Confidentiality in Government Contracts - Senate Order for Departmental and Agency Contracts (Calendar Year 2008 Compliance)
The Senate Order for Departmental and Agency Contracts (the Senate Order/the Order) was introduced in June 2001. The Order is one of several measures that the Senate introduced in recent years, to improve public knowledge of information on procurement and the expenditure of public funds. The main principle that underpins the Senate Order is that the Parliament's and public's access to this information should not be restricted by the inclusion of confidential information in contracts unless there is a sound basis for doing so. Public knowledge of information on contracted goods and services delivered to the government, can lead to better results for the Australian Government and the public. The Senate Order requirements have been amended over time to improve agency reporting, for example, on grants.
1. The Senate Order for Departmental and Agency Contracts (the Senate Order/the Order) was introduced in June 2001. The Order is one of several measures that the Senate introduced in recent years, to improve public knowledge of information on procurement and the expenditure of public funds. The main principle that underpins the Senate Order is that the Parliament's and public's access to this information should not be restricted by the inclusion of confidential information in contracts unless there is a sound basis for doing so. Public knowledge of information on contracted goods and services delivered to the government, can lead to better results for the Australian Government and the public. The Senate Order requirements have been amended over time to improve agency reporting, for example, on grants.
2. To comply with the Order, each agency subject to the Financial Management and Accountability Act, 1997 (FMA Act), must place on its Internet site a list of contracts1 valued at $100 000 or more. The lists must indicate whether each contract requires the parties to maintain confidentiality of any of the contract's provisions, and whether there are any other requirements of confidentiality. The Order also requires Ministers to table in the Senate, letters of advice that the agencies they administer have listed their contracts on their Internet sites. At the end of the 2008 calendar year there were 104 agencies subject to the FMA Act with five of these exempt from the Order. The Senate Order also requests the Auditor General to annually review contract lists and to report any incorrect use of confidentiality provisions.
3. The Department of Finance and Deregulation has produced a range of Financial Management Guidance (FMG) that is relevant to the production of contract lists and the use of confidentiality provisions in contracts. This includes:
- Guidance on Procurement Publishing Obligations (FMG 15);
- Guidance on Confidentiality in Procurement (FMG 3); and
- Guidance on the Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts) (FMG 8).2
4. This report outlines the results of the Australian National Audit Office's (ANAO's) eleventh audit of agencies' compliance with the reporting requirements of the Senate Order.
Audit objectives and scope
5. The audit objectives were to:
- assess whether all agencies compiled Internet listings of contracts, and tabled Ministers' letters, as required by the Senate Order; and
- to review, in selected agencies the accuracy and completeness of the listing and the correctness of the use of confidentiality provisions.
6. The selected agencies, in order of size and number of contracts sampled, were: the Department of Education, Employment and Workplace Relations (DEEWR); the Department of Innovation, Industry, Science and Research (DIISR); the Australian Bureau of Statistics (ABS); Insolvency and Trustee Services Australia (ITSA); and the Office of the Commonwealth Ombudsman (OCO).
7. The ANAO agreed to include the Australian Secret Intelligence Service (ASIS) and the Australian Security Intelligence Organisation (ASIO) in the audit, at the request of the Senate Standing Committee on Finance and Public Administration (FPA Committee).
8. In addition to assessing agencies' compliance with the Order, we also compared the agencies' data in AusTender to their Internet listings to determine whether it was consistent with the Senate Order's reporting requirements. This was to assess whether agencies could meet an FPA Committee recommendation, supported by the Government, to use the Finance administered system AusTender, for centralised reporting on contracts rather than their Internet listings.
9. For each reviewed agency the Australian National Audit Office (ANAO):
- assessed whether the Senate Order listing and the Minister's letter were available by the due date3 and contained all required information;
- conducted interviews and examined files and records relating to the compilation of the Internet listing and the individual contracts selected for testing;
- compared each agency's data in AusTender to its Internet listing to determine whether it was consistent with the Senate Order's reporting requirements; and
- consulted with the agency and discussed any major audit findings.
10. The Senate Order listings for the five agencies contained 4592 contracts totalling $8.5 billion, of which 397 (9 per cent) were reported as containing confidentiality provisions. This continues a pattern of decline in the numbers of contracts in audited agencies reported as containing confidentiality provisions. Notwithstanding this decline, there are still issues in agencies' reporting of contracts and their assessment of whether information is confidential.
11. The ANAO reviewed a sample of 115 of the contracts reported as containing confidentiality provisions. Of these, 59 contracts did not contain confidentiality provisions and 33 contracts were assessed as including confidentiality provisions that were not justified, having regard to the Finance Guidance. This meant that only 23 (20 per cent) of the contracts were correctly listed. Incorrectly including confidentiality provisions, or incorrectly listing contracts as containing confidentiality provisions, potentially precludes or restricts the Parliament and the public from accessing information about these contracts.
12. These results for the audited agencies were mainly because they did not use the criteria provided by Finance in 2007 for assessing whether particular contract provisions should be confidential and inadequate training. In addition, although there was a central quality assurance team in each agency, these teams did not generally assess the merit of including confidentiality provisions in contracts.
13. Of the 99 agencies subject to the Senate Order at the end of 2008, 82 agencies posted their contract listings on the Internet by the due date. Seven agencies published within one month or shortly thereafter and the remaining ten agencies had not published a listing by 10 August 2009. Additionally, Ministers' letters relating to 81 agencies were tabled by the due date and another 13 within six weeks. The remaining Minister's letter covering five agencies was tabled on 5 August 2009. The listings of four of the audited agencies were generally complete. However, DEEWR did not include actual or estimated contract amounts for 1042 or a quarter of its 3959 contracts and stated that this was because ‘estimates were too difficult to determine'.
14. The Parliament's FPA Committee has twice reviewed the Senate Order. One of the Committee's recommendations from the second review, supported by the Government, was to use the Finance administered system AusTender to replace individual agencies' Internet listings. The aim was to provide centralised contract information not only for individual agencies but to also consolidate whole of Government contract reporting.
15. However, there were substantial mismatches between agencies' contract information held in their Senate Order listings and AusTender due to the inaccuracy of agency data loaded into and limitations identified in AusTender. Until these issues are addressed, it will not be possible for interested parties to use the current agency data in AusTender to determine the accurate number or total value of contracts.
Use of confidentiality provisions (Chapter 2)
16. The five audited agencies reported 4 592 contracts (valued at $8.5 billion) in their 2008 Internet listings, 397 (9 per cent) of which were reported as containing confidentiality provisions protecting information contained in the contract. The ANAO sampled 115 of these.
Source: ANAO analysis of reviewed agencies' contracts.
17. As illustrated in Table 1, of the 115 contracts reviewed by the ANAO, 59 (51 per cent) did not actually contain any confidentiality provisions. Of the remaining 56 contracts, 33 were assessed by the ANAO as incorrectly including confidentiality provisions. Consequently, only 23 contracts (20 per cent) correctly included confidentiality provisions, and were correctly listed on the Senate Order. This may prevent interested parties from accessing information in contracts that has been incorrectly identified as confidential. Consequently, in a competitive market, potential tenderers will be ill informed about previously successful tenderers prices and other relevant information.
18. One of the main objectives of the Senate Order is to require agencies to make considered decisions in relation to the inclusion of confidential provisions in Government contracts. To assess the extent to which this had occurred, the ANAO applied the test of confidentiality set out in Finance Guidance4 to each of the 186 confidentiality provisions in the 56 contracts that included such provisions. These comprised 140 provisions relating to specific confidential information in the contracts and 46 provisions relating to confidential information generated in the performance of the contract.
19. The results of this review were that 132 (71 per cent) of the 186 provisions identifying the information to be protected were not specific, rather the information was described in general terms. Of the remaining 54 confidentiality provisions that were specific, 42 protected information in the contract and 12 protected information in the performance of the contract. The 42 provisions that protected the information in the contract were further assessed to determine if the information was commercially sensitive or it would be detrimental to any party if the information was reported. Of these, 28 (67 per cent) were assessed as not meeting either or both of these criteria.
20. There were a number of errors that suggest agencies find it difficult to differentiate between confidentiality provisions designed to protect information specifically identified in the contract, and confidentiality provisions designed to protect information generated during the performance of the contract (such as reports). This difficulty also applies to differentiating between specific and general or broad confidentiality clauses, such as those which describe how to deal with privacy issues or Intellectual Property rights.
21. The audit found that the agencies had generally not reviewed, during the term of the contracts, whether the inclusion of confidentiality provisions was current: for example, confidential information about a Ministerial launch of a grants program once the event had occurred. It would be sound practice for contract managers to review their Senate Order listing when there is no longer a need for a contract to be identified as containing confidentiality provisions. This could be when milestones are met, at the time of contract variations or extensions or when compiling the subsequent Senate Order listing.
22. Request for Tender and contract templates in six of the seven audited agencies included a range of standard clauses relating to confidentiality and disclosure information, such as Parliamentary and ANAO access. These clauses were consistent with the model provisions in FMG 3. These templates were easily accessible by relevant staff members. Nevertheless, DEEWR included the required clauses in only 33 of the 46 contracts reviewed. ITSA did not include the clauses in any of the 16 contracts reviewed but included a provision that ‘all access must be authorised in writing by the Chief Executive Officer'. Inclusion of the Parliamentary and ANAO access clauses is significant as it means that the agency and the contractor are both aware that regardless of the use of confidentiality provisions there is no absolute guarantee of confidentiality of any information.
23. The ANAO considers that inadequate training leading to a general lack of knowledge of FMG 3, for those staff in the audited agencies developing contracts, has largely contributed to the incorrect inclusion of confidentiality provisions in contracts. Also, the central quality assurance provided in each of the agencies subject to the Order, did not always assess whether confidentiality provisions should be included in contracts. It was up to contract managers, based on the information made available to them, to make an assessment of whether to include confidentiality provisions in a contract and to provide this information for inclusion in the Senate Order listing. Agencies would be better placed to meet the Order's reporting requirements if they were more active in updating their policies and guidelines, in particular including the four criteria test for confidentiality in FMG 3.
Completeness and accuracy (Chapter 3)
24. Of the 99 agencies subject to the Senate Order at the end of 2008, 82 posted their contract listings on the Internet by the due date. Of the remainder, seven agencies published within one month or shortly thereafter, and ten agencies across a range of portfolios, had not published a 2008 Calendar year listing at the time this report was produced.
25. There has been a significant improvement in the tabling of Ministers' letters of advice in Parliament. Letters relating to 82 agencies were tabled by the due date and 12 were tabled within six weeks of the due date. The remaining Minister's letter covering five agencies within his portfolio was tabled on 5 August 2009.
26. OCO and the ABS had published complete contract listings, while the remaining three audited agencies departed from this in the following respect:
- DEEWR did not met Finance's requirements because 1042 of the 3959 (26 per cent) of its listed contracts did not include their actual or estimated values. The contracts that did include values were worth a total of $5.2 billion. Consequently the department significantly understated the value of the contracts on its listing reducing its utility to the Parliament and unsuccessful and prospective tenderers.
- ITSA incorrectly excluded GST for 15 of its 53 contracts on the listing. The total amount of GST excluded was $2.2 million, or 5.6 per cent of the total amount of the contracts.
- DIISR did not include the method used to calculate the cost of compliance in its list.
27. In all of the audited agencies subject to the Order, the staff compiling the Senate Order listings had a high level of relevant knowledge and experience, although they had not attended training provided by Finance after the introduction of FMG 3. Also, these staff did not assess whether confidentiality provisions were correctly included in the Senate Order listed contracts. While the audited agencies' internal policies and procedures for developing contracts and compiling the Senate Order listings were generally adequate these policies and procedures did not contain enough information to assist staff to assess whether to include confidentiality provisions in contracts.
AusTender (Chapter 4)
28. The FPA Committee has twice reviewed the Senate Order. One of the FPA Committee's recommendations from the second review and supported by the Government, was to use the Finance administered system AusTender, to replace individual agency's Internet listings. The intent was that agencies maintain their Senate Order listings until Finance implemented the AusTender module for reporting procurement contracts. However, it is not possible for the Parliament, Ministers or other interested parties to use the current agency data in AusTender to determine the accurate number or total value of contracts currently managed by all but one of the audited agencies because of three issues.
29. Each agency's internal procedures for transferring contract information resulted in incorrect total numbers and amounts of contracts being transferred to AusTender. Also limitations within AusTender around automatically linking amendments to original contracts means that AusTender can only report whole of life contract totals if amendments are entered manually. AusTender reports current and previous agencies separately. Consequently, the December 2007 Machinery of Government (MoG) changes have meant that is it not possible to report on all contracts that are currently being managed within the agencies that have been substantially reorganised. These issues have resulted in significant inconsistencies between the Senate Order listings and AusTender.
30. To enable AusTender to replace the Senate Order for reporting contract information, agencies will need to address the errors in their existing AusTender data and the limitations in their current systems and processes used to transfer that data. Concurrently, Finance could consider future design solutions to address the limitations identified in AusTender, which would be informed by the improved capabilities of the agencies' systems and processes.
Recommendation No. 1
To assist agencies to meet the requirements of the next and any subsequent Senate Orders, the ANAO recommends that they:
- embed in their relevant policies and practices, the guidance and instructions in Financial Management Guidance 3, including the details of the four criteria test for confidentiality; and
- provide suitable training and guidance to staff on these policies and procedures.
Summary of organisations' responses to the audit report
31. The audited organisations agreed with the recommendation in this report. The organisations' responses to the recommendation are shown in Chapter 2 of the report. Other comments provided are shown in Appendix 4 of the report.
1 The Senate Order requires all contracts, grants and standing offers to be listed. For the purposes of this report contract means any, or all, of these types of agreements except in chapter 4.
2 These guidance can be found on the Finance website at: <http://www.finance.gov.au/procurement/procurement-policy-and-guidance/procurement-guidance/index.html>
3 The due date for compliance with the Order fell on Saturday 28 February 2009, so for the purposes of the audit the ANAO adopted Monday 2 March 2009 as the date that satisfied the requirements of the Order.
4 Department of Finance and Deregulation, Guidance on Confidentiality in Procurement (FMG 3) July 2007, p. 10.