Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2011 Compliance)
The objective of the audit was to assess the appropriateness of the use and reporting of confidentiality provisions in Australian Government contracts for 2011.
1. The Senate Order for Departmental and Agency Contracts (the Senate Order/the Order)1 was introduced in 2001 to improve public access to information about Australian Government contracting. The main principle on which the Order is based is that parliamentary and public access to government contract information should not be prevented, or otherwise restricted, through the use of confidentiality provisions, unless there is sound reason to do so.
2. Since 2001, successive governments have agreed to comply with the spirit of the Order and its subsequent amendments. Under the Order, Ministers must table letters of advice that all agencies2 which they administer have placed on the Internet lists of contracts valued at $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 the details of each contract which has not been fully performed or which has been entered into during the previous 12 months; and
- indicate whether the contracts contain confidentiality provisions or any other requirements of confidentiality, and a statement of reasons for the confidentiality.
3. The Senate Order also requests that the Auditor-General annually examine a number of the contracts listed with confidentiality provisions and report any inappropriate use of these provisions.3
4. The Department of Finance and Deregulation (Finance) is responsible for providing agencies with policy guidance on procurement, including confidentiality in procurement and compliance with the Order. The Finance publication, Financial Management Guidance (FMG) No.8—Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts) (January 2004) provides guidance to support agencies in developing their Senate Order Internet listings.4 Further, Finance’s whole-of-government guidance—Buying for the Australian Government (the Guide)—contains the Confidentiality Test, which is designed to assist agencies to determine the appropriate inclusion of confidentiality provisions in contracts.5 The Test consists of four elements:
- 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.6
5. In addition to the Senate Order, agencies must comply with a range of procurement reporting requirements, including annual reports7 and AusTender.8 While there are similarities in the contract information required to be reported, each of the requirements has different reporting criteria and some contract information needs to be presented in multiple formats to meet each reporting obligation.
Audit objective, criteria and scope
6. This audit is the fourteenth in a series of audits and fulfils the Senate’s request for the Auditor-General to provide an annual report on compliance with the Order.
7. The audit objective was to assess the appropriateness of the use and reporting of confidentiality provisions in Australian Government contracts for 2011. The audit criteria were:
(a) Financial Management and Accountability Act 1997 (FMA Act) agencies comply with the requirements of the Senate Order.
(b) Confidentiality provisions are used appropriately (with regard to the Confidentiality Test) in a sample of contracts reported to contain confidentiality provisions.
(c) Audited agencies’ reporting of confidentiality information is consistent across Senate Order listings and AusTender reporting.
8. Further, a follow-up of Finance’s progress to consolidate procurement reporting requirements and their activities to better communicate to agencies the key requirements of the Order and explain guidance materials, was undertaken.9
9. At 31 December 2011, there were 108 FMA Act agencies.10 Ninety-eight of these agencies were included for the purposes of the overall audit analysis (part (a) of the audit criteria). Of the 10 agencies excluded from the analysis, four are exempt from the Senate Order.11 The remaining six agencies were created during the second half of 201112 and did not publish Senate Order listings on their websites, nor were they included in Ministers’ letters.13
10. The agencies selected for detailed contract analysis in the audit (parts (b) and (c) of the audit criteria) were: the Australian Electoral Commission; CrimTrac; the Department of Human Services14 ; and the Department of Sustainability, Environment, Water, Population and Communities. Agency selection took into account a number of elements, including: agencies’ involvement in previous Senate Order audits; the type of agency (such as Department of State or prescribed agency); and the size and nature of the agencies’ contract listings, particularly the proportion of contracts listed with confidentiality provisions.
11. To assess agencies’ compliance with the Senate Order, the ANAO had regard to a number of Finance’s procurement guidance publications. FMG No.8 was used to review agencies’ contract listings and the Guide’s Confidentiality Test was followed to assess whether confidentiality provisions were used appropriately for a sample of contracts reported to contain confidentiality information.
12. The primary focus of the Senate Order is to reduce the unjustified inclusion and/or incorrect reporting of confidentiality provisions in government contracts. Such actions can have unintended consequences and reduce transparency through: unduly affecting agency decisions to release contract information; and misinforming the Parliament and the public about government contract information that they can or cannot access.
13. The 2011 Senate Order listings contained 39 223 contracts for goods and services totalling $156.5 billion, of which 2391 contracts (six per cent) were reported as containing confidentiality provisions. The reported use of confidentiality provisions by agencies was lower than in 2010 (nine per cent), and continues to reflect a significant decline from the 24 per cent reported in 2001, the year the Order was introduced.15
14. Of the 98 FMA Act agencies examined, 91 per cent published contract listings, or a statement that no contracts had been entered into by the agency, on the Internet by the due date of 29 February 2012. In contrast, Ministers’ letters covering just over half of the agencies were tabled on time. This result continues the decline in the timeliness of tabling Ministers’ letters since 2008, when 83 per cent of letters were tabled on time.
15. Despite a decline in the proportion of contracts reported as containing confidentiality provisions, specific confidentiality provisions in contracts continue to be incorrectly used and reported. The ANAO’s examination of a sample of 132 contracts reported to contain confidentiality provisions showed that 51 contracts (39 per cent) passed the Confidentiality Test, while 81 contracts (or 61 per cent) were incorrectly reported as containing confidentiality provisions.
16. Incorrect reporting can often be attributed to one of two factors: agencies misclassifying information as confidential, and/or misinterpreting general confidentiality provisions as meeting the Confidentiality Test. The audit results showed that:
- Pricing information was the most common type of contract information misclassified and incorrectly reported as confidential. More than three-quarters of the 59 contracts listed as containing confidential pricing information did not contain commercially sensitive pricing information when assessed against the Confidentiality Test.
- Twenty-three of the sample contracts only contained general confidentiality provision(s) and as such did not indicate the specific contract information to be protected, as required by the Test.
17. The 2011 results demonstrate that irrespective of whether an agency has centralised or decentralised procurement management arrangements, there remains scope to: implement more rigorous quality assurance processes for reporting information about confidentiality provisions in contracts; and better tailor guidance materials to support procurement models.
18. Finance plays a central role in supporting agencies by developing whole-of-government procurement guidance and communicating the key requirements of the Order. Recent activity in this area has included the 2011 release of the Guide, a web-based whole-of-government guide on procurement which rationalised a number of procurement guidance materials. Finance is proposing to review agency uptake of the Guide in 2012. The review will provide Finance with agencies’ views on the useability of the Guide, and the opportunity to identify whether it has contributed to increasing the understanding of agency staff on the appropriate use and reporting of confidentiality provisions in contracts.
19. While acknowledging that agencies have multiple procurement reporting requirements, it is important that the accuracy and consistency (where applicable) of the information reported improves. For contracts in the ANAO’s sample that had a corresponding AusTender entry, a comparison of the information reported in AusTender with the contract review results showed that confidential information was incorrectly reported in AusTender for approximately 60 per cent of the entries. The examination of AusTender data also indicated that agencies’ Senate Order listings may not include all contracts required to be reported by the Order, and that agencies could make better use of AusTender information to identify entries for Senate Order listings.
20. The ANAO has previously observed that multiple procurement reporting requirements are a factor influencing the shortcomings in both Senate Order and AusTender contract reporting. Accordingly, two ANAO audits have recommended that opportunities to consolidate procurement reporting requirements be examined.16 The results in this audit show that there continues to be merit in rationalising procurement reporting and that it is timely for further action to be taken towards that end.
21. Finance supports consolidating procurement requirements and, since 2005, has advocated for AusTender to be the sole procurement reporting requirement for Australian Government agencies.17 The Government has also previously indicated support for the requirements of the Senate Order to be met through an improved AusTender system.18 More recently, the Finance discussion paper on the Commonwealth Financial Accountability Review raised the significant cost, both in terms of time and resources, involved with reporting requirements that overlap and suggested that it may be timely to undertake a cost-benefit analysis of existing requirements to inform a possible rationalisation.19
22. While Finance continues to investigate the use of AusTender as the single procurement reporting tool for agencies, the department has progressed consolidating procurement reporting obligations. Recently, the annual reporting requirements for consultancy contracts were amended to remove the requirement for agencies to provide a list of consultancy contracts (valued at $10 000 or more) in their annual reports from the 2011–12 reporting period onwards.20 Consultancy contract information will instead only be included at an aggregate level, with a note referring readers to AusTender for further information on individual consultancies.
23. Progress to consolidate procurement reporting requirements will allow agencies to focus their attention on fulfilling a single reporting requirement. However, there are differences in the scope of contract arrangements reported through the Senate Order and on AusTender. For example, Senate Order lists include non-procurement related contracts such as those for the provision of grants. Therefore, any consolidation of reporting arrangements should take into account these differences and not diminish the existing focus on transparency in reporting of confidential information in Australian Government contracting.
24. Further, rationalising procurement reporting obligations in isolation may not necessarily result in more accurate and timely contract reporting. Regardless of the procurement reporting obligations, this audit highlights that there remains scope for agencies to:
- better tailor guidance and training materials to help ensure that key processes, such as identifying the appropriate use of confidentiality provisions (particularly pricing information and the difference between general and specific confidentiality provisions), are commonly understood and applied; and
- implement enhanced processes to support data capture, reporting and quality assurance.
25. There also remain opportunities for all parties involved to ensure that appropriate arrangements are in place to achieve the timely publication of Senate Order lists on the Internet and the tabling of Ministers’ letters.
Confidentiality provisions in contracts (Chapter 2)
26. Agencies reported 39 223 contracts (totalling $156.5 billion) in their 2011 contract listings, 2391 of which were reported as containing confidentiality provisions. The ANAO examined 132 of the 2391 contracts from the four audited agencies.
27. As illustrated in Figure S.1, 42 of the 132 contracts (32 per cent) did not contain specific confidentiality provisions and 39 contracts (29 per cent) were assessed as including specific confidentiality provisions that were not justified having regard to the Confidentiality Test. These 81 contracts were incorrectly listed in the Senate Order as containing confidentiality provisions. Of the 51 contracts (39 per cent) in the audit sample that were correctly listed as containing confidentiality provisions, 34 (26 per cent of the total contracts examined) also reported the correct type(s) of, and reason(s) for, confidentiality.
Source: ANAO analysis.
28. The misclassification of pricing information as confidential information continues to be a common finding. Of the contracts reported to contain confidential costing/pricing information, a large proportion (78 per cent) were assessed as not containing commercially sensitive costing/pricing information with regard to the Confidentiality Test.
29. The audit results show that there is scope for agencies to more accurately use specific confidentiality provisions and report confidential information for Senate Order purposes. The audited agencies should consider the value of reviewing their approaches for capturing and recording confidential contract information in conjunction with strengthening quality assurance processes and guidance materials. In this regard, for the contracts examined, the inclusion and appropriate completion of a template clause or schedule item to record confidentiality information significantly increased the likelihood that the contract contained a specific confidentiality provision.
30. Irrespective of the terms of a contract, agencies may still be required to disclose confidential contract-related information to a parliamentary committee or the ANAO. A high proportion of the contracts sampled contained appropriately worded parliamentary disclosure clauses (over 90 per cent) and ANAO access clauses (80 per cent). A factor which contributed to this result was the inclusion of these disclosure and access clauses in the audited agencies’ standard contract templates.
Compliance with the Senate Order requirements (Chapter 3)
31. The majority of agencies (91 per cent) published Senate Order contract listings by the due date of 29 February 2012. As at 30 June 2012, five agencies were yet to publish a listing. Over one-third of all the listings published complied with all elements of the Order, a similar result to 2010.
32. As illustrated in Table S.1, the ANAO’s review of the contract listings found that a high proportion of the listings included information consistent with three requirements of the Senate Order, namely paragraphs 2(b)—contract details, 2(c)—confidentiality information and 2(d)—compliance information. However, 44 agencies included a total of 344 contracts that did not meet the information requirements of 2(a) of the Order. Errors in this area included listing: agency agreements21; contracts outside the reporting period; and contracts valued under $100 000.
Source: ANAO analysis.
33. In contrast to the results for the contract listings, the proportion of Ministers’ letters tabled by the due date was considerably lower and represents a continuation of the decline since 2008 in the timeliness of tabling Ministers’ letters of advice. Letters covering 57 per cent of agencies were tabled by 29 February 2012. Letters for a further 33 agencies were tabled within the first week of March, resulting in 91 per cent of agencies being covered in Ministers’ letters tabled by the due date, or within the following week. As at 30 June 2012, letters for two agencies were yet to be tabled.
34. Ministers’ letters are an accountability mechanism required under the Senate Order and their timely tabling informs the Parliament and the public that contract listings have been published on the Internet. As such, all parties involved in this process should ensure that appropriate arrangements are in place to achieve this requirement of the Order.
35. Based on the review of audited agencies’ Senate Order listings and their internal guidance and training, there is scope for agencies to:
- better tailor their guidance and training materials to support their procurement management arrangements, including incorporating the requirements of the Order and, where relevant, providing information suitable to assist staff infrequently involved in procurement; and
- implement more rigorous quality assurance procedures to help identify contract reporting errors prior to publishing the listings on the Internet.
The Senate Order and AusTender (Chapter 4)
36. Of the contracts in the Senate Order audit sample that had a corresponding AusTender entry, a comparison of the confidentiality information reported across both requirements showed:
- significant inconsistencies in the information reported, including less than half of the contracts with corresponding entries being reported with matching confidentiality information for both confidentiality provision type(s) and reason(s) for confidentiality; and
- that for over half of the contracts, the confidentiality information reported in both AusTender and the Senate Order listings was incorrect when compared to the results of the ANAO’s contract review.
37. The results of the ANAO’s examination of AusTender data indicated that agencies’ Senate Order listings may not include all contracts required to be reported by the Order. Thirteen contracts that had been reported in AusTender as containing confidentiality provisions had not been included in three of the audited agencies’ respective 2011 listings. An assessment of the confidential information in these contracts also showed that five of the contracts appropriately contained confidentiality provisions when assessed against the Confidentiality Test. This result indicates that agencies could make better use of AusTender to identify contracts required to be reported, which may not have otherwise been captured through their listing compilation processes.
Summary of agencies' responses to the proposed report
38. The audited agencies provided the following summary responses, with each agency’s full response included at Appendix 1 to the audit report.
Australian Electoral Commission
The AEC acknowledges the findings of the audit, and will carefully consider the ANAO's conclusions and suggestions in the context of its current procurement and contract management review.
CrimTrac notes that, while no specific findings were made in the Report, there were general issues identified regarding over-reporting of Confidentiality Clauses and mal-alignment of reporting on AusTender.
CrimTrac has introduced stronger governance measures aligning the capturing and reporting of confidentiality provisions. CrimTrac is committed to implementing measures to further improve its performance in this area, including providing specific training, refining quality assurance processes to improve data capture and establishing processes to ensure reporting is undertaken in a timely manner.
Department of Finance and Deregulation
Finance welcomes the findings of the ANAO audit and notes the continued decline in the inappropriate use of confidentiality clauses in agency contracts. The audit highlights the improvements agencies have made in reducing the reporting of confidentiality clauses from 26 per cent in 2002, to six per cent in 2012.
The audit highlights, among other things, the challenge faced by agencies in complying with competing reporting requirements. As shown in the audit findings, this is resulting in agencies over-reporting procurement contracts in the Senate Order and is reducing the overall transparency of procurement activities.
In Finance's view, the Senate Order has achieved its goal to improve the transparency of procurement contracts and the use of confidentiality provisions. As part of the Commonwealth Procurement Rules (CPRs), agencies are required to report all procurement contracts valued above $10,000 on AusTender within 42 days of entering the contract and to indicate if there are confidentiality provisions and the reason for those provisions. Instances of non-compliance with the reporting requirement are now included in agencies' annual certificates of compliance.
Department of Human Services
The Department of Human Services agrees with the findings outlined in the report, and has implemented changes that address these findings.
Department of Sustainability, Environment, Water, Population and Communities
The Department of Sustainability, Environment, Water, Population and Communities (SEWPaC) acknowledges the observations of the ANAO and accepts the identification of areas for improvement.
SEWPaC has implemented a range of improvements since the release of the report. These initiatives include but are not limited to:
- guidance materials in the establishment of government contracts and inclusion of confidentiality tests;
- procedures and processes for the compiling, quality assurance checks and reporting of Senate Order contracts;
- education and information availability on the use of confidentiality in government contracts; and
- redrafting of specific contract templates to ensure compliance.
The department has implemented changes in the area of reporting of water entitlement contracts which were subject to a Request for Tender process post June 2011 and will be fully reported in subsequent reporting activities.
1 The Senate Order for Departmental and Agency Contracts can be found at Appendix 2 to the Audit Report.
2 Agencies meaning those ‘agencies’ subject to the Financial Management and Accountability Act 1997.
3 In 2003, the Senate Order was amended to request that the Auditor-General provide an annual report to the Senate (by no later than 30 September each year), rather than twice-yearly as specified in the original Order.
4 Department of Finance and Deregulation, FMG No.8—Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts) [Internet]. January 2004, available from <http://www.finance.gov.au/publications/fmg-series/08-listing-of-contract... [accessed 20 February 2012].
5 Prior to the release of the Guide in May 2011, the Confidentiality Test was contained in
FMG No.3—Guidance on Confidentiality in Procurement (July 2007).
6 Department of Finance and Deregulation, Buying for the Australian Government, ‘Confidentiality throughout the Procurement Cycle: Practice’ [Internet]. May 2011, available from <http://www.finance.gov.au/procurement/procurement-policy-and-guidance/bu... [accessed 20 February 2012].
7 Department of the Prime Minister and Cabinet, Requirements for Annual Reports for Departments, Executive Agencies and FMA Act Bodies, ‘Consultants’ [Internet]. 28 June 2012, available from <http://www.dpmc.gov.au/guidelines/docs/annual_report_requirements.pdf> [accessed 6 August 2012].
8 AusTender is the Australian Government’s web-based procurement information system, see https://www.tenders.gov.au/.
9 See ANAO Audit Report No.2 2011–12, Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2010 Compliance), p. 15.
10 Excludes the Interim Independent Hospital Pricing Authority, which was replaced by the Independent Hospital Pricing Authority.
11 The Australian Security Intelligence Organisation and the Australian Secret Intelligence Service are exempt from the Senate Order for reasons of national security. The three parliamentary departments are also exempt as they are not Departments of State administered by Ministers. Nevertheless, the Department of the Senate publishes an Internet listing ‘in the interest of transparency’ and its results have been included in the audit analysis.
12 Includes the Australian Institute of Criminology and the Australian Law Reform Commission (both formerly Commonwealth Authorities and Companies Act 1997 bodies) and the following new agencies: Independent Hospital Pricing Authority; National Health Performance Authority; Australian Skills Quality Authority; and Tertiary Education Quality and Standards Agency.
13 The Australian Law Reform Commission was included in the Attorney-General’s letter as having no contracts valued at over $100 000 during 2011, however there was no corresponding statement on their website.
14 During 2011, the Human Services Legislation Amendment Act 2011 integrated the services of Centrelink and Medicare Australia into the Department of Human Services (1 July 2011). DHS advised that from 4 October 2011, the separate systems and procurement policies maintained by the newly integrated services were replaced by a new single SAP system, along with new single procurement policies, procedures, and business processes.
15 Since 2009, the proportion of contracts with confidentiality provisions is representative of contracts listed by all FMA Act agencies rather than a sample of contracts from audited agencies.
16 ANAO Audit Report No.27 2005–06, Reporting of Expenditure on Consultants, p. 24; and ANAO Audit Report No.7 2010–11, Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2009 Compliance), p. 51.
17 Senate Standing Committee on Finance and Public Administration, Departmental and agency contracts: Second report on the operation of the Senate order for the production of lists of departmental and agency contracts (2003-2006), February 2007, p. 33; and ANAO Audit Report No.7 2010–11, op. cit., p. 20.
18 Australian Government, Government Response to Senate Standing Committee on Finance and Public Administration Report: Departmental and agency contracts: Second report on the operation of the Senate order for the production of lists of departmental and agency contracts (2003-2006), released 26 August 2008, pp. 2–3.
19 Department of Finance and Deregulation, Commonwealth Financial Accountability Review: Is Less More? Towards Better Commonwealth Performance: Discussion Paper, March 2012, p. 76.
20 Department of the Prime Minister and Cabinet, Requirements for Annual Reports for Departments, Executive Agencies and FMA Act Bodies, ‘Consultants’, op. cit.
21 FMG No.8 states that one of the elements that must be present for a contract to exist is ‘an intention to create legal relations’. An agency agreement is an agreement between Australian Government agencies that articulates respective agency responsibilities but is not legally enforceable due to both agencies being part of the same legal entity—i.e. the Commonwealth.