Department amended one IT contract 250 times and counting

Earlier this year, Commonwealth procurement rules were updated to require greater transparency on variations and extension to contracts, after a committee heard evidence of inappropriate contract variations that were stifling competition and not delivering the best results for taxpayers.

However, even after agencies were required to give reasons why contracts had been varied, this has not stopped contracts being varied to the tune of hundreds of millions of dollars and extended to more than a decade beyond their initial end date.

The contract with the most amendments is a contract for outsourced IT services from the Department of Agriculture. In an Australian National Audit Office report in 2023, the contract had been varied 235 times.

However the contract has continued to be extended, with more than 250 amendments to date, taking the total value of the contract from $96,000,000 to $541,887,451.32.

ACT independent senator David Pocock said this figure was "alarming".

"While I appreciate there may be a need to vary contracts from time to time I find reports of 250 amendments to a contract alarming."

Another IT contract, also from the Department of Agriculture, has been amended 13 times in three years.

A spokesperson for the department said the contract was designed to be flexible as the needs of the department shifted.

"Following the machinery of government change, the contract was shared by both the Department of Agriculture, Fisheries and Forestry and the Department of Climate Change, Energy, the Environment and Water," the spokesperson said.

"It has been amended multiple times to reflect changes to licensing metrics and staffing requirements for both departments.

"Additionally, amendments were made to assist with large projects such as the Future Drought Fund and the Waste Export Ban."

Greens senator Barbara Pocock said this extreme example heightened calls for a more robust contract management process.

"The cat is well and truly out of the bag when it comes to this widespread practice of low-balling to win contracts and then making a series of variations to the scope and price of the project without going to competitive tender," she said.

According to the audit office, the value of contract amendments has been growing steadily. In the 10 years to 2021-22 the former Department of Employment, Skills, Small and Family Business had the highest proportion of funds spent through contract amendments, with 78 per cent of the department's total spend committed in amendments and variations.

This was followed by the Digital Transformation Agency and the Department of Home Affairs.

The Agriculture Department spokesperson said the amendments offered the best value for money.

"The department determined that using amendment options under the contract for the expansion or adjustment of the services being delivered provided the best value-for-money solution for the Commonwealth at the time," they said.

According to the audit office, 3 per cent of contracts with amendments have more than five amendments.

Under the contract management guide, published by the Department of Finance, contracts should not be varied if it would lead to a significant change to the contract and other suppliers may have responded differently to the amended contract.

Senator David Pocock said there was room to go further in ensuring value for money.

"We need to have a trigger in the procurement rules to require review or a return to market in instances where an excessive number of amendments are being made," he said.

In its report, the committee found that there was a "capability deficit" among Commonwealth procurement officials.

"There is widespread non-compliance with the procurement rules and frequent failures to demonstrate the achievement of value for money when conducting procurements."

Senator Barbara Pocock called for a contract probity office to provide oversight of government procurement.

"The list of significant delays and budget blowouts on outsourced contracts is, frankly, horrifying. Billions in public funds have been wasted with high cost to the community. There is a strong case for tighter monitoring."