The audit objective was to assess the appropriateness of the use and reporting of confidentiality provisions in Australian Government contracts. This included assessing compliance with the Order and following up on the implementation of recommendations made in previous Senate Order audits.

The audit involved three components:

  • an examination of a stratified random sample of 150 contracts listed as containing confidentiality provisions from material and small agencies across the Australian Government to determine whether confidentiality provisions were used and reported appropriately;
  • an examination of all FMA Act agencies' calendar year 2009 contract listings, and ministers' letters of advice, to assess compliance with the requirements of the Order, and check reported instances of excluded contracts; and
  • a follow-up of the implementation of previous audit recommendations relating to the administration of the Senate Order in four agencies. The selected agencies were the: Australian Agency for International Development (AusAID); Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA); Department of Agriculture, Fisheries and Forestry (DAFF); and the Federal Court of Australia (Federal Court). The selected agencies were audited in one of the ANAO's previous five audits of Senate Order compliance.

Summary

Introduction

1. The Senate Order for Departmental and Agency Contracts (the Senate Order/the Order) was introduced in 2001 to improve public access to information about Australian Government procurement. The main principle that underpins the Order is that the Parliament and public should not be prevented from accessing information about government expenditure unless there is a sound basis for that information to be kept confidential.1 Public knowledge of information on contracted goods and services delivered to government can lead to better results for the Australian Government and the public.

2. The Government agreed to comply with the Order and its subsequent amendments.2 To accord with the Order, Ministers are to table letters advising that each of the agencies3, which they administer, have placed a list of contracts4 on the Internet. The contracts to be listed are those that were fully performed or entered into during the preceding 12 months. The contract listings are to indicate, among other things, whether any of the contracts listed contained confidentiality provisions. The Senate Order also requests the Auditor?]General to annually review contract lists and to report any incorrect use of confidentiality provisions.5

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 and exclusion of contracts from Senate Order contract listings, to fulfil the Senate's request to the Auditor-General.

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 and scope

5. The audit objective was to assess the appropriateness of the use and reporting of confidentiality provisions in Australian Government contracts. This included assessing compliance with the Order and following up on the implementation of recommendations made in previous Senate Order audits.

6. The audit involved three components:

  • an examination of a stratified random sample of 150 contracts listed as containing confidentiality provisions from material and small agencies across the Australian Government to determine whether confidentiality provisions were used and reported appropriately;
  • an examination of all FMA Act agencies' calendar year 2009 contract listings, and ministers' letters of advice, to assess compliance with the requirements of the Order, and check reported instances of excluded contracts; and
  • a follow-up of the implementation of previous audit recommendations relating to the administration of the Senate Order in four agencies. The selected agencies were the: Australian Agency for International Development (AusAID); Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA); Department of Agriculture, Fisheries and Forestry (DAFF); and the Federal Court of Australia (Federal Court). The selected agencies were audited in one of the ANAO's previous five audits of Senate Order compliance.

Overall conclusion

7. The Senate Order contract listings for the calendar year 2009 contained 41 937 contracts for goods and services totalling $165 billion, of which 4084 contracts 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 three calendar years and reflects a significant decline from 24 per cent of contracts in 2001–02, when the Order was first introduced.

8. The ANAO examined a sample of 150 contracts, managed by 33 agencies, that were reported to contain confidentiality provisions. Of the 150 contracts examined, 52 contracts (35 per cent) correctly included confidentiality provisions and 21 contracts (14 per cent) incorrectly included confidentiality provisions, having regard to Financial Management Guidance (FMG) No. 3. The remaining 77 contracts (51 per cent) did not contain confidentiality provisions and were incorrectly listed as containing confidentiality provisions. The incorrect inclusion and listing of confidentiality provisions in contracts potentially precludes or restricts the Parliament and the public from accessing information about these contracts.

9. Due to the sampling methodology employed, these results are broadly representative of the Australian Government agencies subject to the Senate Order, and indicate scope for improvement in agencies' understanding and application of criteria provided by Finance in FMG 3 for assessing whether particular contract provisions should be confidential. For the contracts examined, a sound practice observed was the inclusion of a section in contracts that outlines details of any 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 confidentiality provisions appropriately.

10. A large majority of agencies (84 of 99 agencies) subject to the Order at the end of 20096 published contract listings or notes on the Internet in the required timeframe. Of the agencies that did not publish a contract listing on time, four agencies published within one month, six agencies within five months and five agencies had not published a listing by 20 July 2010. Additionally, ministers' letters relating to 69 agencies were tabled by the due date and letters representing 20 more agencies were tabled in the following fortnight. The remaining ministers' letters covering nine agencies were not tabled as at 20 July 2010.

11. Of the agencies that published contract information, 83 per cent (78 of 94 agencies) included all required contract details and 77 per cent (72 of 94 agencies) included all required confidentiality information for every contract. Nevertheless, for the 150 contracts examined by the ANAO, 78 contracts (52 per cent) had discrepancies between details contained in the contract and the contract listings, while 39 per cent of all agencies' listings included some information not required by the Order, such as agency agreements. These results are partly attributable to weaknesses in agencies' procurement information systems, and the difficulties experienced by agencies in gearing these systems towards meeting multiple procurement reporting requirements.

12. The ANAO examined four agencies' implementation of recommendations made in the past five audits of the Senate Order. These recommendations identified common areas for improvement that if addressed, provide a sound basis for appropriate use of confidentiality provisions and accurate listing of contracts.

13. The agencies had made significant progress in implementing the recommendations relating to controls to support the completeness and accuracy of contract listings (including through Central Procurement Unit checks), and staff awareness of Senate Order requirements. This progress was reflected in the four agencies' calendar year 2009 contract listings, which were largely compliant with the Senate Order listing requirements.

14. More limited progress had been made in implementing the recommendations focused on considered decision making on the appropriate use of confidentiality provisions. Agencies would generally be better placed to make considered decisions about the use of confidentiality provisions during the contract preparation stage, if they put in place practices to more clearly identify, substantiate and review the use of such provisions in contracts.

15. Overall, while the use of confidentiality provisions has decreased since the Order was introduced, the benefit of the Order, as an accountability and transparency mechanism for Australian Government contracting activity, is not being fully realised due to incorrect use of confidentiality provisions and inaccuracies in contract reporting. To better focus agencies on the correct use and reporting of confidentiality provisions, improve the accuracy of contract reporting, and meet the FMGs, the ANAO recommends:

  • the Department of Finance and Deregulation review opportunities to consolidate procurement reporting requirements; and
  • agencies assess whether their contract preparation practices support adequate consideration of the use of confidentiality provisions in contracts.

Key findings by chapter

Confidentiality Provisions in Contracts (Chapter 2)

16. Agencies reported 41 937 contracts (valued at $165 billion) in their 2009 contract listings, 4084 (10 per cent) of which were reported as containing confidentiality provisions. The ANAO examined 150 of the 4084 contracts.

17. As illustrated in Figure S 1, 77 of the contracts examined (51 per cent) did not actually contain any confidentiality provisions, and were therefore incorrectly listed for the Senate Order. Of the remaining 73 contracts, 21 were assessed as incorrectly including confidentiality provisions. Consequently, only 52 contracts (35 per cent) correctly included confidentiality provisions, and were therefore correctly listed as containing confidentiality provisions. Twenty-two of the 52 contracts also reported the correct type of confidentiality provision used (related to either contract contents or contract outputs).

Figure S 1 Contract analysis results: appropriateness of the use and reporting of confidentiality provisions

Source: ANAO analysis.

18. The 150 contracts examined contained 226 specific confidentiality clauses, of which 152 clauses related to confidential information in contracts.7 Two-thirds of these clauses (100 of 152 clauses) were assessed as not containing commercially sensitive information that would cause detriment if made public, as required by FMG 3. The main area of misclassification of information as commercially sensitive was pricing details. FMG 3 classifies some pricing details as commercially sensitive, such as pricing structures, but not other pricing details, including price lists. The misclassification of pricing information reduces price transparency which can increase competition among tenderers and lead to greater cost efficiencies for government.

19. As mentioned above, since the Order was introduced in 2001–02, the reported use by audited agencies of confidentiality provisions in Australian Government contracts declined from 24 per cent of contracts to 10 per cent of contracts in 2009. Over the past four years there was a small increase in the proportion of contracts that used confidentiality provisions consistent with the Confidentiality Test in FMG 3, from 26 per cent of contracts examined by the ANAO in 2006 to 35 per cent of contracts examined in 2009. Overall, these results indicate continuing scope for agencies to improve their understanding and application of the Confidentiality Test (Appendix 4).

Compliance with Senate Order Requirements (Chapter 3)

20. The majority of agencies published contract listings by the due date8 (84 of 99 agencies) with half that published a contract listing meeting all of the Order's listing requirements (47 of 94 agencies). The requirements were met for 94 per cent of all contracts listed (39 489 of 41 937).9 However, 52 per cent of the contracts examined (78 of 150) had discrepancies between the information contained in contract documents and the contract listings, for example, the value of the contract. Further, 39 per cent of agencies' listings (37 of 94) included some entries not required by the Order valued at $4 billion, such as agency agreements and contracts valued at less than $100 000.

21. These findings reflect the difficulties that agencies encounter in developing and maintaining systems that produce procurement reporting to satisfy multiple requirements. In this regard, the presence of multiple obligations limits the capacity of agencies to focus on data quality for any single requirement. The inclusion of agency agreements in Order listings is also a consequence of inconsistencies in how the FMGs treat agency agreements for procurement reporting purposes. Agency agreements are not included in the contract definition for Senate Order reporting, but are required to be reported on AusTender. Similarly, for the contracts examined by the ANAO, agencies reported confidential information contained in successful tender documents in multiple ways. The FMGs do not clearly articulate that tender information should only be reported as confidential under the Order if it meets the Confidentiality Test and forms part of the contract. To help address these issues, there would be merit in Finance exploring options to consolidate procurement reporting obligations, in conjunction with the department's continuing focus on improving AusTender functionality. Any consolidation would also allow streamlining of current procurement guidance.

22. Letters relating to 69 of the 98 agencies10 were tabled in the Senate by the due date. This represents a decline from the letters representing 82 agencies that were tabled on time last year but an improvement on the preceding year.11 Three ministers' letters indicated that four agencies had excluded contracts from the listings.12 The ANAO examined a sample of 11 excluded contracts from two of the four agencies and found that the contracts were appropriately excluded from the listings.

Implementation of Previous Senate Order Audit Recommendations (Chapter 4)

23. Over the past five years the ANAO has made eight recommendations in its Senate Order audits. The ANAO assessed whether the four agencies selected for the follow up component of the audit had addressed four common areas for improvement identified in these recommendations:

  • data entry and systems controls used to support the completeness and accuracy of agency contract listings;
  • adequate documentation of the reasons for agreeing to identify specified information in contracts as being confidential;
  • mechanisms to review the appropriateness of the decision to include, and the ongoing relevance of, confidentiality provisions in contracts; and
  • guidance and training to staff related to the Senate Order.

24. The four agencies had controls and quality assurance processes appropriate to their procurement management arrangements which supported the completeness and accuracy of their contract listings. This included data cleansing, reconciliation and verification processes. As a consequence, the agencies' calendar year 2009 contract listings were largely compliant with the Senate Order listing requirements.

25. There was limited evidence that the four agencies documented the reasons for the inclusion of confidentiality provisions in contracts. For the calendar year 2009, none of the four agencies' procurement policies and guidance materials specified the requirement to document assessments of contractors' requests for the use of specific confidentiality provisions. Agencies would generally be better placed to make more considered decisions during the contract negotiation stage, if their documentation practices required substantiation of the reasons for agreeing to contractors' requests to include confidentiality provisions. Such documentation need not be lengthy but should address the significant factors that were taken in to account in the decision to keep information confidential.

26. Two of the audited agencies, FaHCSIA and the Federal Court, had implemented mechanisms to review the appropriateness of the inclusion of confidentiality provisions during the contract preparation stage. None of the audited agencies had implemented mechanisms to review the use of confidentiality provisions during a contract's term. Deliberations on the use of confidentiality provisions are likely to be strengthened by an appropriate level of review at the contract preparation stage. Depending on each agency's procurement management arrangements, these reviews could be undertaken by the central procurement unit, legal unit or suitably experienced managers.

27. AusAID, FaHCSIA and the Federal Court, had appropriate guidance and training in support of staff awareness of the Order. DAFF would benefit from providing targeted training on its guidance materials to increase staff awareness of the requirements of the Order, particularly in view of its more decentralised procurement management arrangements.

Summary of agencies' responses

28. AusAID, DAFF, FaHCSIA, Finance and the Federal Court agreed with the recommendations in the report.

Footnotes

1. Department of Finance and Deregulation, Guidance on Confidentiality in Procurement (FMG 3), July 2007, p. 4.

2. 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.

3. Subject to the Financial Management and Accountability Act, 1997 (FMA Act).

4. This includes grants and funding agreements that meet the Contract Criteria set out in Department of Finance and Deregulation, Guidance on the Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts) (FMG 8), January 2004, p. 13.

5. Parliament of Australia, Procedural Orders of Continuing Effect [Internet]. Parliament of Australia, Australia, 2009, available from <http://www.aph.gov.au/senate/pubs/standing_orders/d05.htm#11> [accessed 24 May 2010].

6. This includes 98 agencies required to meet the Senate Order and the Department of the Senate that complies voluntarily. A minister's letter is not tabled for the Department of the Senate as it is not administered by a minister.

7. The remaining 74 clauses related to information obtained or generated in the performance of the contract. Assessment of the commercial sensitivity of these clauses was not within the scope of the audit.

8. The due date for compliance with the Order fell on Sunday 28 February 2010, so for the purposes of the report, the ANAO adopted Monday 1 March as the date that satisfied the requirements of the Order.

9. Of the six per cent of contracts where listing requirements were not met, half were water entitlement contracts managed by the Department of the Environment, Water, Heritage and the Arts.

10. The Department of the Senate was not included in this analysis because it does not have a minister.

11. ANAO Audit Report No.06 2009–10 Confidentiality in Government Contracts Senate Order for Departmental and Agency Contracts (Calendar Year 2008 Compliance), p. 45; ANAO Audit Report No.05 2008–09 The Senate Order for Departmental and Agency Contracts (Calendar Year 2007 Compliance), p. 45.

12. The Order provides for confidential contracts to be excluded from listings in rare circumstances, such as when disclosure would be contrary to the public interest. FMG 8 sets out specific categories for agencies to consider when determining whether contracts should be excluded.