The objective of the audit was to assess the management practices undertaken by APS agencies to achieve value for money and transparency in dealing with contracts for non-APS workers. The focus of the audit was on circumstances where agencies had a significant reliance on a non-APS workforce to assist in achieving their core functions. Regular reporting by agencies of expenditure on non-APS workers was outside the scope of this audit.
Background and Context
1. The majority of the workforce supporting Australian Public Service agencies (agencies) are Australian Public Servants (APS) whose employment is governed by the Public Service Act 1999 (PS Act).1 There is also a significant number of non-APS workers who contribute to this workforce. Non-APS workers, when used effectively in appropriate circumstances, can provide significant benefits to agencies in assisting them achieve their outcomes. This audit examines the use of non-APS workers by agencies.
2. The term ‘non-APS workers' spans a wide range of individuals who are engaged by agencies. In the most generic form, a worker is any person who provides his or her labour in return for remuneration. The type of work performed by non-APS workers can be in many fields including, information technology; finance, management; audit; business support service; or corporate support. The non-APS workforce can take various forms including casual employees; fixed-term employees; labour hire employees; consultants; and contractors.
3. Within the various categories of non-APS workers, this audit did not examine consultants because the definition of consultants and the nature of the work they perform can be distinguished from other non-APS workers. This audit also did not examine workers engaged by agencies under their own enabling legislation, which provides for the appointment of additional staff for temporary purposes.2 Workers engaged under enabling legislation are designated ‘staff' of the agency and their appointment is specifically excluded from the Commonwealth Procurement Guidelines (CPGs).3
How are non-APS workers engaged
4. Procurement requirements for APS agencies are governed by the CPGs.4 Under the CPGs agencies are individually responsible for determining their need for non-APS workers and how they will acquire their services. The CPGs emphasise that ‘Value for money is the core principle underpinning Australian Government procurement'.
5. Getting value for money from the use of non-APS workers is dependent upon defining and justifying the need for non-APS workers, efficient and effective procurement processes, and periodic assessment of contract performance. The price alone should not be the sole criterion; the overall fit with requirements is equally important.
Audit Objective and methodology
6. The objective of the audit was to assess the management practices undertaken by APS agencies to achieve value for money and transparency in dealing with contracts for non-APS workers. The focus of the audit was on circumstances where agencies had a significant reliance on a non-APS workforce to assist in achieving their core functions. Regular reporting by agencies of expenditure on non-APS workers was outside the scope of this audit.
7. Following scoping discussions with ten agencies, the audit was conducted in the following APS agencies:
- the Department of Agriculture, Fisheries and Forestry–with a focus on Australian Quarantine and Inspection Service;
- the Department of Health and Ageing;
- the Department of Foreign Affairs and Trade; and
8. The audit also included an online survey of all APS agencies employing 20 or more APS employees as at 10 April 2006. The survey covered 84 APS agencies and was conducted to collect usage and expenditure data on the engagement of non-APS workers across APS agencies.
9. The audit recommendations are framed to have general application, and the audit findings are reported to Parliament in generic terms, without being attributed to particular agencies. Where appropriate, references to sound and better practices have been included in this report.
10. The makeup and demographics of the Australian employment landscape is undergoing significant changes. The Intergenerational Report 2007 highlighted that ‘Total labour force participation rates (aged 15+) are projected to fall, reflecting the rapid increase in the proportion of the population aged 65 and over.'5 Further ‘These demographic changes will lead to a reduction of the proportion of the population of traditional working age, 15–65 years.'6
11. The broader changes to the Australian workforce are beginning to have a significant impact on the makeup of the workforce of APS agencies. It is likely that the engagement of non-APS workers as an embedded element, as distinct from an ad-hoc adjunct, in the workforce of APS agencies will be an ongoing feature in public administration.
12. Changes to workforce demographics require different approaches to human capital engagements. APS agencies are increasingly using a non-APS workforce to assist in achieving their outcomes. In particular, non-APS workers are being used to provide specialist skills and to supplement the APS workforce in peak times in business cycles. However, the use of non-APS workers, whether as casuals or contractors, brings different risks and opportunities for APS agencies to manage.
13. The ANAO considers that an agency's requirements for non-APS workers should be set at both the strategic and operational levels. The ANAO Audit Report No.55 2004–05 Workforce Planning highlighted that a fundamental element of workforce planning, in the context of meeting the agency's outcomes into the future, is consideration of both the demand for labour and of the supply of people with appropriate competencies to fulfil that need. The ANAO concluded that there is significant scope for agencies to integrate their use of non-APS workers into their workforce planning processes, especially where they have a significant reliance on the non-APS workforce. This is particularly relevant as agencies have indicated that the use of non-APS workers is a growing trend, yet they do not gather or analyse data relevant or pertaining to that area of their workforce.
14. The ANAO found that there were numerous deviations from the CPGs in the engagement of the non-APS workers. These related to the adequacy of: processes designed to achieve value for money; documentation of the selection and approval processes; and contract evaluation. There were certain practices in the engagement of non-APS workers that assisted agencies in achieving value for money—these included the use of panel arrangements and bulk recruitment rounds that delivered significant efficiencies and consistency of processes. There are, however, significant opportunities for agencies to review, and amend where appropriate, their arrangements to better align their engagement of non-APS workers with the CPGs.
Status on the use of non-APS workers (Chapter 2)
15. The ANAO survey found that some 19 000 non-APS workers were engaged by APS agencies as at 30 June 2006. At the same time there were approximately 146 000 APS employees—92% employed as ongoing employees, 8% employed as non-ongoing employees. On this basis the total workforce supporting APS agencies was some 165 000 persons, with non-APS workers representing more than 11% of this total workforce.
16. Agencies estimated their total expenditure on non-APS workers was $2.197 billion in 2005–06. Over $709 million of this total was for longer term contracts for specified personnel. This particular category of non-APS workers are otherwise known as contractors, or dependant contractors; workers who are engaged on a commercial contract but with significant elements of their work arrangements consistent with agencies' engagement of APS employees.
Figure 1 Expenditure and number of contracts for non-APS workers 2001–02 to 2005–06
Source: ANAO Survey 2006.
18. Agencies were also asked to indicate their predominate reason for engaging non-APS workers for contracts that commenced in 2005–06. The most frequent reason given for engaging non-APS workers was the need for specialist skills (52% of all contracts) followed by skills currently unavailable in the agency (33% of all contracts) and need for independent research or assessment (12%). Agencies indicated there were additional reasons for the engagement of non-APS workers including:
- to provide a flexible alternative to the model of full time or part time work with intermittent and irregular shifts over a period of time;
- to supplement the APS workforce in peak times over a business cycle;
- in circumstances where there was a legacy system in place;
- when a prompt response was required to a newly announced government initiative; and
- when a program or project had a finite lifespan.
19. Agencies also provided specific justifications for contract renewals and extensions, including: the need for business continuity through the retention of knowledge; and the associated cost of retraining new individuals.
20. The survey results combined with agency comments are reflective of the changing nature in how agencies conduct business. Over the last five years agencies have increased their reliance on non-APS workers by both spending more and engaging a higher number of non-APS workers than ever before. The Australian Public Service Commission State of the Service Report 2005–06, further highlights that the nature of the work performed by APS agencies has changed, ‘…there has been a general consolidation of trends towards a more skilled workforce'.7 These changes to the APS workforce bring different risks that APS agencies need to manage.
21. The ANAO considers that at a minimum, agencies should be maintaining trend data on the use of the non-APS workforce and the main functions for which they are being used to better understand their reliance and fluctuations in their use. Agencies should seek to understand the demographics of the non-APS workforce which is drawn from the same ageing population as the permanent workforce and may not be necessarily relied on if staff skill shortages occur in the longer term. Workforce planning strategies should consider ways to develop innovative long-term responses to identified operational needs which in some cases may necessitate reducing or eliminating the reliance on the non-APS workforce.
22. The ANAO asked agencies to indicate the method of procurement used for non-APS workers for all new contracts in 2005–06. As defined by the CPGs, an agency's procurement is required in certain circumstances to be conducted using one of the following methods: open tender, select tender or direct source. The CPGs state that value for money is enhanced in Government procurement through encouraging competition, by ensuring non-discrimination in procurement and using competitive procurement processes. The CPGs also have particular guidelines that restrict the use of a direct sourcing approach for certain arrangements, to enhance the competitive process.8 There is also an underlying presumption that there will be an open approach to the market for procurements above a prescribed threshold.
23. Agencies advised that some 48% of contracts for non-APS workers were awarded through a direct sourcing arrangement. The convenience of direct sourcing arrangements was often a significant factor in the re-engagement of non-APS workers, especially given the specialised work often performed by non-APS workers. While not all engagements of non-APS workers are above the prescribed threshold, the ANAO considers agencies should review their procurement practices surrounding the engagement of non-APS workers to ensure they are using a competitive procurement process that will assist in obtaining value for money.
24. The ANAO survey also sought information from each agency regarding the length of relationship the non-APS worker had had with the agency. This was for workers engaged as at 30 June 2006. Agencies advised that 49% (9 821) of these non-APS workers had been engaged by agencies for a period longer than one year. However, 83% of all new contracts for non-APS workers were for a period of less than one year. The survey results indicating the initial intent relating to the engagement of a non-APS worker do not necessarily reflect the ongoing nature of the relationship between the agency and the worker given the high proportion of subsequent re-engagement. The ANAO considers that if agencies maintained and recorded trend data on their non-APS workforce, they will be better able to scope their requirements for non-APS workers. Appropriately, scoping contracts for non-APS workers should similarly be an important consideration when contracts are ‘rolled-over' on completion of the initial contract period. The ANAO considers that agencies need to formally and realistically ensure time frames for expected engagements are appropriate.
Strategic Planning for non-APS Workers (Chapter 3)
25. An important aspect to the engagement of non-APS workers is how agencies plan for and rely on their use. A key consideration for agencies that have a significant reliance on a non-APS workforce is that their requirements for non-APS workers should be established at both the strategic and operational levels. This is particularly relevant when non-APS workers perform core functions in an agency, and where these core functions are performed by contractors, a subset of non-APS workers. A reliance on contractors as part of an agency's workforce requires conscious planning in terms of expected tenure, knowledge and skills transfer, and performance assessment. The strategic planning for such contractors should be a part of an agency's workforce planning framework.
26. Workforce planning is a process that aims to ensure that the workforce within the organisation is capable of delivering the organisation's objectives especially over the medium to long term. Having an effective workforce plan, which is flexible enough to adapt to the ever-changing environment contributes towards strengthening the agency's organisational capability, as it assists in anticipating the staffing and skill requirements of the changing environment.
27. While workforce planning practices will be influenced by the size of the agency, its complexity and the context in which it is operating, all agencies rely on specialist skills in certain areas and organisational capability may be adversely impacted by not having appropriately skilled staff available when they are required. With the ageing population, and consequent demographic changes to the Australian workforce, agencies will need to be increasingly aware of the impact this has on the APS workforce, and also the different risks, advantages and disadvantages this has on the non-APS workforce, in particular the contractor workforce.
Observations in agencies
28. Agencies noted the tightening labour market is having a significant impact on their use of contractors. Firstly, agencies noted that contractors have traditionally been engaged to fill vacancies unable to be met by the APS workforce; hence the growing reliance on contractors. Secondly, the difficulty in recruiting appropriately skilled persons was also currently extending to the contractor workforce; that is, agencies are finding it increasingly difficult to engage the right contractor when needed, directly exposing agencies to market fluctuations and variations. In particular this is currently a major issue with the use of contractors in highly specialised areas, notably in the accounting and information technology (IT) disciplines.
29. Agencies noted that this reliance on contractors can have significant flow on effects and risks including:
- becoming highly dependent on the retained knowledge of contractors with limited means of managing exposure to loss of this knowledge under commercial tri-party labour hire arrangements;
- being directly exposed to pressure on hourly rates, particularly in a tight labour market. Dependency on retained knowledge compounds this exposure to increased costs of services;
- equity of remuneration and allocation of work that can lead to problems of retention of valuable ongoing employees; and
- impact on morale amongst APS workers who may perceive contractors to be higher paid but with less responsibility.
30. Overall, the ANAO observed a general lack of strategic planning for the contractor workforce, despite an acknowledgment within some agencies of their reliance on this workforce. While contractors are used as a flexible alternative to APS employment, under the current tight labour market conditions, agencies are exposed to a significant reliance on a contractor workforce to achieve their outcomes. Against this background, there is scope for agencies to more formally monitor the use of contractors and use this information to inform their workforce planning processes and resultant strategies.
31. The ANAO observed examples of where the use of a contractor workforce had been successfully integrated into the strategic planning process in circumstances where the contractors provided ad-hoc and temporary relief to the permanent workforce. In such circumstances it was more the specialist requirements of the agency that resulted in their significant reliance on a contractor workforce.
Integration of non-APS workers into workforce planning
32. Non-APS workers provide a range of critical services to agencies. With the ageing population, and consequent demographic changes to the Australian workforce, such workers cannot be assumed to always be available. While some agencies were aware of their reliance on the non-APS workforce, there was limited inclusion of this segment of the workforce into workforce planning considerations, or any other strategic planning process. Where active workforce planning was in existence within the audited agencies, there was little or no data about workers other than APS employees. The ANAO considers that a useful element of an agencies' workforce planning processes should include accurate and relevant information on the entire workforce of an agency, including non-APS workers.
The Engagement of non-APS workers (Chapter 4)
33. There is a range of legislation and government policy relevant to the engagement of non-APS workers. The main legislation directly affecting procurement for agencies is either the Financial Management and Accountability Act 1997 (FMA Act) or the Commonwealth Authorities and Companies Act 1997 (CAC Act). The most significant policy requirements are contained in the Commonwealth Procurement Guidelines (CPGs),9 issued by the Finance Minister. The CPGs establish the procurement policy framework within which agencies determine their specific procurement practices.
34. In reviewing the practices surrounding the engagement of non-APS workers the ANAO reviewed a selection of contracts within each audited agency based on criteria of length, total cost, and value per day. The ANAO assessed whether the procurement surrounding each contract was conducted within the agencies' policies and legislative requirements, and the CPGs.
35. While agencies' procurement policies were sound, there were numerous deviations between the implementation of these policies and the CPGs. There was a particular weakness across all audited agencies where contracts for non-APS workers were extended or renewed. Deviations from the CPGs' related to the adequacy of:
- documentation of the selection and approval processes;
- appropriate value for money considerations (especially for long term contractors); and
- the evaluation of the performance of the services rendered under the contract.
36. In light of these findings, agencies engaging non-APS workers, especially those agencies doing so on a regular basis, should review their current practices and processes to ensure their compliance with the CPGs. In situations where there is a likely ongoing requirement for particular services, the ANAO considers it appropriate to structure the initial approach to market to foreshadow this possibility and to include appropriate provision to extend the initial contract.
Contract Performance and Monitoring
37. Contractors should be actively managed throughout the tenure of their engagement to ensure performance is satisfactory and that all contract requirements are appropriately met. Managing contractor performance should also assist agencies in ensuring they are obtaining value for money. Effective contractor management provides a mechanism to systematically improve organisational capability by linking and aligning individual, team, and organisational objectives and results.
38. The ANAO observed that for the most part there was a relatively high degree of specificity of tasks and responsibilities within most contracts as a means of measuring performance. There was, however, little evidence of agencies performing contract evaluation or formal assessment of non-APS workers' performance under the contract.
39. For the majority of engagements, the contractual terms were not supported with any framework for performance measurement or assessment. While many of the non-APS workers were treated in a similar manner to APS employees, there was generally little formal assessment of how the contractor met the contractual terms.
40. Each of the audited agencies responded positively to the audit report and agreed with each of the recommendations.
1 As at 17 April 2007, there were 86 Financial Management and Accountability Act 1997 agencies whose employment was governed by the PS Act and 15 Commonwealth Authorities and Companies Act 1997 entities whose employment was governed by the PS Act.
2 For example, those additional workers engaged by the Australian Bureau of Statistics who assist in carrying out activities relating to specified functions only and temporary staff engaged by the Australian Electoral Commission to assist in conducting an election.
3 Department of Finance and Administration, Commonwealth Procurement Guidelines, Financial Management Guidance No. 1, Canberra, 2005, paragraph 2.5.
4 As at 17 April 2007, there were 7 Statutory Agencies under the PS Act not subject to the CPGs. Commonwealth Authorities and Companies Act 1997 agencies that are not subject to the CPGs are encouraged to adopt some or all of the requirements of the CPGs, recognising they represent good practice.
5 Commonwealth of Australia, Intergenerational Report 2007, April 2007, Canberra, p.xi.
6 ibid., p.x.
7 Australian Public Service Commission, State of the Service Report 2005-06, Canberra, 2006, p. 2.
8 Department of Finance and Administration, Commonwealth Procurement Guidelines, Financial Management Guidance No. 1, Canberra, 2005, paragraph 8.65.
9 Department of Finance and Administration, Financial Management Guidance No.1, January 2005. As at 17 April 2007, there were 7 Statutory Agencies under the PS Act not subject to the CPGs. CAC agencies that are not subject to the CPGs are encouraged to adopt some or all of the requirements of the CPGs, recognising they represent good practice.