Auditor general criticises home affairs over $745m Manus Island contracts
The home affairs department failed to show taxpayers got value for money for $745m paid to keep refugees and asylum seekers in Papua New Guinea, in part because of a $14m mobilisation fee and 22.5% profit margin for the Paladin group.
According to a report from the Australian National Audit Office on the cost of offshore detention, released on Thursday, the department used inappropriate financial benchmarks when choosing who should run the Manus Island detention facility and failed to compare the cost with its budget of $573,111 per person per year.
The ANAO found the awarding of contracts was “largely” in line with commonwealth procurement rules and contractors’ performance was “partly adequate”.
But the department failed to document its reasons for requesting quotations from JDA Wokman Ltd, NKW Holdings Ltd and the Paladin group, which all won contracts through limited tender out of 11 potential providers.
The ANAO also noted there were “no performance monitoring or reporting requirements for an average of more than eight months” during the time each contractor operated under letters of intent before signing a contract.
The department agreed to both the ANAO recommendations to document decisions in relation to limited tender procurement and to prepare “interim performance reports” before contracts are signed.
In total, Paladin received $532m for garrison services at Manus Island from September 2017 to November 2019; while NKW received $136m and JDA Wokman received $77m, for contracts that also covered Hillside Haus and West Lorengau Haus.
The home affairs department secretary, Michael Pezzullo, has said Paladin was selected in “urgent” circumstances after the PNG government advised in July 2017 it would not run the Manus facility.
The ANAO concluded that although the department had demonstrated “value for money” in the $1.1bn contract to Canstruct International Pty Ltd to run the Nauru regional processing centre, the same could not be said for the PNG contracts.
“Although the department had limited options for comparing tenderer costs, most of the benchmarks it used were not appropriate,” it said.
The ANAO noted the department knocked back Paladin’s proposal for a 40% profit margin “to mitigate any pricing risks arising from the short [request for quote] timeframes”.
But the 22.5% margin then agreed upon “was still more than the service industry average profit margin of between 10% and 15% identified by the department during the Nauru procurement”.
In November 2017, the department and Paladin agreed on a $14m “mobilisation fee” – which was not part of Paladin’s original quote – to be paid in three instalments “to address departmental concerns about Paladin’s access to working capital”.
Although departmental negotiations with NKW achieved “significant savings” after the initial quote was assessed as not representing value for money, in Paladin’s case the outcome was “unclear”.
That was because “savings achieved for some items were offset by increases to others, the addition of a mobilisation payment and the department’s substantial expansion of the services required during the negotiation process”.
The ANAO found the department had a “probity management framework” but said it was not effectively applied in all instances, with key declaration and acknowledgement forms left incomplete.
In October 2017, the department sent a procurement officer to Port Moresby who subsequently chaired both the pricing assessment team that recommended NKW and the technical evaluation panel that recommended JDA. “This resulted in a conflict of interest,” the ANAO said.
The ANAO also noted that Paladin advised the department in December 2017 it was having difficulty obtaining visas for workers, which could be resolved “via a payment from Paladin”, which it had refused to make.
“The department advised Paladin on the need to ensure that all activities were conducted in a manner which was consistent with Australian law.”
Labor’s shadow home affairs minister, Kristina Keneally, said that was “at odds” with Pezzullo’s claim in March the department could find no record of a request for facilitation payments.
“If it weren’t for the auditor general, the government would have continued to try and sweep [Peter] Dutton’s waste and mismanagement under the rug and pretend there was nothing for the Australian public to see,” she said.
In its response to the audit, the department said it is “not unusual practice for a departmental officer to have multiple roles during a procurement process, both over the term of the procurement and concurrently”.
In relation to the PNG contracts, the department said “negotiation processes were appropriate, in light of the changed sovereign nation’s operating model, the significantly restricted timeframe and the constantly changing operating environment”.