PUBLIC SECTOR CONTRACT MANAGEMENT IDENTIFIED FOR IMPROVEMENT

PUBLIC SECTOR CONTRACT MANAGEMENT IDENTIFIED FOR IMPROVEMENT

  1. “Effective contract management provides a number of benefits which are often underestimated by organisations. To realise those expected benefits it is essential that sound contract management and monitoring practices are applied throughout the term of a contract” says South Australia’s Auditor-General.

    South Australia’s Auditor-General has tabled in state parliament a scathing report into the Local Government Association of South Australia’s (‘LGASA’) management of the local government indemnity schemes.

    Background

    On 15 September 2015 South Australia’s Auditor-General tabled in state parliament a 32 page report into the governance and administrative arrangements in place by the LGASA in relation to the management of the local government indemnity schemes.

    The Local Government Act 1999 (SA) (‘LGA’) has established two indemnity schemes:

    • Local Government Association Mutual Liability Scheme; and
    • Local Government Workers Compensation Self-Insurance Scheme.

    Established for nearly three decades, these schemes collectively manage outstanding claims of $30.8 million and assets of $121.6 million. The LGASA’s current governance and administrative arrangements have been in place since these schemes were established.

    The LGASA has a statutory responsibility to conduct and manage these schemes pursuant to the LGA. The LGASA is however authorised by the LGA to transfer management to another body. Indeed, management of these schemes has been transferred to the Local Government Risk Services (‘LGRS’) – an entity of Jardine Lloyd Thompson (‘JLT’).

    Purpose

    The purpose of the Auditor-General’s examination was to review the efficiency and cost-effectiveness of these schemes, with regard to sound governance, administrative and financial arrangements.

    Findings

    Amongst other key findings, the Auditor-General observed that, “Given the longstanding arrangement with the scheme manager, it is critical that LGASA has sound contract management practices”.

    The Auditor-General identified the following “key shortcomings” in relation to managing the contract with JLT:

    • a lack of contract management probity framework
    • informal monitoring and evaluation of contract performance
    • uncertainty and potential overpayment of the schemes manager’s remuneration fees
    • unauthorised variations to contractual arrangements
    • a lack of documented delegations of authority.

    In addition, the report identified a number of “key issues” and “opportunities for improving” the management of these schemes:

    • non-compliance with the Scheme Rules about providing reports to the LGASA Board
    • management of perceived conflict of interest/role
    • a lack of documented risk policy and assessment process in managing the schemes’ risks
    • untimely review of specific policies.

    Discussion

    The Auditor-General’s examination of the LGASA’s governance, administrative and financial arrangements relating to the management of these local government indemnity schemes is one of a number of recent examinations into the effectiveness of state government contract management capability by public sector auditors.

    In 2014, the Audit Office of New South Wales examined the telecommunications performance of six government agencies. The report, Making the most of government purchasing power – telecommunications1 identified that, except for one agency, agencies could not demonstrate they had achieved value for money due in part to shortfalls in contract management capability.

    The New South Wales Auditor-General observed that government agencies need to better manage contracts in order to achieve benefits observing that:

    “Effective contract management requires an appropriate contract management framework that addresses governance arrangements, skills, roles and responsibilities, and policies and procedures.”

    In a 2013 report, Contract management – renewal and transition, the Queensland Audit Office (‘QAO’) also identified significant weaknesses in contract management in three major government departments. The QAO identified departments could not consistently demonstrate they had achieved value for money from those contracts reviewed, and did not apply an appropriate approach to managing risk.

    These two reports help to demonstrate and support the Auditor-Generals’ observations in terms of the importance of implementing sound governance, administrative and financial management arrangements for effective contract management.

    State government agencies and departments, including local councils, all share a common goal of achieving value for money outcomes when spending public funds. As illustrated below, developing a realistic transformation strategy and supporting it through investing in implementing an appropriate contract governance framework which comprises all the capabilities necessary to effect best practice contract management is critical to establishing and maintaining the community’s confidence in public-sector administration, and the level of transparency, responsibility, accountability and compliance required by the organisation:

    As shown below, the investment into implementing an appropriate contract governance framework will typically be measured by the outcome in terms of the respective level of contract management maturity an organisation has reached. That is, greater the investment of resources, the higher up the maturity ladder an organisation may reach:

    Conclusion

    The Auditor-General’s findings and recommendations have been accepted by the new LGASA’S chief executive officer Mr. Matt Pinnegar.

    As in many other state government agencies and departments, including local councils, there remains a lot of consultation and work to be carried out in order to develop and implement the tools, systems and skills necessary to be able to achieve better practice contract management capability across government.

    The Audit-General’s report into the management of these local government indemnity schemes serves as a further reminder that contract management needs to remain high on the agenda of senior public officials.

    References

    1. Audit Office of New South Wales (2014), Making the most of government purchasing power – telecommunications.
    2. Queensland Audit Office (2013), Contract management – renewal and transition.

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