Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2010 Compliance)
This audit is the thirteenth in a series of audits that have fulfilled the Senate’s request for the Auditor-General to provide an annual report on agencies’ compliance with the Order, since it was introduced in 2001. The audit objective was to assess the appropriateness of the use and reporting of confidentiality provisions in Australian Government contracts.
1. The Senate Order for Departmental and Agency Contracts (the Senate Order/the Order) was introduced in June 2001 to improve public access to information about Australian Government procurement. The Government agreed to comply with the Order and its subsequent amendments. The main principle that underpins the Order is that the access of the Parliament and the public to information on government contracts should not be prevented, or otherwise restricted, through the use of confidentiality provisions, unless there is a sound reason to do so.
2. To accord with the Order, ministers are to table letters of advice that all agencies which they administer have placed on the Internet lists of contracts of $100 000 or more, by no later than two calendar months after the end of each financial and calendar year. The lists are to include contracts that have not been fully performed, and any contracts entered into during the previous 12 months, and are to indicate, among other things, whether the contracts contain confidentiality provisions. The Order also requests the Auditor-General to annually review contract lists and to report any inappropriate use of confidentiality provisions.
3. The Australian National Audit Office (ANAO) used the Department of Finance and Deregulation’s (Finance) Financial Management Guidance (FMG) in its assessment of the use of confidentiality provisions, to fulfil the Senate’s request to the Auditor-General. In particular, FMG 3—Guidance on Confidentiality in Procurement, July 2007 contains four tests which agencies must apply in determining confidentiality of contracts (the Confidentiality Test). The tests are:
- the information to be protected must be specifically identified;
- the information must be commercially ‘sensitive’; disclosure would cause unreasonable detriment to the owner of the information or another party; and
- the information was provided under an understanding that it would remain confidential.
4. In addition to the Senate Order, agencies are required to report their procurement activity in their Annual Report and on AusTender, according to varying procurement reporting requirements. Consultancy contracts in excess of $100 000, for example, are required to be reported in each of an agency’s Senate Order contract listing, its Annual Report and on AusTender. AusTender also captures information about the use of confidentiality provisions in contracts.
Audit objective, criteria and scope
5. This audit is the thirteenth in a series of audits that have fulfilled the Senate’s request for the Auditor-General to provide an annual report on agencies’ compliance with the Order, since it was introduced in 2001. The audit objective was to assess the appropriateness of the use and reporting of confidentiality provisions in Australian Government contracts.
6. The three high level criteria used to assess the performance of agencies’ compliance with the Senate Order were: the appropriateness of the use of confidentiality provisions in a sample of contracts reported to contain confidentiality provisions for the audited agencies; the extent of compliance with the specific requirements of the Order by all FMA Act agencies; and the consistency of AusTender contract reporting and Senate Order listings for audited agencies.
7. The audit also reviewed progress made by Finance in relation to the ANAO’s 2010–11 Senate Order audit recommendation to explore opportunities to consolidate procurement reporting obligations, in conjunction with a continuing focus on improving AusTender functionality.
8. The agencies selected for the audit were the: Australian Communications and Media Authority (ACMA); Department of Climate Change and Energy Efficiency (DCCEE); Department of Finance and Deregulation (Finance); and Murray-Darling Basin Authority (MDBA). The ANAO selected different sized agencies that had not been involved in recent ANAO Senate Order audits.
9. The Senate Order contract listings for the 2010 calendar year contained 39 116 contracts for property and services totalling $164.2 billion, of which 3397 contracts (nine per cent) were reported as containing confidentiality provisions. The reported use of confidentiality provisions by audited agencies, in around 10 per cent of contracts, has been constant over the last four calendar years and reflects a significant decline from 24 per cent of contracts in 2001–02, when the Order was first introduced.
10. The ANAO examined a sample of 110 contracts, managed by four agencies, which were reported to contain confidentiality provisions. Of the 110 contracts examined, 14 contracts (13 per cent) correctly included specific confidentiality provisions, having regard to FMG 3 – Guidance on Confidentiality in Procurement. The remaining 96 contracts were incorrectly listed as containing confidentiality provisions for the following reasons:
(a) seven contracts (six per cent of all contracts examined) included specific confidentiality provisions which did not meet FMG 3’s Confidentiality Test;
(b) 78 contracts (71 per cent) contained only general confidentiality provisions. Such contracts should not be classified as containing confidentiality provisions for the purpose of the Senate Order; and
(c) 11 contracts (10 per cent) contained no confidentiality provisions.
11. In the context of these findings, it is important to note that the primary focus of the Senate Order was to reduce instances of contracts including confidentiality provisions which are not justified ((a) above); and in the last two years the proportion of audit sample contracts which included such provisions has been low. Nevertheless, many contracts continue to be incorrectly listed as containing confidentiality provisions, which potentially dissuades the Parliament and the public from seeking to access contractual information, and could unduly affect agency decisions to release contractual information.
12. A large majority of FMA Act agencies (81 of 100 agencies) subject to the Order published contract listings, or a statement that no contracts had been entered into by the agency, on the Internet, by the due date of 28 February 2011. This represented a slight decline from the previous two years. Of the agencies that did not publish a contract listing on time, 11 agencies published within one month, one agency within two months and seven agencies had not published a listing by 31 July 2011. Ministers’ letters representing 65 agencies were tabled by the due date (also a slight decline from the previous two years), with letters representing another 20 agencies tabled in the following month, and letters representing a further 11 agencies tabled within three months of the due date. The remaining ministers’ letters covering three agencies were not tabled as at 31 July 2011.
13. Of the 93 agencies that had posted a Senate Order listing for the 2010 calendar year, 33 listings were consistent with all of the Order’s information requirements. The remaining listings did not include reasons for contract confidentiality (15 per cent of agencies); did not include both the cost of compliance and its method of calculation (17 per cent of agencies); and/or included some additional information not required by the Order (such as contracts valued below $100 000, 40 per cent of all agencies’ listings).
14. For the 2010 calendar year, taking into account differences in the information the two reporting mechanisms are designed to capture, the ANAO compared the audited agencies’ AusTender contract reporting and Senate Order listings. The comparison found significant discrepancies in reporting of contracts and the details attributed to those contracts. Further, for the audit sample of contracts, both AusTender and Senate Order listings significantly overstated the number of contracts that actually contained confidential information; and, contract details (such as start and end dates, and values) were also regularly misreported through the two reporting mechanisms. In this context, and in response to an ANAO recommendation, Finance advised that it expects to progress formal consideration of the consolidation of procurement reporting obligations in the third quarter of 2011, which would assist agencies to focus their effort to improve the accuracy of their contract reporting.
15. Overall, a decade after the introduction of the Senate Order, there remains scope for improvement in the appropriate use and reporting of confidentiality provisions in Australian Government contracts, notwithstanding that less Australian Government contracting information is being classified as confidential than in the past. For improvement to occur, it is necessary that agency staff better understand and apply the Confidentiality Test. To this end, there would be benefit in Finance, in conjunction with agencies, exploring means to better communicate key requirements and explain areas of guidance often misinterpreted by agency staff. More broadly, accurate reporting of contract information is reliant on sound agency-level data capture, collation and quality assurance, which would be supported by the consolidation of procurement reporting obligations being pursued by Finance.
16. This year’s audit does not make any new recommendations. Agencies are instead advised to consider their practices in light of the recommendations of previous Senate Order audits (shown in Appendix 3). In this context, agency central procurement units and staff preparing contracts should bear in mind that if a contract only contains general confidentiality provisions (for example, for a contractor to maintain the confidentiality of information gathered during the course of the contract), Finance guidance states that such contracts are not to be classified as containing confidentiality provisions in an agency’s Senate Order listing.
Key findings by chapter
Confidentiality provisions in contracts (Chapter 2)
17. Agencies reported 39 116 contracts (valued at $164.2 billion) in their 2010 contract listings, 3397 (nine per cent) of which were reported as containing confidentiality provisions. The ANAO examined 110 of the 3397 contracts.
18. As illustrated in Figure S.1, 89 of the 110 contracts (81 per cent) did not contain specific confidentiality provisions and seven contracts (six per cent) were assessed as including specific confidentiality provisions that were not justified, having regard to FMG 3. These 96 contracts were incorrectly listed for the Senate Order as containing confidentiality provisions. Of the 14 contracts (13 per cent) that were correctly listed as containing confidentiality provisions, nine (eight per cent) also reported the correct type of, and reason for, confidentiality.
Source: ANAO analysis.
19. For the contracts examined, a sound practice observed was the inclusion of a section in contracts that outlines details of specific confidential information in the contract and the reasons for this information to be kept confidential. Where agencies had adopted this approach, they were more likely to use and report confidentiality provisions in contracts appropriately. The audited agencies should also review their processes for checking the presence of, and reporting of, confidentiality provisions in contracts, given that processes applied did not prevent inaccurate reporting.
20. Irrespective of the terms of a contract, agencies may be required to disclose confidential contract-related information, for example, to a Parliamentary committee or the ANAO. To ensure contract parties are fully aware of the potential for such disclosures, they should be set out in request documentation and in contracts. In this regard, approximately half of the contracts in the ANAO sample included appropriately worded clauses providing for the potential disclosure of contract-related information to a Parliamentary committee, and two-thirds provided for ANAO access. Where the audited agencies’ current standard contract templates were used, contracts were found to contain appropriately worded clauses. These results suggest agencies review their use of contract templates, and whether model clauses are being appropriately applied.
Compliance with Senate Order requirements (Chapter 3)
21. The majority of agencies published Senate Order contract listings by the due date of 28 February 2011 (81 of 100 agencies). However, only a third of agencies’ listings were consistent with all of the Order’s information requirements (paragraphs 2(a)–(d) of the Order). This is a decline from the previous year, when approximately half of the agencies posted a contract listing consistent with all the required information.
22. As illustrated in Table S.1, the ANAO’s review of the contract listings found that 40 agencies included 275 contracts valued at $713 million that did not meet: FMG 8’s contract criteria; the Order’s requirements for contract timeframe; and/or the required contract value ($100 000 or more), as per paragraph 2(a) of the Order. The overwhelming majority of agencies listed all the contract details required by paragraph 2(b) of the Order (92 of 100 agencies). A large majority of agencies (78), reported whether contracts contained specific confidentiality information, as well as the reason, in their Senate Order listings (paragraph 2(c)); and similarly, 76 agencies reported both the cost of complying with the Order and its method of calculation (paragraph 2(d)).
Source: ANAO analysis.
23. Examination of the audited agencies’ Senate Order procedures found need for improvement in the:
- timeliness of some contract listings and ministers’ letters, including the responsibility of departments of state to notify their portfolio agencies to prepare listings;
- comprehensiveness of guidance and training materials, some of which did not detail all requirements of the Order; and
- collection of contract data and associated quality assurance processes.
The Senate Order and AusTender (Chapter 4)
24. As previously mentioned, a comparison of the audited agencies’ AusTender reporting and 2010 calendar year Senate Order listings, found significant discrepancies in terms of the contracts reported and the details (including relating to confidentiality) attributed to those contracts. For example, there were 84 contracts across the four audited agencies, each valued at more than $100 000 and from the relevant period, which were reported in AusTender but not in the agencies’ 2010 calendar year Senate Order listings. The range of discrepancies identified reflected shortfalls in contract data capture, collation and quality assurance by agencies, different report timing and currency, and a known limitation in the ability of AusTender to link some contract variations with original contracts (for which a technical solution is currently being trialled).
25. To assist agencies in addressing contract data shortfalls, the ANAO previously recommended Finance review opportunities for the consolidation of procurement reporting obligations, in conjunction with a continuing focus on improving AusTender functionality. In response to this recommendation, Finance advised that it has commenced consultations with key stakeholders on consolidation of reporting and is currently testing AusTender system enhancements. Finance further advised that action to formally consider consolidation of procurement reporting is expected to commence in the third quarter of 2011. The ANAO notes the importance of consulting with stakeholders about the impacts of changes stemming from the consolidation of procurement reporting requirements, and the importance of trialling AusTender system refinements before commencing a broad rollout.
Summary of agencies’ responses
26. General comments on the proposed audit report from the audited agencies are contained in full in Appendix 1. A summary of the responses is as follows:
Australian Communications and Media Authority
27. The ACMA supports the audit findings. The ACMA values the clarity provided by the ANAO staff in the conduct of this audit and has applied the appropriate definitions for future Senate Order and AusTender reporting of confidentiality in Commonwealth contracts. The ACMA is pleased to continue to report eligible contracts to satisfy the Senate Order including the timely tabling of the Minister's Letter of Advice and identifying and reporting the methodology and costs of compliance with the Senate Order.
28. The ACMA also supports the proposed standardisation of reporting of confidentiality provisions in eligible contracts into a single reporting framework, as this would streamline administration for reporting requirements and eliminate the differences in reporting parameters between AusTender and the Senate Order listing.
Department of Climate Change and Energy Efficiency
29. The Department of Climate Change and Energy Efficiency (DCCEE) agrees with the findings in the ANAO audit report on Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2010 Compliance). DCCEE will continue to undertake ongoing improvements including, training, further quality assurance to improve data captured for reporting purposes and establishing processes to ensure reporting is undertaken in a timely manner.
Department of Finance and Deregulation
30. The audit identifies a significant decrease in the use of unnecessary confidentiality clauses in Australian Government contracts since inception of the Senate Order. This is evidence of an ongoing commitment by agencies, the ANAO and Finance to ensure confidentiality provisions in contracts are appropriate.
31. Finance considers that the Senate should review the need for the Senate Order in relation to procurement contracts. When it came into effect, the use of confidentiality clauses in government contracts was significantly higher than is the case now and there was no public reporting mechanism on such use. The use of confidentiality clauses in government contracts is now reported on AusTender, not only for contracts greater than $100,000, but for all contracts reported (that is, at $10,000 and above in value). As all procurement contracts awarded (at $10,000 and above) are required to be reported on AusTender within six weeks of the contract being signed, reporting is in 'real time', rather than the delayed point-in-time reporting delivered by the Senate Order.
32. Finance considers that AusTender should be the sole procurement reporting requirement. Finance will continue to work with departments and agencies to improve the accuracy of reporting on AusTender.
Murray-Darling Basin Authority
33. The Murray-Darling Basin Authority (MDBA) acknowledges the findings of the audit and has committed to, and is in the process of implementing, substantive improvements in internal control processes in order to rectify the matters of non-compliance with relevant Financial Management Guidelines.
34. In doing so, the MDBA also pointed to the significant and complex nature of transition from its predecessor, the Murray-Darling Basin Commission (MDBC) and the potential impact of this on the audit findings.
 The Government agreed to comply with the spirit of the Order and advised that information regarding individual contracts would not be provided where disclosure would be contrary to the public interest, legislative requirements and undertakings given.
 ANAO Audit Report No.7 2010–11, Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2009 Compliance), p. 51.
 In December 2008, MDBA assumed responsibility for all of the functions of the former Murray-Darling Basin Commission, and in the process became an FMA Act agency subject to the Senate Order.
 ACMA, DCCEE and MDBA had not been audited for the purposes of the Senate Order and Finance was last audited in 2002.
 This represents a decrease in comparison to previous years, which is partly attributable to all 49 MDBA contracts not containing specific confidential information. Excluding MDBA, 23 per cent of the contracts were considered to appropriately use confidentiality provisions, a result more similar to previous audits.
 General confidentiality provisions either restate legislative obligations for confidentiality (such as under the Privacy Act 1988), or set out a general understanding between the parties in relation to how they will deal with information when performing the contract.
 This includes 99 agencies required to meet the Order and the Department of the Senate which complies voluntarily. A minister’s letter is not tabled for the Department of the Senate as it is not administered by a minister.
 ANAO Audit Report No.7 2010–11, Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2009 Compliance), p. 51.
 Department of Finance and Deregulation, Guidance on Confidentiality in Procurement (FMG 3), July 2007, p. 24.
 The 275 contracts represent 0.7 per cent of total contracts listed and 0.4 per cent of the total value of all listed contracts.
 FMG 8 – Guidance on the Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts), January 2004 – contract criteria states that ‘For a simple contract to exist, all of the following elements must be present:
- an offer;
- acceptance of an offer;
- consideration (unless the contract is executed as a deed); and
- an intention to create legal relations.’
 For the 110 contracts examined by the ANAO, 69 contracts (63 per cent) had discrepancies between ‘start date’, ‘anticipated end date’ and ‘amount of consideration’ details contained in the contract and/or the contract listings.