commission of inquiry submission by the cpsu/csa 1...and the melaleuca remand and reintegration...

Commission of Inquiry Submission by the CPSU/CSA 1


The Community and Public Sector Union / Civil Service Association (CPSU/CSA) is a West Australian Union representing 630 occupations in over 130 public sector agencies. We make work life better for over 40,000 people in WA. We represent public sector staff at the agencies involved with the projects under investigation through the Commission of Inquiry. • We believe that robust, dynamic and quality public services are the foundation of a fair and just society. • We are vehemently opposed to the privatisation of public goods and services. • In formulating this report, we have consulted as widely as possible with members given the restrictions of the tight timeline. This submission addresses the terms of reference outlined in the Department of Premier and Cabinet's statements; however it will only deal with a select few projects raised in the Commission’s list of projects.

Recommendations The CPSU/CSA urges the Commission of Inquiry to gather evidence examining the following:

● The role of insufficient staffing and erosion of staffing structures in the failures of programs and projects being investigated as part of the Inquiry;

● The use of the Public Sector Comparator on all contracts and made available to West Australians;

● The benefits of empowering the Department of Finance so departmental staff are better resourced to offer assistance, monitoring, contract management oversight initiatives and supervision;

● The benefits of the Commission of Inquiry expanding and furthering the investigations initiated by the Office of the Auditor General into tender processes and contract variations as published in April 2017;

● Whether Freedom of Information law reform in relation to commercial in confidence restrictions could ensure greater transparency;

● Instituting access to agency exemption registers, including public access via the responsible agency’s website;

● An exploration of potential benefits resulting from a requirement that any private sector provider of a privatised or outsourced service is subject to equal scrutiny and responsibility of a public sector provider exploring occupational health, equal opportunity policies and procedures and avenues of investigation by an Ombudsman or similar body;

● Examination of what documentation could be made more accessible and transparent to the public, including bids, offers and arrangements, and any opportunities for a public "right of reply" before a major contract is awarded;

● Examination of any contract or agreement with a private sector provider containing the ability for the cancellation or renegotiation of a contract without penalty if the private provider seriously breaches or underperforms within the contract or if contract management plans were not completed when the contract begins.


Introduction - where did the money go? CPSU/CSA members have consistently expressed concerns about the purported efficiencies in privatised programs and contracting. When the Commission of Inquiry was announced, the Union saw an opportunity to set the record straight on the high standard set by the public sector, and the factors which have contributed to Western Australia’s current financial situation. We would argue that the money went into the failed privatisation projects of the former government and the failure of that government to properly evaluate and enforce appropriate levels of governance as they outsourced services to West Australians.

Reform of outsourcing is critical to ensuring that West Australian taxpayer funds are spent efficiently and effectively in the future. For too long the former the Government allowed their ideological predisposition to privatisation to shape decision making and governance in relation to contracting. This hid the real cost to the taxpayer and the community of their failed privatisation project. This submission will discuss some of the projects outlined in the Commission’s brief, and then discuss overarching concerns which should also be addressed as part of the Commission’s investigation. It is worth noting that despite a promise from the Government in relation to this Inquiry as part of the election campaign, the announcement about the constitution of the Inquiry and its terms of reference were not made until 15 May 2017. With submissions closing on the 21 June, that has left just 37 days for the Inquirer to seek information from West Australians who might be affected by the issues at the heart of the Inquiry. It is a herculean ask of the Inquirer and we offer assistance and further information on any of the matters described within this submission or that the Inquirer feels may be of importance to CPSU/CSA members at any time.

From boom to crisis - What went wrong? The state of the economy is not a surprise to CPSU/CSA members. Members frequently raise concerns about the real impact of contracting out and privatisation being inefficiency and over-expenditure. It has been frustrating to attempt to provide evidence of this as contracts and business cases are hidden behind a mantra of ‘commercial in confidence’ and ‘cabinet in confidence’. All the while government says that the public sector must be reduced and made more efficient and agile. When BIS Shrapnel economics advisory firm analysed West Australia's expenditure and budget situation in May 2014 they found that challenges to the budget were not caused by salary expense growth, but by:

"The other operating expense category, and more recently interest costs and depreciation expenses. The latter two reflect increased use of debt to fund an enlarged infrastructure program."

The BIS Shrapnel analysis found spending on public sector salaries has fallen as a percentage of total budget expenses, from 48.7% in 2007/8 to an estimated 46.1% this year (p3, BIS Shrapnel). Despite this, the rise in expenditure was considerable - from $16.8 billion in 2008 to $27.5 billion in 2014 (Budget Strategy and Outlook 2013/2014). Clearly spending was rising in a dangerous manner, but this growth was caused by infrastructure - including projects which are to be investigated by this Commission of Inquiry. The 2016-17 Budget set in train a third tranche of Agency Expenditure Reviews (AERs) which were planned to apply to 54 agencies. The aim was to achieve $313 million in net savings. It was clear the Barnett state government viewed their role as facilitating privatisation and outsourcing management of public assets. The list of privatisation projects was becoming lengthy, including but not limited to: Queen Elizabeth II Medical Car Park, Midland Health Campus, Eastern Goldfields Regional Prison, residential colleges for the Country High Schools Hostels Authority, CBD Courts Complex, Acacia


Prison, Midland Public Hospital, Fremantle Justice Centre, Mundaring Wastewater Treatment Plant, Mindarie Regional Council Waste Treatment Plant, Joondalup Health Campus, Peel Health Campus, Government Vehicle Fleet, the forced privatisation of disability services supported accommodation and the Melaleuca Remand and Reintegration Facility. From July 2011 to June 2015, the Barnett Government handed $604 million to the not-for-profit community sector. This investment was intended to address a perceived underfunding of community services and included a reform of Government agencies' approach to purchasing community services from the not-for-profit community sector. Government agencies were expected to transition to establishing longer term contracts for the delivery of community services, as well as ensuring contracts focused on achieving outcomes, rather than prescribing restrictive inputs and outputs.

In May last year, Members of Parliament were shocked to learn that the Disabilities Services Commission does not hold an accurate picture of how many West Australians require disability services: “More than 25 000 people access disability services in this state. The reason we cannot boil it down to a definitive number per local government area or postcode is that the vast majority of those services are provided by non-government organisations, of which we fund 175 or thereabouts… Therefore, it is not possible. We do not track the exact number of people and who they are in a particular location at a particular point in time, and we will never do that.” (Hansard, 26 May 2016) It is unfathomable that in spending taxpayer dollars, there is no capacity to say what services have been delivered to West Australians. While the Department is required to report openly and respond to key performance indicators in respect of services that they deliver, the same requirement has not been placed on private providers funded by the State to deliver services. The CPSU/CSA believes the aim of a partnership forum should not be to outsource public duties. In addition to contracting out frontline services on an unmeasured outcomes basis, the former government appeared to deliberately undermine the capacity of the public sector to manage and maintain contracts. An Office of the Auditor General’s report reveals that during the 2014/2015 financial year, WA government agencies undertook 5,571 procurement processes resulting in 6,198 individual supplier contracts with values over $50,000. (p6 OAG Contracts). If we expect government to ensure these contracts are the best value for money then we must provide the staffing resources required to ensure robust scrutiny of these agreements. The Centre for Policy Development described the long-term impact of this practice in‘Grand Alibis: How declining public sector capacity affect services for the disadvantaged’: “Over the past two decades, outsourcing has led the public sector to become disconnected from direct service delivery and increasingly lacking the expertise and experience to break down the complexity of human services, identify the key systemic challenges, and design a viable system that can robustly address disadvantage whilst catering for the frictionally unemployed. This fundamental change and, in fact, erosion of public sector capability is important and under-examined.”(p39) The CPSU/CSA would argue that this is a deliberate strategy driven by those who seek to profit from the private provision of public services and who actively seek to influence government. Driving the sector away from service provision and then reducing capacity and access to oversight government spending over time allows profit motives to gain a hold in the market. This undermines the confidence of West Australians in the public sector and undermines the confidence of the sector itself. There are solutions that could give West Australians more confidence, the Public Sector Commission provides significant guidance on the use of a Public Sector Comparator to assess whether a Public Private Partnership offers value for money. The Public Sector Comparator provides:


“an estimate of the net present cost to government if it was to deliver the project under a more traditional procurement method, for example design and construct. The PSC contains forecast lifetime cash flows for a government delivered reference project based on the infrastructure and service specifications provided to bidders, i.e. on a like-for-like basis to the PPP. The PSC incorporates allowances for project risks, for example construction price cost increases.” (p3) The Public Sector Comparator should be applied to all contracts and made available to West Australians. Without such a tool, it is impossible to for West Australians to determine whether they are getting the best value for taxpayer funds.

Item 15 - Major Health IT Procurement The Department of Health maintains contracts for outside providers to run primary and secondary data centres. The report 'Health ICT Western Australian Auditor General's Report. Health Department's Procurement and Management of its Centralised Computing Services Contract' authored by Auditor General Colin Murphy, assessed how effectively the Department of Health had managed its Centralised Computing Services contract. The report described a lack of rigour in understanding and managing contract risks, particularly when they are of the complexity, the value and the length of Health's Centralised Computing Services contract. This is lack of scrutiny is a clear contributor to waste. With only one senior officer taking on partial responsibility for the role in addition to other responsibilities within the IT executive, and being the contract sponsor, it was clear that any real effort to monitor, assess and liaise with Department of Finance when required was limited from the start due to a lack of staffing. The initial contract was signed with a value of $44.9 million. However, 79 contract variations occurred, which were later considered inconsistent with the scope of the initial contract (p5).

The lack of capacity to monitor performance and check accuracy of invoices, as well as a lack of preparedness for contract variation set the scene for the waste that ensued. The Auditor General has since found one procurement officer with an authorisation limit of $100,000 signed off on two variations totalling $41.5 million.

Hierarchies and checks and balances on authorising payments were not functioning. One Health officer authorised two contract variations, one of which meant the Department of Health had to pay a baseline fee of $265,000 per month with additional fees to be negotiated. This authorisation massively exceeded by 20,345% the responsible officer’s $100,000 expenditure authorisation limit. Supervision was not in place. The fact that these contractual decisions could occur, and worse yet, that the repeated payments must be carried out, month after month, should serve as a swift call to action. We recommend


empowering the Department of Finance with the appropriate resources to allow them to offer assistance, deliver monitoring, and bolster the supervisory functions so that a mistake of this magnitude cannot happen again. New purchases of a value of over $150,000 must involve the Department of Finance - but the Department cannot protect taxpayer funds if they are not resourced adequately to monitor expenditure and ensure all agencies are meeting State Supply Commission requirements. The Department of Health did not monitor and compare contract expenditure against budgets. The Auditor General also found Health did not seek Treasury authorisation to borrow in excess of $27 million for assets leased by contractor Fujitsu. Under the key findings for the report, the Auditor General found that two:

"...variations to the contract totalling $41.5 million were arguably inconsistent with the purpose

and terms of the initial contract and given their size should have been procured under a competitive public tender process to obtain assurance that value for money was obtained."

The Auditor General notes that a key mistake by the Department of Health was to accept a private contractor's proposal without conducting an independent assessment of its own. However, it is important to ask - what resources, training and interagency cooperation was available for Department of Health staff to be able to challenge and investigate the claims of Fujitsu? The fact that no adequate assessment of the performance of the contract or contractor occurred until four years after the contract was first formed is a red light that current scrutiny practices were, and could still be, inadequate. Some attempt to address concerns and conduct a review occurred in 2013, but "poor documentation" significantly hampered this review. Again, these are warning signs that the Department is not resourced and equipped to responsibly manage the contract, further evidence that the former government took a cavalier approach to outsourcing which prevented proper oversight. Since the incident, the Department of Health has trained senior staff to be involved in authorising procurement. It has also changed its delegations to be more rigorous when contract variations are approved. However, there is a greater question to be asked about whether the contract management was accessible by so few staff that when mistakes were at risk of occurring there was not the experience or the scrutiny applied to inform the Department. The Auditor General's consideration of this incident suggested the incident was caused in part by:

● The lack of a dedicated contract manager; ● The lack of a contract management plan (multiple rules and guidelines did exist but were not

followed); and ● The lack of contract management guidance.

It is important to note that at the time mistakes were made, the Health Information Network had three staff overseeing more than 300 contracts. The operational reality of workload meant that:

"...administration functions alone meant that these 3 staff were unable to take on any contract management role." (p21)

In addition, staff did not find themselves with the ability to record and tag all IT equipment purchased as part of the Fujitsu contract but owned by the Department. It is critical that staff responsible for high value contracts are resourced sufficiently to be able to measure impact of delays and ensure contractors are delivering services tendered. Page 17 of the report notes that in August 2012

"planning for recruitment and retention of suitable staff was lacking."


Staff must also have sufficient training or be able to develop the understanding to avoid mistakes. High operational expectations contrasted with conflicted, compromised working realities. The Auditor General noted that even the auditor was not able to receive the original business case or procurement evaluation reports. The true cost of this project may be as high as $175 million by November 2018. Perhaps if commercial-in-confidence guidelines had not been applied in a method which assisted to hide the details of the project from scrutiny, or if there was not a culture of seeing any matter relating to provision of a good or service from a third party as a trade secret, an intervention could have occurred earlier. Were these contracts set up to succeed by providing them with limited oversight to allow them to get on with the job and succeed in making savings? It’s entirely predictable that a lack of oversight allowed a profit making enterprise to garner more profit, it is after all,the role of a company to increase profits to shareholders.

Item 3 - Land Asset Sales Program (LASP) The West Australian Government owns 92% of the state's land mass and holds over 140,000 land titles, encompassing 232 million hectares. Judicious consideration is applied when the State government chooses to sell a piece of land as this is highly important for treasury and the future of the state. The Land Asset Sale Program was introduced to the Department of Lands in 2014, and by 2015 it had an objective discussed by the Premier to raise around $250 million for budget repair (OAG p5). The Auditor-General noted in his official report, released April 2016, that the Land Asset Sale Program has been working well, with clear, defined roles and groups for high level decision making. The CPSU/CSA agrees with the Auditor General's comments that greater transparency and public reporting could be achieved in this project.

The directive in relation to land sales from Premier Colin Barnett was simple — reduce state debt. The CPSU/CSA suggests that this aim could better be achieved through a comprehensive audit of government agencies leasing office space in metropolitan and regional areas. Funds raised through land asset sales could go towards the development of sustainable, long-term sites for government agencies to deliver long-term financial benefits and ease financial pressures on agencies losing funding through short term property expenditure. As the Western Australian economy transitions beyond the boom years and the property value peaks that came with it, it would be an opportune time to refocus a land strategy to deliver long-term assets for agencies.

Item 6 - Pilbara Underground Power Project (PUPP) This project began in 2009 as a $130 million project to deliver a safer and more reliable power supply to the communities of Karratha, South Hedland, Roebourne and Onslow. This project will now cost up to $122 million more and take six years longer than originally planned (now a June 2018 finish date). An Auditor General overview highlights "governance and project management inadequately matched to risk, led to overruns and delays." (p6) The Pilbara Underground Power Project’s initial budget and completion date set in late 2012 has since been found to be unrealistic by staff at the Office of the Auditor General. There was no rigorous assessment of the project at an early stage which would have pointed out the unrealistic expectations. Again, OAG investigations revealed there was no specific business case for the Pilbara Underground Power Project when it first went to Cabinet. The very first recommendation listed by the Auditor General is that Horizon should "ensure it more fully discloses the full cost of PUPP."


The lack of project management and scrutiny of the proposal was linked to private sector outsourcing. A critical error was made in the decision by Horizon staff to allow the contractor to be responsible for monitoring and reporting on progress. This decision ultimately removed responsibility from the public service and placed it in the hands of a business with a vested interest in maximising profit. With not enough resources to scrutinise the reports of the contractor, this created an environment conducive to an expensive waste of public funds. The contract payments were not written to be connected to established performance targets, effectively allowing the contractor to be paid regardless of delays. This is a clear conflict of interest which raises concern around the governance of the project. Since 2012, Horizon has altered its work practice regarding regional projects. Staff are now only allowed to authorise smaller, more manageable contracts. This decision suggests Horizon does not have the resources in regional Western Australia to successfully carry out major infrastructure works successfully, which is a concern to the CPSU/CSA. This concern is strengthened by the fact that the architects of the Pilbara Underground Power Project did not have an accurate picture of the ground conditions in Karratha, a major hurdle when it was found the soil had far more hard rock present than originally planned for. This incident highlights a concerning element of the Royalties for Regions policy, introduced by the Liberal and National party coalition. The need for Royalties for Regions projects to have a comprehensive business case has been in place since July 2013. However, Royalties for Regions was first introduced in 2008. That is five years where CPSU/CSA members were directed to work on Royalties for Regions projects which were effectively immune from the level of planning and scrutiny public servants knew they should provide. The CPSU/CSA views these failures as a politicisation of the public service, and a sign that whistleblower protective measures are not strong enough to encourage public servants to speak up.

"Prior to 1 July 2013, the Department did not require applicants to address project

sustainability in their business cases. Non-state government projects worth about $729.2 million were approved prior to this date and are not likely to have ongoing costs met by the State. " (Auditor General, What Did We Find? March 20, 2017) The inadequacy of the plans and project planning is evident in the fact that completion deadlines for design of construction work were set before the agreement was signed (p18 AG). For any project which enjoyed a significant level of transparency and scrutiny, this would have raised a red flag that the planning process was either insufficient or being ignored completely.

Tender processes and contract extensions Key to all projects examined by the Commission of Inquiry is the current management of tender processes and contract variations and extensions. The key finding of interest to the CPSU/CSA from previous examinations by the Auditor-General was the discovery that around half the agencies investigated showed poor management of contract extensions:

“…management of contract extensions was poor at half the agencies in our sample. In addition, 2 agencies did not fully comply with delegation limits for approving extensions or variations. Most agencies also need to improve their procurement policies.” (p5, AG Report) There were also issues around compliance in variations. Agencies that were rated 'poor' in managing extensions included Department of Parks and Wildlife, the Housing Authority, Landgate and Venueswest. In the 2014-2015 financial year, WA Government agencies undertook 5,571 procurement processes resulting in 6,198 individual supplier contracts with values over $50,000. The combined value of these procurements was $7.19 billion (p4). Fourteen of 28 contract extensions sampled at five agencies lacked documentation or an evaluation/conclusion on the performance of the contractor over the prior


contract period. The total value of the 14 extensions was $19.1 million (p9). How is it that 50 per cent of contract changes can go without proper scrutiny? The CPSU/CSA believes that one factor may be the staffing saving measures introduced by the previous government. This included a cross-sector three per cent efficiency dividend and caps on public sector staffing. The savings measures included a new policy for public sector wages, a ceiling on staff numbers and a voluntary redundancy program. Four-hundred and sixty-nine voluntary redundancy offers from $48 million were allocated in March 2009; around 300 in March 2010; and a further 400 announced in the 2011-2012 Budget. Also introduced was the Orwellian titled Workforce Renewal Policy which aimed to save $1.3 billion across forward estimates (Budget 2015) by replacing 1FTE with only 0.6FTE (0.9FTE for frontline staff). In addition, an Efficiency Dividend was estimated to generate savings of over $1.9 billion and general savings of $650 million (2011 to 2013 budget papers). Total redundancies during the Barnett government years from 2008 to 2017 were approximately 5,000. This figure was quoted by Opposition Leader Mike Nahan in West Australian Parliament (Hansard 14 June 2017). The scatter-gun approach to voluntary severances created an acute issue post the introduction of the Workforce Renewal Policy with older and experienced public sector workers leaving the sector with a redundancy payment and creating a void that was never able to be addressed. The policy setting was designed to decrease the FTE of the sector but this came at a cost. Not only was the sector reduced but it was also denuded of corporate knowledge at a significant financial cost to the West Australian taxpayer. What do these staffing cuts mean for active contract management? The Auditor General reported:

"The policies of 5 agencies did not include a requirement to review the current contractor’s performance before exercising a contract extension option. This increases the risk that poor performing contractors may be granted extensions" (p6, OAG April 2017) The CPSU/CSA would encourage the Commission of Inquiry to further the work conducted by the Office of the Auditor-General in examining processes in contracts. We believe that sector-wide scrutiny will deliver the biggest benefit to the taxpayer than dismissing incidents as 'one-off' events.

Item 25 - Common Use Arrangement for Temporary Personnel Services CPSU/CSA members are concerned about the unsustainably high expenditure and channels of money being directed into the Common Use Agreement CUATPS2014 (HR - Temporary Personnel Services). Figures revealed in Parliament demonstrate expenditure on this Common Use Agreement currently sits at $107 to $108 million per year. In 2016 the then Opposition Leader, Mark McGowan, was able to reveal that the cost of just three months of CUATSP2014 was $27 million (Hansard, 18 October 2016). The three biggest agencies for spending were Main Roads, Mines & Petroleum and Department of Health, with spends of nearly four million dollars each across a three month period. This level of spending is thought to keep approximately 4,000 working West Australians out of permanent work (4,603 personnel in 2011/2012). Members consistently express concerns about job security and access to a permanent role for labour hire staff. They are also clear that these staff undertake critical roles and are needed to continue to deliver services to West Australians. While in Opposition, the now Minister for Industrial Relations, Bill Johnston, ascertained that the 2015 the total expenditure on CUATPS2014 was $108.1 million (Hansard, 26 May 2016). The media outcry was swift, which led the then Finance Minister Sean L’Estrange to claim the cost was less than hiring


permanent employees. No evidence was presented for this claim (PerthNow, October 2016). We are aware that the Government is in a position to make a direct comparison about the cost of labour hire versus the cost of permanent employees and we encourage the Inquirer to ask for this information. Despite these worryingly high figures in relation to labour hire, there is optimism that wasteful spending could be minimised with further effort when it comes to current use of CUATPS2014. The Department of Finance website includes an online calculator which allows agency staff to get an accurate idea of the total cost of their temporary personnel contract. This measure seeks to educate more managers that if a temporary staff member is hired for less than two months the spotter’s fee is higher. If the contract goes for over two months the charge is lower. The costs could potentially be reduced by thousands of dollars per FTE position. The CPSU/CSA is concerned that expenditure on CUATPS2014 increased in the aftermath of Colin Barnett's ill-considered staffing freeze policies. The last staffing freeze was announced on the 22nd December 2015. External recruitment service contracts were allowed to continue however, subject to an approved procedure. The model was that current personnel contracts would be audited on a case by case basis to determine how necessary they were to the continued delivery of core services. Given the evidence outlined in this submission around the failures of procedures, the CPSU/CSA believes more can be done to limit use of this Common Use Arrangement and favour investment in permanent skilled staff. CUATPS2014 is used across all agencies. There are many indirect costs for hiring and staffing agencies which should be considered by agency management. Temporary staffing is favoured as a means to avoid superannuation, payroll, workers compensation, but importantly, GST is applied as a service is being delivered. GST consists of a sizable expenditure in this transaction. Direct costs include the hourly rate of the temporary staffer and the spotter's fee but there is also a claim for the growth/gross margin profit of the engagement. Convenience is used as a common defence offered for its use. There is little scrutiny around the funds wasted on private human resource firm profits via staff "spotter's fees." Some of the more excessive spotter’s fees include around $5000 for IT staff, but there are also arrangements where the recruiter is able to claim 10% of the salary package of the incoming team member. Finance members raise concerns that there seems to be a lack of transparency around which temporary staff members exceeding six months deployment in agencies. Officers told the CPSU/CSA that no authority seems to have been given responsibility for tracking this measure. There are also hidden categories as not all jobs are captured through the Common Use Arrangement – for example, some agencies hire staff for retail or childcare roles (eg the Family Court). As these roles are not covered under the Common Use Arrangement, there is no capacity to determine spend across government on such roles. The staffing arrangement as currently drafted has the possibility for exploitation and misuse. For instance, there is little to stop an arrangement where a staff member could take a severance package when they leave an agency, but then be brought back soon afterwards as a temporary staff member into another agency. This is currently possible and it does happen. We would also strongly urge the Inquirer to investigate this practice in order to recover funds distributed in possible corrupt arrangements. Severance packages can be a considerable cost to the government, which are further increased by the requirement to then compensate a staffing supplier to rehire FTE. The CPSU/CSA is concerned at the levels of expenditure in the ICT Services Common User Arrangement (CUAICTS2015). While there has been rigorous questioning on CUATSP2014 expenditure by the Western Australian Labor party from Opposition, there has been little such scrutiny in the field of information, communication and technology staff Common Use Agreement. Our members suspect that the true cost (in excess of the $108 million) needs to also measure CUAICTS2015 expenditure. Our members report that some agencies are not clear on whether they


should be hiring a staff member through the ICT or through Temporary Personnel Common Use Agreement, leading to a growth in CUAICTS2015 expenditure. The Commission of Inquiry would be well placed to conduct a historical analysis of the trends in place for Common Use Agreement expenditure. The CPSU/CSA predicts such research would reveal:

● Human Resources CUAHRS2015 expenditure drops as agencies lose the ability to hire and invest in permanent staff;

● Temporary personnel CUATSP2014 expenditure rises as divisions in budgets allow managers to favour two-six month contracts for temporary staff, with some staffing arrangements protected during a recruitment freeze, and effectively allowed to continue; and

● ICT personnel CUAICTS2015 expenditure experiences growth due to staff being unclear on original purpose of the agreement and uncertainty following from GovNext ICT and departmental amalgamations.

Labour hire - a short-sighted tactic Not every role requires permanency. However, CPSU/CSA members are increasingly concerned about the misuse of contractors employed by companies which provide labour entering government agencies, and what the consequences of this short-sighted strategy will mean for the state budget, the skills and experience held in the public service, and the industrial working rights of West Australians. CPSU/CSA members, some with over three decades in the public service, informing this submission, reported that labour hire staff typically require at least one month to become familiar with the structure, responsibilities and systems in their agency. Aside from training and induction time, there is a passive learning process which must take place before a new employee can work effectively. However, some of these staff are 'churned' after the six month mark, representing a repeated loss of efficiency as the next labour hire employee must be introduced to the agency. This can be frustrating for permanent staff. Recruitment freezes and efficiency dividend measures have been favoured and used by the Barnett Government. Labour hire has been used to provide services to a growing WA population. Members report to us that contractors payments are made out of capital funds, rather than the recurrent budget and therefore considered a non-salary expense. One example of the sort of financial games that are played in budget management was the decision to overpay Fujitsu for the ICT data centre service provision by the Department of Health. Although it was entirely unclear whether the private company was delivering, forward payments of funds could minimise expenditures in the next financial year. Responsible and holistic budget management is forgotten in favour of sliding expenditure to different columns on a spreadsheet.

Case study - a protected practice A clear example of how these budget cutting exercises affect staff can be seen in the May 2015 internal discussion in the Department of Commerce to cut expenditure. On 14 May 2015 the Acting Director General of Commerce sent an email to all staff, requesting ideas to help ensure Commerce would be able to cut a minimum of $22 million over four years. One submission read:

"My main observation is that we are constantly using external project managers to run our internal projects.

I always find myself wondering why this is the case and why we cannot appoint more internal substantive project managers in the Project Management Office (PMO). There is never a shortage of projects occurring within the PMO, I believe there are currently 31 for the upcoming financial year with


likely more to be added. I know that external contractors are paid at a significantly higher rate than most substantive

staff and that these contractors work on a full time capacity for years at a time. External contractors all need to complete inductions which are obviously paid at full contractor rates which could be a huge saving in itself." The 'Issues Considered' response to the first staff member's point listed that the suggestion was of limited use, as the contractors funding was drawn from capital funds and not the Department's recurrent funds. The response to the suggestion admitted a full cost benefit comparison would be required, however superannuation for a staff member would add to the department's overall costs. The suggestion was not implemented. A further suggestion to the Acting Director-General noted that the Department was spending over three million dollars on general office and clerical labour hire via Common Use Agreement and over one million dollars on technical labour hire during the 2014-2015 budget year. Assuming this arrangement remained steady and did not rise even higher (unlikely given the trends for service delivery in WA), $16 million of $22 million in savings could be sought simply by limiting temporary labour arrangements. The brief response to this staff feedback detailing the high cost of labour hire noted the arrangement was favourable due to the flexibility it afforded, and that, again, the funds spent were a non-salary expense. This is a clear example of the uninformed, roundabout strategies that have been implemented in government agencies in WA for the last few years. Silo-based budgeting and a lack of long-term planning and investment in staff are significant contributors of waste. The high cost of private professional staffing arrangements have now surpassed building and construction as the greatest source of expenditure by the public sector. The CPSU/CSA believes this expenditure will soon reach $5 billion if trends continue.

(Page 7, Who Buys What When 2014-2015)

The Western Australian public sector has high standards of transparency and reporting. But these systems can be exploited. Labour hire, as well as outsourcing, effectively allows the public service to erode data on FTE. It is less clear how many frontline workers are required to respond to service demand. Often, this demand involves the safety and security of society's most vulnerable. This concern was raised by the Centre of Full Employment and Equity in a June 2012 investigation into staff service reductions and outsourcing within the Department of Child Protection:

"The problems encountered in Australian child protection systems will only increase as the workload shifts to contracted NGOs, and the funds per child approach the levels at which the public


sector had been operating, reproducing the same issues and problems, but with less scrutiny and accountability. As practical engagement in the delivery of service disappears from government over time, as it contracts all its services out, so too will its ability to know what contracted suppliers are doing, and what they need to do. It will only be a matter of time before more deaths, more abysmal stories of neglect shame governments into further inquiries and reviews." (p179)

The Department of Child Protection has spent at least $166 million on outsourced contracts since January 2015. It is likely this figure is much higher due to the lack of known expenditure on exempt contracts. The policies of the public service were written with knowledge of the risk inherent in labour hire and how overuse of these practices reduce their own ability to succeed. This is why Approved Procedure 5 was drafted and specifically made mention of in both the Public Sector Management Act 1994 and the Public Service Government Officers and General Agreement 2014. Approved Procedure 5 reads:

"Determination of the circumstances where it would be appropriate for the engagement of a contract for service: • the appropriate expertise is unavailable in the public sector at the time of need; • there is a requirement for impartiality and objectivity external to the public sector; • the required expertise and specialist skills are available only from external sources; • there arises a need to fill a position on very short notice for which the appropriate expertise within the public sector cannot be readily made available (eg. 1 - 2 weeks)." Similarly, the Common Use Arrangement advises on the appropriate use of temporary personnel:

"Temporary personnel should not be engaged for longer than six months. If they are required for longer, then you should consider:

-appointing someone to the position -re-evaluating requirements after six months" (CUATPS2014, page 23)

It is clear that AP5 does not make reference to uncertainty of roles due to restructures or organisational change. Yet CPSU/CSA members from the majority of agencies have contacted their union to let them know temporary personnel and labour hire are on the rise due to a lack of clear knowledge of the final outcomes of agency amalgamations and restructures. The CPSU/CSA was recently made aware of one staff member at the Housing Authority who had been employed in a labour hire arrangement for nearly eight years. This employee worked as a switchboard operator - a role with no defined finishing date which was not part of a temporary project. The requirements for a fixed and limited time frame were clearly being ignored. Data on labour hire contractors are not currently collected or required by the Human Resource Minimum Obligatory Information Requirements. This process states that the objective and purpose is to plan for and monitor administrative and financial performance. The CPSU/CSA requests that the Commission of Inquiry is thorough in its investigation of temporary personnel arrangements, and conducts a sector-wide review of all existing labour hire engagements for waste and misuse. Such an audit should identify which arrangements must be ceased, where a permanent member of staff is more appropriate.

Rigorous auditing of labour hire arrangements are required in the following areas: • Housing Authority (including finance officers and accounting support officers) • Department of Commerce (Building Commission - Licensing Branch, Consumer Protection - Bonds Administration Branch, Corporate Services - Project Management Office, Application Development and Support Services)


• Department of Attorney General (CPSU/CSA auditing suggest almost 20 per cent of DOTAG's 1404 FTE is now either labour hire, fixed-term contract or employed on a casual basis) (see Attachment D) The misuse of labour hire allows the public sector management to avoid conditions and entitlements mandated in industrial instruments. This problem has led to the CPSU/CSA campaigning for better regulation of labour hire employees as part of the 'Your Union Agreement' general agreement negotiations. Members often raise concerns with us that public sector workers are made redundant and then appear at the same agency to do similar work to the work they undertook as part of the now redundant position. The Fair Work Act 2009 provides serious penalties for arrangements where an employer attempts to disguise an employment relationship as an independent contracting arrangement. Greater awareness of illegal contracting arrangements has resulted from the recent investigations into the Victorian Department of State Development and Business Innovation. It is worth considering greater protections for State public sector staff to mitigate against this potentially costly practice.

Options for procurement reform Where an agency varies a contract, and that variation leads to a price increase of $250,000 or more (above the contract value recorded on TendersWA) then the agency must submit a notice to the Department of Finance for their comment. If the variation is $5 million or more, the notice must go to the State Tender Review Committee. This is sound policy to bring in expert staff when required. The CPSU/CSA understands there is oversight of contract management plans under the State Tender Review Committee. This will strengthen contract management plans and could save significant amounts of funds over the long-term. However, the Department of Finance has experienced a thorough procedure and workload rise. The Department of Finance has recently suffered a round of voluntary severances which meant the loss of highly experienced and talented contracting staff. Work has been redistributed among fewer officers. The CPSU/CSA will be urging the McGowan Government to seriously examine an investment in Department of Finance as a long-term budget savings measure.

Department of Corrective Services - A testing ground for privatisation Although it has not been raised in the Inquiry’s Terms of Reference, the CPSU/CSA believes the Inquiry should investigate the significant level of expenditure and recent attempted introduction of Social Impact Bonds to the Department of Corrective Services. A letter received on 4 September 2014 confirmed that the Department had contracted Social Ventures Australia to assess the feasibility of social impact bonds. This letter was sent by the then Department of Corrective Services Commissioner James McMahon. One of the CPSU/CSA'S chief concerns about this business relationship was the fact that Social Ventures Australia was already being paid to manage social impact bond programmes across Australia. This raised some important questions around whether Social Ventures Australia was a suitable company to give an unbiased assessment of their merit. The CPSU/CSA requested detail from the then Commissioner on how the business relationship was formed — specifically whether a public tender process had occurred. In July the CPSU/CSA demanded the Commissioner release the details of the terms of reference for the contract. The Commissioner's reply stated that the arrangement had been organised by the Youth Justice Board, as part of a "wide range of alternative funding, financing and service delivery arrangements." The Youth Justice Board was described by the then Corrective Services Minister, Joe Francis to:


“…facilitate direct connections between the community, the non-government sector and

the public sector; and implement new ways to evaluate and improve the conditions of young people detained at Banksia Hill Detention Centre.” (Hansard 2 April 2014)

This response was even more worrying to the CPSU/CSA as it is public knowledge that Mr Paul Bide held a seat on the Youth Justice Board. Mr Bide is the Chair of an organisation named The School for Social Entrepreneurs which is associated with Social Ventures Australia. Mr Bide has also been an official member of the Social Impact Fund Investment Committee for Social Ventures Australia since May 2012, as well as a philanthropic contributor to Social Ventures Australia projects. It is the view of the CPSU/CSA that the decision making processes and allocation of taxpayer funds by the Youth Justice Board should meet the standard set by all other interactions between a non-government organisation and government agency. The CPSU/CSA believes the aim of a partnership forum should not be to outsource public duties. Although the outcomes desired by Social Impact Bonds are ultimately good, it is the view of the CPSU/CSA and other public government advocates around the world that Social Impact Bonds are a high-risk, high-reward form of privatisation by stealth. “Unlike traditional contractors, bounty seekers invest their own resources to advance public aims. And, unlike traditional contractors, bounty seekers get reimbursed and rewarded only if they successfully carry out their specified tasks. There are also non-technocratic reasons for jumping off the traditional contracting bandwagon (while remaining faithful to the privatization agenda).”(Michaels, p7) US academic Jon Michaels wrote in the Georgetown Law Journal that Social Impact Bonds are:

"a government bet tethered to the private advancement of public responsibilities." (p29)

Many Social Impact Bonds shift contract monitoring from public hands to private hands, with an associated lack of public transparency.

Social Impact Bonds - expenditure and delivery Although the Commissioner did not write back to the CPSU/CSA with details of expenditure and the terms of reference, the issue was raised in State Parliament. The then Attorney General, Michael Mischin, told Parliament the contract paid $41,250 inclusive of GST. The contract was not subject to the tender process as Social Ventures Australia was engaged under exemptions from the State Supply Commission on the argument that only one service provider existed with the experience in equity impact investing in the correction and youth justice space. This raises an issue of transparency for contracts which are recorded on an exemption register, instead of being recorded on TendersWA. On 11 November the Department published a media release which advised the assessment of potential use of Social Impact Bonds. The release stated the assessment had been completed and had found the bonds could not be considered an option until more data on offenders and offender programs had been gathered. The Department then published the 65-page report provided by Social Ventures Australia on their website. Twenty-two of these pages were statistics gathered by Department of Corrective Services staff. The project to roll out Social Impact Bonds in Corrective Services in Western Australia has since hit a dead end. However, in NSW, Social Ventures Australia is now advertising a potential 7.5 per cent return on investment for the first Social Impact Bond delivering mental health care. These returns will come from the savings of the New South Wales government. The view of the CPSU/CSA is that it is vital such programs are not allowed to proliferate in Western Australia.


Despite the cost of the contract, budget documents in 2014-2015 gave some indication of recurrent funding which Social Ventures Australia had some level of control over. The Budget for Local Government and Communities listed the following:

Controlled Grant or Subsidy

2012-2013

Actual

2013-2014

Actual

2013-2014

Estimate

2014-2015

Estimate

Social Enterprise Fund

$2,418,000 $3,800,000 $3,800,000 $2,053,000

This funding was shared between the private groups Social Traders, Western Australian Council of Social Service, the Centre for Social Impact and Social Ventures Australia as part of the Social Enterprise Fund Consortium.

Fixed Term Contracts & staffing data One of the most prevalent forms of insecure work in the West Australian public sector is currently the fixed-term contract. These arrangements are defined the in Public Sector Government Officers Agreement as being suitable for covering one-off periods of relief and work on a project of a finite nature (s15, PSGOGA 2014). Insecure work in the public sector has a deeply harmful effect measured by a loss of institutional knowledge and skills, loss of continuity of service, lack of professional development or training and loss of talent as sought-after staff members may opt for permanency in the private sector. The pressure of insecure work is magnified in regional areas where those in insecure work are less likely to invest in the local economy when they are unsure if they are going to have work or be able to stay where they are to find work. To show the trends in insecurity of staffing and wider trends, we have shared some tables showing recent trends for select agencies. Attachments A and B show the CPSU/CSA's data on the breakdown comparisons of the permanent, fixed-term and casual employment rates across metropolitan and regional areas. Please note this data only covers staff covered by CPSU/CSA Agreements - it does not reveal the data on external contractors in these agencies. Narrowing in, for the Department of Child Protection and Family Support, as at 30 June 2015, 85 per cent of the total workforce FTE were permanent full-time or part-time employees. Total staff was 2,765 people. Eleven per cent were on fixed-term contracts and four per cent were casuals. Thirty-three per cent were located in regional or remote areas in the state.

Child Protection Staffing Changes (p95, DCPFS Annual Report)

Employment

Status

2013 2014 2015

Permanent 2261 2229 2245

Fixed Term 275 276 303

Casual 185 222 217

Total 2721 2727 2765


Employment

Status

2013 2014 2015

Full Time 2149 2167 2183

Part Time 572 560 582

Disability Services Commission (p172, DSC Annual Report)

Category 2013 2014 2015

Permanent

FT

1482 1403 1482

Permanent

PT

453 411 416

Fixed Term

FT

115 69 82

Fixed Term

PT

52 36 102

Casual 198 191 177

Sessional 2 0 1

Other 33 19 20

Staff

Turnover

11.5% 10.2% 10%

Between 2014 and 2015 the West Australian Disabilities Service Commission spent an additional $6.4 million on consultants and contractors (from $12.1 million to $18.524 million) (p.108, DSC Annual Report 2015). These trends in staffing have been taking place during a period of growth in Western Australia's population and resulting increase in demand for services and infrastructure (ABS, West Australian population)

YEAR 2008 2009 2010 2011 2012 2013 2014 2015

NUMBER 2,172 2,240 2,291 2,353 2,438 2,519 2,557 2,590

% RISE 3.1% 3.2% 2.3% 2.7% 3.6% 3.3% 1.5% 1.3%

From 2009 to 2015, there has been a population increase of 250,000. However FTE in the public sector has only grown by 2,000 FTE. What percentage of service delivery has instead moved to private contracting? And is it costing Western Australia more? It is important to question the repeated decisions to 'go private' made in the last term of government. The numbers on the myth of a 'expensive and inefficient' public service do not hold up:


Earnings, Persons, Full Time, Adult Total Earnings Western Australia (ABS, Average Weekly Earnings Australia, Cat. No. 6392)

NOVEMBER Public Sector Private Sector

2008 $1243 $1362

2009 $1393 $1406

2010 $1439 $1504

2011 $1532 $1657

2012 $1593 $1716

2013 $1651 $1717

2014 $1675 $1819

2015 $1736 $1822

2016 $1782 $1802

As this report is written, the Western Australian public sector faces a pay rise below even the previous state wage policy of 1.5%. This is well below the Australia wide private sector Wage Price Index growth of 1.7 per cent. It seems safe to predict that it will be some time before West Australian public servants are paid more than their colleagues in the private sector. If the public sector has earned less throughout the entire Barnett government, why was there such a desire to outsource to private companies?

Test audit - Communications staff As part of our research for this submission, the CPSU/CSA undertook to measure a field of labour in order to identify examples of where policies and procedures could work better. The field needed to be an area of work where there was an expectation that outsourcing was occurring but also a field common to all agencies. The field investigated is the outsourcing of media strategy and communications in government agencies. As every agency's work is integral to the public interest, it is also an area where retention of experienced media communications staff has a clear benefit. The West Australian public benefits from communications from staff members with an experienced and comprehensive understanding of the role and business of the agency, and the outcomes of work conducted. An audit of TendersWA public listings revealed approximately $48 million was spent on outsourced communications work from the start of 2012-2013 financial year to 16 June 2017.It is important to note that this is by no means a final figure, as many agencies would have sought an exemption from public listing on TendersWA with the view being that the service was only able to be delivered by one company or contractor. The CPSU/CSA is aware at the very least the Department of Corrective Services viewed iSentia as being a private company suitable for exempted tenders. It is clear that a number of contracts listed on TendersWA have unreliable figures attached to them. There are constant references to 'estimated' figures, with 'fixed amount' contract figures being less common than hoped. However, one contract raised our concerns particularly.

Case Study 1 - Blank cheque advertising Contract reference WAPOL5013 describes corporate communications work for WA Police. The contract, listed as $1.5 million dollars, began in August 2014 and concluded in August 2016. The tender description reads:


"Expenditure under this Contract is not capped or fixed. The estimated contract award value is based on estimated expenditure at this time but may vary depending on budget availability and the number of advertising campaigns required over the contract period." This is a potential misuse of the purpose and intent of tenders listed on this resource as it is not clear what the total cost of this contract is to date. As much work must be completed before outsourcing to the public sector to gain a clear and fixed idea of the amount of funds spent.

Case Study 2 - TendersWA as a job listing service This submission has discussed at length the outsourced staffing arrangement which is occurring across WA agencies. Contract reference DMP240516, a tender for the supply of a communications manager, is a clear example. It is effectively a one year role for a communications manager to supply strategic guidance and media liaison functions to the Department of Minerals and Petroleum. Yet instead of advertising a permanent role, TendersWA is instead used to offer a candidate a higher rate of pay via tendering, with little planning for the future of the role beyond 12 months.

Deficiencies in transparency While not captured in the attachment table, it quickly became frustrating to use TendersWA due to the inaccuracy in government records of private company details. As an example, the independent accountancy firm Stanton's International had thirteen separate titles that their contracts were recorded under. Some of these new categories had been created by accident, such as misspelling, but the majority were caused due to inconsistent labelling of the firm. This compromises the record-keeping purpose of the resource and compromises any attempt to gain an accurate picture of how much taxpayer funding a private company has accessed. The exercise revealed that over one million dollars has been spent through multiple agencies all advertising separate tenders for media monitoring service iSentia to provide a current log of all mentions in media sources. Government already provides this service as part of the Government Media Office and it’s possible that significant costs could have been saved by resourcing the Government Media Office to undertake this work across Government.

Exemption registers - Masking the real picture The CPSU/CSA is concerned at the current practice in relation to registers of exemption. Under State Supply Commission rules, certain contracts can be exempt from public listing if there is no perceived requirement to go out to public tender. This can occur if the contract can be met by an Aboriginal business, a business employing West Australians living with disability or the service can only realistically be fulfilled by one provider (for example, a specialist IT developer who owns complete rights to their programming technology). State Supply Commission rules outline that an agency must maintain an exemption register so that major contracts are not able to bypass the responsibilities set out in the State Records Act 2000. In preparing this submission, the CPSU/CSA became aware of the possibility that exemption registers were only available via a Freedom of Information request or via a Question on Notice in the West Australian parliament, as is what occurred during scrutiny of the Futurewise contracts. As the exemption register deals with private companies and payments for services, there is a risk that commercial-in-confidence guidelines could limit the ability of a member of public to access these registers. This is bad for transparency in public expenditure. The CPSU/CSA recommends that agencies commit to upload their exemption register for download and viewing on their respective websites. This would be a strong measure to increase scrutiny and reduce opportunities for waste or potential corruption in outsourcing services.


In conclusion This submission aims to inform the Commission of Inquiry of the CPSU/CSA's current concerns of the work practices costing the Western Australian taxpayer and weakening the public service of the state. This submission has been drafted with regards to the short timeframe, and narrow terms of reference. Given the time frame and the number of projects and programs under review, we have attempted to prioritise wider workplace issues which we understand have contributed to waste. While many errors will doubtlessly lead back to the State’s political leadership, the CPSU/CSA is optimistic that an experienced and impartial public service are crucial in preventing errors and delivering efficient and high quality services to the people of Western Australia. We are confident the Commission will uncover a number of topics which warrant further investigation. In gathering information for this submission, CPSU/CSA staff became aware of concerning individual contract details which are not suitable for listing in the public submission. This is to protect the individuals providing the information in relation to potential sanction. Our members are our priority and we will not put them at risk. The CPSU/CSA would welcome the chance to further brief Commission staff on information received to ensure every avenue is investigated. Our objective with these matters is to prevent current and future waste and inform discussion around preventative measures.


ATTACHMENT A


ATTACHMENT B


ATTACHMENT C


ATTACHMENT D Department of the Attorney General (Excludes Board Members, Judicial, Personal staff)

UNIT CASUAL FTC PERMANENT

Corporate Services 5 164

Court & Tribunal Services

23 100 715

Director General Executive

1 4

Office of the Public Advocate

9 45

Other Work Groups 3 8

Parliamentary Counsel’s Office

3 29

Policy & Aboriginal Services

1 34

Public Trust Office 9 148

Registrar of Births, Deaths & Marriages

2 44

Solicitor General’s Office

1 2

State Solicitor’s Office

64 159

GRAND TOTAL 23 198 1,352

Labour Hire FTE

10-Feb-16

31-Mar-16

31-May-16

16-Aug-16

18-Oct-16

21-Nov-16

13-Jan-17

8-Mar-17

Corporate Services

1 1 1 1 4 4 5 8

Court & Tribunal Services

14 12 18 18 19 14 10 11

State Solicitor’s Office

5 7 6 6 10 10 11 11

Public Trustee Office

13 15 15 9 14 13 8 2

Registry of Births, Deaths and Marriages

1 1 1 1 1 1 1 1

Department of the Attorney General

34 36 41 35 48 42 35 33


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