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EXCLUSIVE: An investigation into multiple technology contracts signed to support the new Aged Care Act has raised doubts over the Commonwealth’s capacity to properly manage the delayed implementation of the law. By Jason Koutsoukis.
Aged-care contracts blow out by $227.9 million
Soaring fees charged by foreign multinationals for IT services tied to the federal government’s new Aged Care Act have seen the implementation of the already delayed law blow out by at least $227.9 million.
An investigation by The Saturday Paper into IT costs associated with the new Aged Care Act has revealed that multiple contracts are already suffering from severe cost blowouts. One contract is already valued at more than eight times what was originally estimated, and another is now costing taxpayers nearly five times its original valuation.
Modernisation of IT is a key part of the Albanese government’s response to the Royal Commission into Aged Care Quality and Safety, with the May budget committing $1.2 billion over five years to upgrade the Department of Health and Aged Care’s (DOHAC) computing systems to support the new Aged Care Act.
The new Aged Care Act was expected to come into effect on July 1 this year, but problems identified in a draft of the act forced Aged Care Minister Anika Wells to delay its implementation in April, with the new act not expected to be introduced to parliament until after the next election.
A cornerstone of DOHAC’s new IT platform is a government provider management system (GPMS) that will store and manage aged-care data and support the delivery of many of the Albanese government’s promised initiatives.
To assist with the design and rollout of the GPMS, in December 2022 the department negotiated a contract valued at $18.1 million with international consulting firm Accenture, with a specified contract period of January 1, 2023, to September 30 this year.
Multiple variations since have seen the value of that contract expand by more than eight times its original valuation. It now stands at $156.9 million.
“As soon as the royal commission got under way, you could see the buzzards start to circle, getting ready to pick off those poor people at DOHAC and extract as much money as possible,” one Canberra IT executive told The Saturday Paper. “What you have to understand about these companies is that their whole modus operandi is to back the biggest truck they can find up to whatever government department or agency engages them, and then fill it with cash as fast as they can.”
In March last year, DOHAC first assistant secretary Fay Flevaras announced the new GPMS would rely on software supplied by US multinational Salesforce.
The contract negotiated with Salesforce for licensing and professional services to support the GPMS came into effect on February 16 last year and is scheduled to run until January 31 next year. Originally valued at $13.5 million, the contract has already blown out to $29.2 million.
“That’s $29.2 million that we know about,” said a senior government adviser. “But what we also know is that the system for registering these contracts is incomplete, and there is in all likelihood a lot more money flowing into people’s pockets that we just cannot see.”
Another DOHAC contract with Salesforce for software maintenance and support that began on January 3 last year and is scheduled to run until January 30 next year was originally valued at $2.9 million and has since risen in value to $13.7 million.
Separately, five other DOHAC contracts for software licences and support signed between January 2021 and May 2022 that were originally valued at a total of $7.6 million, have blown out to $19.9 million.
In May last year, DOHAC negotiated a two-year contract with French consulting firm Capgemini to “support the delivery of ICT infrastructure for the aged care system” from May 1 last year to April 30 next year.
A number of variations to that contract have seen its value more than double from the original estimate of $36.7 million to $73.5 million.
Earlier this month, DOHAC revealed it had signed a separate one-year contract with Capgemini, to run from May 1 this year to April 30 next year, valued at $9.8 million for the provision of exactly the same service – “capability to support the delivery of ICT infrastructure for the aged care system” – bringing the total amount being paid to Capgemini over two years for the delivery of ICT infrastructure for the aged-care system to $83.3 million.
Six other DOHAC contracts negotiated with Capgemini over a 12-month period beginning in April 2022 for the provision of services including the “supplementary capability to support the delivery of ICT infrastructure” and the “interim supplementary capability to support aged care” were originally valued at a total of $11.9 million but have since blown out to a total of $25.4 million.
Just last week the Department of Health and Aged Care advised it had signed a $12.8 million contract for services to support the implementation of the new Aged Care Act. The contract is with consulting firm Scyne, the public sector consulting firm that was spun out of PwC in 2023.
At the time, PwC sold its public sector consulting arm to private equity firm Allegro Funds for $1 following a ban on the Big Four firms from winning new federal government work. The ban was introduced after the full extent of the PwC tax leaks scandal became public.
In response to questions from The Saturday Paper, the Department of Health and Aged Care said it followed Commonwealth procurement rules for all contracts. A spokesperson said: “When a service agreement is required to be extended beyond its original value, variations are reflected on AusTender. Increases in total contract value may arise where additional services are required, or timelines are varied to meet required outcomes. Some service agreements may be developed based on a planned schedule of deliverables. Service agreements may be varied and reported on AusTender once the department confirms successful delivery against this schedule.”
Catherine Thompson, a former chief procurement officer for technology at the Digital Transformation Agency, who has worked at the intersection of procurement technology and operations for close to 40 years, tells The Saturday Paper repeated government inquiries and reports by the Australian National Audit Office have demonstrated that the Commonwealth lacked the professional expertise to properly assess value for money in procurement.
“The main problem is that Canberra is full of people who are policy generalists, who have been brought up that way and who don’t have expertise in specific areas such as procurement,” Thompson says. “They’re the ones in charge of making large procurement decisions, yet basic commercial capability is lacking.”
A root cause of cost blowouts, according to Thompson, is that contracts with suppliers often fail to properly specify what is needed. When the agency or department realises what is needed at a later stage, “the supplier can say that because that specification was not included in the original contract, the contract will need to be varied, but at extra cost”.
“It’s what is known in the trade as ‘nibbling’,” Thompson says. “The supplier will just keep nibbling away for a bit more and a bit more, because the agency or department hasn’t been clear about what it is that is actually expected. And away they go: nibble, nibble, nibble.”
In 2022-23, the Commonwealth spent $74.8 billion on goods and services across 83,625 contracts, with the Department of Finance estimating that technology procurement accounted for about 20 per cent of the total, including $4.9 billion for computing services and $1.2 billion for software.
Earlier this month, The Saturday Paper revealed that a single Salesforce contract with the National Disability Insurance Agency originally valued at $10 million exploded to $208.5 million, with multiple contract variations taking place amid undeclared wining and dining of NDIA officials.
A scathing report on Commonwealth procurement, published by federal parliament’s Joint Committee of Public Accounts and Audit, found consistent failures when it came to demonstrating value for money, conducting procurements in line with ethical requirements, or keeping adequate records and proper contract management.
“Put plainly, the Commonwealth has serious commitment issues,” wrote committee chairman and Labor MP Julian Hill in the report’s foreword. “Public servants need to get far more comfortable and skilled with playing the field and sharpening their pencils on suppliers, even if this leads to difficult conversations and rejection.”
He added: “This report is the latest in a conga line of reports addressing aspects of procurement but this time recommendations for systemic change are made. In a time of rising prices and tightening budgets, the Australian public deserves no less.”
According to Thompson, a significant problem is that Canberra is an entirely closed loop.
“The reason you get regulatory capture and regulatory failure, is that the people who are watching what the public servants are doing are themselves public servants,” Thompson says. “And what they all know is that at some point the person they might want to slag off over their role in something will at some point in the future be sitting on a merit assessment round or some other interview panel, so it’s not exactly perfect independence.”
Peter Behrendt, a former Royal Australian Navy officer with more than 30 years of experience in defence and technology procurement, tells The Saturday Paper that a big problem in Australia is the Commonwealth is often too afraid to use its market power to force suppliers to stick to the original terms of the contracts being negotiated.
“I don’t know why there isn’t a register where departmental officials can’t go and check the performance of suppliers, and that tells them ‘Has this company sold something similar to another department or agency and made a meal of it?’ ” Behrendt says. “A register like that would help establish a pattern of success over time, which is actually one of [the] things these companies are trying to prove to the Commonwealth when they’re selling but without any actual accountability.”
Louis Matti, chief executive of Canberra-based company Terra Schwartz, which also specialises in defence procurement, says increasing participation of local small- and medium-sized enterprises in Commonwealth procurement processes will deliver greater value for money to the taxpayer by increasing competition, encouraging innovation and supporting the local economy.
“The government could take steps to remove barriers to entry by consolidating fragmented and complex procurement systems, increasing transparency and access to procurement processes, and by incentivising Australian-made tech solutions,” Matti says.
This article was first published in the print edition of The Saturday Paper on July 20, 2024 as "Aged-care contracts blow out by $227.9 million".
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