the regional Deputy Secretaries did not need to complete a conflict of interest form because they were only endorsing recommendations. In the process of tender evaluation, following the endorsement of recommendations by the Deputy Secretary, the central moderation panel reviews the recommendations. As we view the Deputy Secretary's endorsement as a step in the procurement process, we consider it necessary for them to complete a conflict of interest form.

The declaration and management of conflict of interest form states that 'any workplace participant as warranting a declaration on the basis of potential, perceived or actual conflict of interest risk' must complete the form.

In the case of the Deputy Secretary (South), they declared the perceived conflict of interest in their DOPI, and Provider A identified the potential conflict of interest in their tender. Despite the perceived conflict of interest, the Deputy Secretary (South) did not complete a conflict of interest form at the time of the response evaluation. Additionally, the panel did not report this perceived conflict of interest and DHHS did not have a documented plan to manage the conflict of interest that had been previously declared.

Independence of referees

Provider A had the same referee for the nine areas it was successfully awarded. That referee:

• had received funding from Provider A ($177 000)
• was mentioned as a member of the service delivery team in Provider A's proposal.

We found no record that the panels in eight of those areas considered the independence of that referee. In the ninth area, the panel did not contact referees.

DHHS asserts the panel did consider the relationship between the referee and Provider A. It said they used this referee because there is a limited range of experts to act as referees.

DHHS told us that it plans to update the referee question template to include:

• consideration of any risks associated with perceived or potential conflicts of interest of the referee
• a question that confirms whether the referee currently receives any funding from the bidder.

Scoring tenders

The DHHS evaluation panels reviewed 86 bids. The tender documentation states that 70 of these bids met all the tender criteria. All the successful bids met all the criteria.

Requirement to interview shortlisted bidders

DHHS's information sheet for evaluation panel members states that 'Bidders that meet or exceed all the criteria are to be interviewed'. Despite this, eight bidders (five in the West and three in the South) that met or exceeded all the criteria were not shortlisted for interview.

DHHS's Acting Chief Procurement Officer told us a panel can decide not to interview all organisations. The panel must discuss the exclusion with the procurement officer prior to starting to score the bids. The Acting Chief Procurement Officer was not aware if this had happened.

DHHS told us that it is not standard practice to interview all bidders that met the criteria. It plans to update the information sheet for evaluation panel members to clarify that:

• not all bidders meeting the criteria must be interviewed
• a decision can be made by the evaluation panel chair, in consultation with procurement officers, to interview all bidders that meet the criteria.

Adjusting scores following referee input

DHHS requires that 'information obtained from referee checks should be used to validate the selection'.

During this tender process, all panels scored submissions at least twice—an initial score for shortlisting then a final revised score after interviews.

In two cases, the evaluation panels revised their score following comments from the referee mentioned above. In both cases these revisions meant the panels put forward Provider A.

The two changes made by the Bayside Peninsula Area and North East Melbourne Area evaluation panels meant that Provider A was awarded an additional $3.2 million (15 per cent of the overall funds). Overall, Provider A won 52 per cent of the total funding.

4.4 What we recommend

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This chapter looks at how Parks Victoria engaged an archaeological surveyor as a sole supplier to assess and record Aboriginal rock art sites. It covers eight contracts between May 2016 and June 2020.

5.1 Chapter snapshot

Did Parks Victoria follow its procurement procedures when engaging an archaeological surveyor as a sole supplier to assess and record Aboriginal rock art sites?

Key Facts

Source: VAGO.

5.2 Background

As part of its Managing Country Together Framework, Parks Victoria works with Traditional Owners to preserve Aboriginal cultural heritage. This includes identifying, assessing and protecting ancient and unique rock art across the parks estate.

Procured services

Across eight short-term contracts over four years, Parks Victoria engaged a surveyor to:

• record and catalogue preliminary reports of rock art at selected locations
• complete place inspection forms for recorded rock art shelters
• identify threats, impacts and management recommendations for each place inspected
• train Traditional Owners and Parks Victoria staff on cataloguing rock art places and completing new recording and inspection forms.

As shown in Figure 5A, the total value of the contracts was $199 260 including GST.

FIGURE 5A: Relevant Parks Victoria contracts

Note: (a) Parks Victoria did not have access to exact dates at the time of this review.

Source: Parks Victoria.

Parks Victoria's procurement procedure

Parks Victoria's procurement procedure sets the mandatory requirements for all procurements. It states that 'all purchases must be undertaken through an open, fair, transparent and accountable process that demonstrates value for money'.

Figure 5B summarises the procedure's key requirements for procuring goods and services across different value thresholds.

FIGURE 5B: Parks Victoria's value thresholds for procuring goods and services

Note: The above thresholds apply only where there is no government contract, Parks Victoria panel arrangement, Recognition and Settlement Agreement or other joint management arrangements with Traditional Owner Groups that contain procurement considerations.

Note: Parks Victoria’s previous procurement procedure did not require a competitive process for individual engagements valued below $25 000.

Source: Parks Victoria.

The procedure and its manual detail when and how Parks Victoria can procure outside of the standard process.

5.3 What we found

Engaging the surveyor as a sole supplier

Parks Victoria did not use a competitive process for any of the eight contracts it entered with the one surveyor. Based on their value, this was not required for the first four contracts.

For the four most recent contracts, Parks Victoria engaged the surveyor as a sole supplier. It did not follow a competitive process after determining that 'the cataloguing of rock art is a highly specialised role with [name redacted] being the only qualified person to complete this task in the state'.

While several other heritage advisors in Victoria offer similar services, Parks Victoria maintains that no other suitable surveyors had the required reputation with Traditional Owners and knowledge of the local landscape.

Park Victoria's exemptions process

In line with its procurement procedure, Parks Victoria's Chief Financial Officer and procurement unit approved exemption certificates to engage the surveyor as a sole supplier for the four most recent contracts. However, the exemption forms give limited information to justify this decision. Parks Victoria advised us that its staff offset this lack of detail by discussing the procurement with the Chief Financial Officer.

Parks Victoria acknowledges that it did not fully comply with its procurement procedures for applying exemptions, especially in relation to the timing of the certificates. As shown in Figure 5C, Parks Victoria:

• did not obtain approval at least six months before approaching the surveyor for any of the contracts
• approved the certificate after it approached the surveyor in three of the four cases
• approved the certificate after the surveyor had begun work in two cases.

FIGURE 5C: Exemption certificates that Parks Victoria granted when engaging the surveyor

Note: (a) Exemption approval date is six months prior to the date that Parks Victoria approached the supplier.

Note: (b) Supplier approach date is on or before the listed date based on information from Parks Victoria.

Source: VAGO based on information from Parks Victoria.

Additionally, the exemption forms stated that 'procurement will occur via a vendor panel RFQ [request for quote]'. This did not occur.

Parks Victoria advised us that it has recently provided procurement refresher training to over 1 000 employees on:

• improving staff documentation of market analysis and justifications for supplier selection when undertaking a procurement
• improving the timeliness of when staff seek procurement approvals.

Conflict of interest

The Parks Victoria staff member who initiated and managed the four most recent contracts (between March 2018 and June 2020) had co-authored two academic papers with the surveyor during 2019 and 2020. This represents, at the least, a perceived conflict of interest. The Parks Victoria staff member's working relationship with the surveyor could have influenced the decisions to engage them as a sole supplier.

Parks Victoria requires that all employees complete a conflict of interest declaration when:

• completing their Performance and Development Plan process each year
• participating in any procurement, regardless of whether a conflict exists.

All Parks Victoria staff named on the procurement exemption forms, including the contract manager, completed conflict of interest declarations as part of their Performance and Development Plan process for 2018–19 and 2019–20. However, none completed a declaration as part of Parks Victoria's procurement of the surveyor.

At no point did the contract manager declare their relationship with the surveyor as a potential, perceived or actual conflict of interest.

Parks Victoria advised us that:

• the contract manager sought senior management's approval prior to the paper being published and this helped to offset the absence of a formal declaration
• the paper sought to initiate a public conversation about rock art conservation and was not driven by self-interest
• it has recently enhanced its procurement practices and will deliver mandatory training to all staff so that they consistently declare any potential, perceived or actual conflicts of interest.

Possible contract splitting to avoid scrutiny

Parks Victoria engaged the surveyor across eight short-term contracts between May 2016 and May 2020.

Parks Victoria advised us that it used multiple short-term contracts because it needed to progressively scope its site assessment program based on ongoing advice from Traditional Owners and other stakeholders. It says it did not split the engagements to avoid scrutiny.

However, these conditions should not have prevented Parks Victoria from combining multiple engagements into one contract.

During 2019–20, Parks Victoria engaged the surveyor three times at a total cost of $133 590. Instead of having three separate contracts, Parks Victoria could have engaged the surveyor through one overarching contract that broadly defined the scope of work, with further details clarified as the project progressed.

Not disclosing expenditure as a consultancy

Parks Victoria gave us conflicting advice about its decision to not publicly disclose its payments to the surveyor.

The Department of Treasury and Finance's (DTF) Financial Reporting Direction 22H requires government entities to disclose details of any individual consultancy valued at $10 000 or greater. However, although Parks Victoria paid the surveyor $133 590 during 2019–20, it did not disclose this expenditure in its 2019–20 annual report.

Parks Victoria advised that it considered the surveyor to be a 'contractor' and not a 'consultant' as defined in Financial Reporting Direction 22H.

This position:

• contradicts Parks Victoria's view that the surveyor was the only person in Victoria qualified to catalogue the rock art sites
• contradicts Parks Victoria's own transaction records, which classify all payments to the surveyor since October 2019 as a consultancy and not a contractor
• brings into question Parks Victoria's decision to engage the surveyor without a competitive procurement process.

5.4 What we recommend

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Click the link below to download a PDF copy of Appendix A. Submissions and comments.

Click here to download Appendix A. Submissions and comments

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Matters referred to the Auditor-General

During September and October 2020 the Auditor-General received separate referrals relating to procurement activities at DHHS, Parks Victoria and DJPR.

One referral alleged that DHHS, in engaging community service providers to deliver the Victorian Family Preservation and Reunification Response:

• may not have managed a perceived conflict of interest
• appointed providers that did not meet the tender criteria.

A second referral alleged that Parks Victoria:

• did not use a competitive tender process to appoint an archaeological surveyor, even though this is its policy
• possibly split up the contracts to avoid scrutiny.

The third referral alleged that DHHS improperly awarded a contract to a medical services provider based on undisclosed conflicts of interest:

• The owners of the entity engaged to deliver the services are donors to, and one is an ex-official of, the Victorian Labor Party.
• The daughter of one of the owners of the entity is a ministerial adviser to the Premier of Victoria.

The fourth referral alleged that DJPR breached probity when:

• it awarded a contract for security services at the Hotel Quarantine Program based on approval from Victorian Trades Hall Council
• its staff inappropriately approved contracts on the Secretary's behalf.

Review objective, scope and approach

We conducted this limited assurance review in accordance with the Audit Act 1994 and Australian Standard on Assurance Engagements ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information.

A review is a limited assurance engagement that is less in scope than an audit conducted in accordance with Australian Auditing Standards. Consequently, it does not enable us to obtain reasonable assurance that we would become aware of all significant matters that might be identified in a reasonable assurance engagement.

Our review procedures included investigating:

• DHHS’s, DJPR’s and Parks Victoria’s procurement policies and procedures
• how DHHS, DJPR and Parks Victoria followed these policies and procedures during each procurement.

We also provided a copy of the report to the Department of Premier and Cabinet and DTF.

Unless otherwise indicated, any persons named in this report are not the subject of adverse comment or opinion.

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Critical incident procurement

DHHS's critical incident procurement policy stated that critical incident procurement protocols may be invoked by the Secretary or accountable officer as a result of:

• an emergency within the meaning of the Emergency Management Act 2013
• an incident that causes the department’s business continuity plan to be activated
• an incident that represents a serious and urgent threat to the health, safety or security of a person or property
• a situation that represents a serious or urgent disruption to services provided by the department.

The critical incident procurement policy includes mandatory and minimum requirements, described in Figure D1.

FIGURE D1: Mandatory and minimum requirements in DHHS's critical incident procurement policy

Source: DHHS.

Probity and conflict of interest

DHHS's probity in procurement and contract management policy also states ‘the requirement to comply with probity principles when undertaking any funding or procurement processes never diminishes’ and 'a conflict of interest declaration must be completed by all staff involved in a procurement assessment process, whether a conflict exists or not. All conflicts, whether actual, potential or perceived, must be identified and registered, and managed and monitored by a senior manager.'

DHHS must also disclose the full contract information for contracts worth more than $10 million on the contract publishing system (the Tenders Victoria website) within 60 days of the award of the contract.

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DJPR's procurement policy (April 2019) includes provision for management of critical incidents.

Section 3.5 provides information about exemptions. Section 3.5.2 explains that a critical incident is automatic grounds for an exemption from the prescribed market approach (amongst others). Section 3.5.3 offers a process for an exemption from using a mandatory SPC.

Section 6.1 includes information about the fundamental principle of probity.

Section 11 explains the requirements under a critical incident.

The information in these sections is presented in Figure E1.

FIGURE E1: Information in DJPR's critical incident procurement policy

Source: DJPR.

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Source: DHHS.

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FIGURE G1: Bids for DHHS's tender for the response

Source: VAGO based on information from DHHS.

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