This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its June 2010 report entitled A report of investigations into the City of Port Phillip, the Victoria Ombudsman found weak procurement governance practices at the City of Port Phillip, including poor procurement and contract management and recurring governance failures caused by a culture of non-compliance. These findings led the Ombudsman to conclude that the City mismanaged its procurement and that the poor governance “allowed expenditure of significant amounts of public funds to occur with little, if any, oversight.”
In its report, the Ombudsman determined that the City CEO failed to properly monitor or respond to these governance issues:
Failure of governance
Good governance is integral to the effective operation of any council. Principle four of City of Port Phillip’s eight principles of good governance supports this, stating, ‘Council decision-making will exhibit transparency, honesty and probity’. My investigations found that City of Port Phillip had not applied this principle to its governance of procurement.
I consider that City of Port Phillip, presided over by the then CEO, Mr David Spokes, failed to identify and, once on notice, failed to adequately deal with poor governance in procurement processes. There is evidence that the oversight mechanisms in place at City of Port Phillip were not utilised effectively and that this may have delayed improvements being made to procurement processes.
The report also raised concerns over an apparent concealment culture that sought to bury procurement issues instead of responding to them in a transparent manner:
City of Port Phillip failed to inform the elected Council or council’s Audit Committee of the extent of the non-compliance issue as the problem became apparent. I consider that City of Port Phillip as a whole failed to properly manage important procurement issues as they arose. It took exposure of the procurement problems in the media to prompt senior management to report to the Council and the Audit Committee. It is apparent that City of Port Phillip attempted to resolve the matter discreetly instead of being transparent and taking responsibility for the error and actively addressing the underlying cause to prevent further potential breaches.
As the Ombudsman noted, some staff members acknowledged that the procurement governance issues were exacerbated by a “cowboy culture” that took a “fire, aim, ready” approach to procurement and prioritized expedience over compliance:
Ms Calder referred to the culture of the organisation as a contributing factor to the procurement issues. She said:
I think traditionally the City of St Kilda, which was one of the three cities that became Port Phillip, had a culture of, always had a, kinda had a cowboy culture about it. And it was celebrated for that.
You know I think we were, organisationally people were far more interested in the outcome than the process. You know, in fact when I first went there I remember somebody saying that the culture of Port Phillip is fire, aim, ready, or something like that. And so I think, you know, culturally the place was far more interested in outcome than process, it had a bit of a reputation for being a risk-taking, go getting, get things done, take on big brave projects. And it did that and it did that really successfully and that’s part of the reason why it’s been a successful council, but the thing it never got was that there are some things that you don’t have discretion around, like the Local Government Act is a good guide. If the Local Government Act says section 186 you kinda have to do it. So it never kinda got the notion of you can be brave and risk-taking but there are some boundaries of accountability. We actually have that as a stated behaviour in the organisation but we never did it.
As the report detailed, these procurement governance issues resulted in a clash between an “old-school” culture that put operational results ahead of compliance issues, and a “new-school” culture that was perceived to be imposing unnecessarily strict requirements onto the contracting process:
Executive Director A believed that his concerns about close relationships between staff and contractors were confirmed by the 2003 audit and that changes were needed within the Building Maintenance Unit. This led to the creation of a new procurement strategy for the Building Maintenance Unit, which Mr Spokes instructed Executive Director A to implement. Mr Spokes said he told Executive Director A the new strategy needed to ensure that contracts were awarded on the basis of competitive prices, rather than on the basis of long standing relationships with particular contractors and that it should move away from lump-sum contracts, towards a schedule of rates process. Mr Spokes said he advised Executive Director A that a departmental restructure would be necessary in order to achieve these objectives. Mr Spokes said that he oversaw Executive Director A’s implementation of these changes.
This resulted in a cultural change within the Building Maintenance Unit. Some Building Maintenance Unit staff interviewed during my investigation felt that the former officers were ‘old school’ and were unprofessional. In contrast, the former officers felt that the ‘new school’ were overly strict in the management of Building Maintenance Unit, both operationally and in terms of individual style. Operationally, Building Maintenance Unit officers’ authority to approve contractors’ invoices was reduced to $5,000 [(AUD)] and then to zero. Executive Director A stated the following during interview:
I employed [Manager X] and I moved the building department out of its current area and moved it in with [Manager X] generally to destroy a culture as much as anything else because it had been an old culture and it had been embedded for a long time.
When asked what he meant by ‘destroy a culture’, Executive Director A said:
I wanted to destroy a culture where it was only promoted that the contractors manage themselves. I didn’t think that was a very healthy culture to have in an organisation where the builders knew more about what was going on in the city than what we did, where it was a very cosy relationship between the contract manager and the contractor, I’m very much more of an arm’s length person with contractors. There were things happening that were too close. You know, [a particular unit officer] had contractors writing contracts that were going to be bidding on the contracts, so it was all that sort of stuff in that area. So it wasn’t actually about getting rid of people, it was about giving people the chance to change, but then at the end of the day if they didn’t change this is the way we were going to be. We were being clear that this was the new regime, this is where we were going, giving them the chance to be part of that.
The Ombudsman also found that a lack of resources contributed to the City’s procurement governance problems, since the procurement department was seriously short-staffed:
Lack of resources
Lack of resources contributed to the delays in addressing the procurement issues once they had been identified. Ms Calder stated that the manager went on sick leave for one year and her part-time staff member went on maternity leave, leaving her with the coordinator as the only remaining staff member in that team. That staff member’s role was split between governance responsibilities and assisting with the work provided by Ms Caroline Shahbaz.
At interview, Mr Spokes acknowledged that one part-time person in the contracts and tendering unit was insufficient. The August 2008 external consultant’s report further confirmed that City of Port Phillip is under resourced in relation to experienced contracts and tendering staff.
The report also found that the municipality used outdated procurement guidelines and templates, which contained unnecessarily complicated content that was repetitive and riddled with errors:
Inadequate documentation and document management
The August 2008 external consultant’s report made the following observations regarding tender and contract guidelines and documentation:
-
They are out of date in some instances.
-
There are multiple and obsolete versions of legal documents still being provided to tenderers, and subsequently being used to create contract documentation, despite City of Port Phillip’s legal counsel supplying Port Phillip with an updated set of documents in September 2007.
-
There is scope to make current documentation less onerous in many cases. For example, some obsolete Services General Conditions being used impose ‘partnering requirements’ on contractors and some of the insurance requirements may be excessive.
-
There is significant repetition.
-
There are many instances of confusing terminology. For example, incorrect references to documents, multiple ways of referring to the council, extensive grammatical and formatting errors, multiple ways of referring to the staff member managing the contract, and multiple ways of referring to the contractor.
Additionally, the Ombudsman identified weak version control practices, since the municipality allowed staff to make ad hoc changes to contract documents, which resulted in unnecessary confusion, inconsistency, and duplication:
The August 2008 external consultant’s report confirmed that staff had access to electronic versions of the above documents and modified them without consulting the Governance and Community Relations department. This in turn created different and obsolete versions. These observations are supported by comments received from staff during the review:
I would love to have a whole suite of templates – ranging from contracts for consultant services to tender panels to variation to contract scope templates to letter of acceptance and rejection as well as a variation register that would be standard for all contracts. Anything that would make it easier to administer contracts in a consistent way across the organisation. The current documentation is messy and confusing. There is a need for consistency and for documentation to be easily accessible and in one place. Currently, processes are all over the place and are a total mess.
The report also noted a serious lack of co-ordinated, practical training for staff on proper procurement practices:
Lack of training
The August 2008 external consultant’s report makes reference to an internal audit that was conducted on contract management of parking services in September 2007. The audit report makes the following comments:
-
staff are not aware [of] and using current contract management policies and procedures;
-
lack of training for contract managers and supervisors;
-
the need to provide insurance certificates of currency; and
-
the potential for skills gaps in the long-term absence of the contract manager.
The report identified a need for a regular training program to ensure procurement requirements are understood and implemented. It stated that existing training ‘appears to be “response based” rather than arising from training needs identified through a performance appraisal or other process. Attendees can “self nominate” and it appears that staff who need training could avoid attending’. The report further commented that ‘while these were necessary, they were aimed at statutory aspects and staff feedback was that they were ‘’legalistic”. Such training needs to be supplemented by training by practitioners’.
Given these findings, the Ombudsman recommended that the municipality’s audit committee conduct a review of current practices to identify non-compliance with legal and policy requirements. The report also recommended that the topic of procurement compliance be established as a regular item on the executive team agenda, and that the City CEO provide the audit committee with regular reports on procurement non-compliance. Finally, the Ombudsman recommended that the City update its procurement practices to better define roles and responsibilities, and that it update its procurement documents and related staff training program.
