Big four contract amendments for Commonwealth procurements

August 2023

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Following on from our recent reports on the increase in contract value for the big four consultancies over the past decade, and the unrelenting rise of management advisory services, the Centre for Public Integrity has analysed AusTender data in order to track the value of big four contract amendments.

Of all contracts reported since 2012/13, 18.88 percent have so far been amended. Where a contract has been amended, it has increased, on average, by 139.13 percent; none of the cases of reported amendments has involved downward revisions. The most substantial increases have included:

  • a 5,111 percent increase on the original cost for management advisory services procured from EY by the Australian Taxation Office;
  •  a 3,736 percent increase on the original cost for management advisory services procured from KPMG by Defence; and
  • a 3,136 percent increase on the original cost for management advisory services procured from Deloitte by Defence

Over the period studied, Australian taxpayers have paid a total of 43.28% more than what was initially agreed to for reported Commonwealth procurements. While there will clearly be cases where contract amendments are necessary and valid, the absence of useful, accessible information to scrutinise these amendments means that it is difficult for the public to have confidence in the procurement process at it stands.

The Centre for Public Integrity recommends:

  1. Recentring the APS as the main policy advisory body in government, with resort to external advisors only where there is a demonstrated and acute need for such services;
  1. Imposing a cap on each department’s use of consultants (with exceptions available for circumstances of national emergency);
  1. Requiring rigorous reporting by departments to Parliament in respect of the use of consultants;
  1. Broadening the application of the Commonwealth Procurement Rules and enhancing AusTender disclosure requirements, to facilitate meaningful scrutiny;
  1. Strengthening integrity through appropriate lobbying regulation and closing the revolving door, and preventing former partners of the big four who receive annuities from holding public sector roles.
AusTender insights into contract amendments

AusTender, the Commonwealth’s central procurement management system, enables the tracking of total value over the life of a contract.

Firm Average percentage increase
KPMG 28%
Deloitte 27%
PwC 25%
EY 25%

Figure 1: Sets out the percentage by which each of the big four increases, on average.

Firm Department Percentage increase
Deloitte Australian Signals Directorate 382%
EY Australian Taxation Office 172%
KPMG Australian Criminal Intelligence Commission 102%
PwC Australian Bureau of Statistics 113%

Figure 2 shows which department’s procurements result in the largest average percentage increases for each of the big four. At the upper end, Deloitte’s contracts with the Australian Signals Directorate increase by 382 percent, on average; at the lower end, PwC’s contracts with the Australian Bureau of Statistics increase on average by 113 percent.

Contract details Procuring department Firm % increase in contract value Initial cost Total spend
CN3662514 (Management advisory services) Australian Taxation Office EY 5111% $82,655.28  $4,307,421.68
CN3646454 (Management advisory services) Department of Defence KPMG 3736% $328,339.99  $12,594,328.86
CN3760681 (Computer services) Australian Signals Directorate Deloitte 3315% $1,430,854.70  $48,863,750.34
CN3533141 (Management advisory services) Department of Defence Deloitte 3136% $165,000.00  $5,340,099.90
CN3396950 (Project administration or planning) Department of Defence Deloitte 2645% $1,082,249.94  $29,706,999.62
CN3545707 (Information technology consultation services) Australian Taxation Office PwC 2240% $190,923.04  $4,467,053.53
CN3710240 (Computer services) Digital Transformation Agency KPMG 1731% $253,037.30  $4,632,059.30
CN3563705 (Management advisory services) Department of Health and Aged Care PwC 1714% $192,500.00  $3,492,500.00
CN3741115 (Information technology consultation services) Department of Home Affairs EY 1552% $1,041,566.44  $17,211,459.55
CN3478909 (Management advisory services) Department of Defence PwC 1529% $548,963.80  $8,944,519.57

Figure 3 sets out the top 10 most substantial increases (by percentage) over the period analysed. These range from a 5,111 percent increase in respect of a contract for management advisory services procured by the Australian Taxation Office from EY, to a 1,529 percent increase in the value of a contract – again, for management advisory services – procured from PwC by Defence.

While there will clearly be cases where contract amendments are necessary and valid, the absence of useful, accessible information to scrutinise them means that it is difficult for the public to have confidence in the amendments process at it stands.

As in any tender process, there exists a theoretical risk that these figures might be explained to some extent by ‘lowballing’: that is, by firms submitting unrealistically low bids in order to secure tenders, and then subsequently seeking amendments once they have won. While we make no claim that such a practice exists, if it were to exist, it would be deeply problematic from a competition perspective. As former Chair of the Australian Competition and Consumer Commission, Professor Allan Fels AO, has expressed it, ‘Generally the bargaining power of consultants is very strong because typically governments need them and have little choice. But once they have a contract and seek amendment, renewal or extension, their power to raise prices multiplies heavily’.

Procurement data limitations

It is important to recognise that AusTender does not capture all Commonwealth procurements: rather, pursuant to rule 7.18 of the Commonwealth Procurement Rules (CPRs),[1] certain entities are required to report above-threshold contracts and amendments on AusTender within 42 days of entering into them.  

Rule 7.19 provides that the reporting threshold for non-corporate Commonwealth entities is $10,000, whereas the reporting threshold for corporate Commonwealth entities prescribed under s 30 of the Public Governance, Performance and Accountability Rule 2014 (Cth) is $400,000 (or $7.5 million, in the case of procurements of construction services). Currently, 48 (out of a total of 72) corporate Commonwealth entities are not prescribed for the purposes of the CPRs: this means that they are not required to disclose any information at all under those rules.[2]

As the Foreword to the CPRs acknowledges, ‘[a]chieving value for money […] is critical to ensuring that public resources are used in the most efficient, effective, ethical and economic manner.[3]  It is difficult to see how this sentiment is not equally important in respect of all entities procuring goods and services with public funds.

The quality of the information disclosed on AusTender means that it is impossible to determine whether these contract amendments are the result of unforeseeable changes to a scope of work or some other reason, and whether they are initiated by the supplier or purchaser of the relevant services.

Recommendations

The increased outsourcing of policy work to private contractors who are not directly accountable, financially back both parties and may present conflict of interest challenges raises questions of integrity and public value-for-money. To address these, and arrest the decimation of Australia’s public service, the Centre for Public Integrity recommends:

  1. Recentring the APS as the main policy advisory body in government, with resort to external advisors only where there is a demonstrated and acute need for such services;
  1. Imposing a cap on each department’s use of consultants (with exceptions available for circumstances of national emergency);
  1. Requiring rigorous reporting by departments to Parliament in respect of the use of consultants;
  1. Broadening the application of the Commonwealth Procurement Rules and enhancing AusTender disclosure requirements, to facilitate meaningful scrutiny;
  1. Strengthening integrity through appropriate lobbying regulation and closing the revolving door, and preventing former partners of the big four who receive annuities from holding public sector roles.
References

[1] The CPRs are issued by the Minister for Finance under s105B(1) of the Public Governance, Performance and Accountability Act 2013 (Cth),

[2] These include the Cotton Research and Development Corporation, Fisheries Research and Development Corporation, Rural Industries Research and Development Corporation, Wine Australia, Australian Renewable Energy Agency, Clean Energy Finance Corporation, Army and Air Force Canteen Service (Frontline Defence Services), Australian Military Forces Relief Trust Fund, Defence Housing Australia, Royal Australian Air Force Veterans’ Residences Trust Fund, Royal Australian Air Force Welfare Trust Fund, Royal Australian Navy Central Canteens Board, Royal Australian Navy Relief Trust Fund, Australian Curriculum Assessment and Reporting Authority, Australian National University, Coal Mining Industry (Long Service Leave Funding) Corporation, Commonwealth Superannuation Corporation, Australian Commission on Safety and Quality in Health Care, Australian Sports Commission, Food Standards Australia New Zealand, National Offshore Petroleum Safety and Environmental Management Authority, Airservices Australia, Australia Council, Australian Broadcasting Corporation, Australian Film, Television and Radio School, Australian Postal Corporation, Civil Aviation Safety Authority, Infrastructure Australia, National Film and Sound Archive of Australia, National Library of Australia, National Transport Commission, Northern Australia Infrastructure Facility, Screen Australia, Special Broadcasting Service Corporation, Anindilyakwa Land Council, Australian Institute of Aboriginal and Torres Strait Islander Studies, Central Land Council, Indigenous Business Australia, Indigenous Land and Sea Corporation, Northern Land Council, Northern Territory Aboriginal Investment Corporation, Tiwi Land Council, Torres Strait Regional Authority, Wreck Bay Aboriginal Community Council, Australian Hearing Services (Hearing Australia), National Disability Insurance Agency, Australian Reinsurance Pool Corporation, and the National Housing Finance and Investment Corporation.

[3] Foreword to the Commonwealth Procurement Rules 9 June 2023 < https://www.finance.gov.au/sites/default/files/2023-06/Commonwealth%20Procurement%20Rules%20-%2013%20June%202023.pdf > accessed 1 July 2023.

Media Impact

Mandarin – Scamps hits out at lack of transparency in recent government appointments
The Age/SMH – Big four consulting firms accused of ‘lowball quoting’ to win government contracts
Uni Syd – Universities can help fix governments hooked on consultants
Michael West – The Big Four and the steep cost of a shadow workforce, hollowed out public service