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News & Trends - Pharmaceuticals

Massive government contract failures exposed

Health Industry Hub | July 11, 2024 |

Major inquiries into government procurement, probity and ethics have uncovered serious failings, prompting a new review into the contract management frameworks operated by Commonwealth entities.

Salesforce and Accenture, who provide services to many pharmaceuticals and medtech companies, have been implicated in shady contract arrangements and dealings with government officials.

Public servants at the National Disability Insurance Agency (NDIA) failed to disclose years of secret gifts and hospitality received from Salesforce, despite the company securing lucrative government contracts and significant contract variations.

Acting Auditor-General Rona Mellor criticised the Australian Digital Health Agency’s (ADHA) procurement of My Health Record and its contract with Accenture. She called out a “failure to observe core elements of the Commonwealth Procurement rules” for negatively impacting its procurement and contract management performance.

Julian Hill MP, Chair of the Joint Committee of Public Accounts and Audit (JCPAA), remarked, “Recent audit reports have highlighted issues ‘downstream’ of procurement in how agencies manage contracts once executed. The Committee will examine whether the frameworks supporting contract management by various Commonwealth entities are fit for purpose to ensure project delivery.”

The JCPAA recently tabled its final report for its Inquiry into procurement at Services Australia and the NDIA, finding key aspects falling short of the Commonwealth Procurement Rules and ethical requirements. This report raised serious questions about potential financial impropriety and improper relationships with parties receiving contracts from the Commonwealth and referred these matters to the National Anti-Corruption Commission (NACC).

Mr Hill found it “perplexing that the value for money assessments in this procurement gave no explicit weighting to price as a key factor in scoring and ranking proposals.”

He further stated, “The sizes of the contract variations [with Salesforce] were significant, now $135 million up from $27 million at inception … a substantial proportion was due to significant changes in scope. Other vendors were basically denied the opportunity to tender for the product ultimately being delivered.”

A major concern was the clear breaches of NDIA’s Gifts and Hospitality policies by its officials. Mr Hill noted, “Although NDIA gave evidence that no declarations of any hospitality relating to this contract were made by its staff, Salesforce subsequently provided written evidence of more than 100 instances of hospitality and/or gifts, including meals, drinks, and golf outings, passing to NDIA officials over an almost five-year period. This was before and after the award of the contract, and throughout the period of contract variations.”

The Chair has also written to Salesforce asking if Salesforce’s Office of Global Ethics and Integrity had approved each of these payments in accordance with their corporate policy.

Mr Hill further stated, “The premise stated by NDIA for its hospitality policy is that none of its officials should accept gifts that could be seen to compromise their integrity. This was clearly not followed.”

Regarding the ADHA’s management of its contract with Accenture, Acting Auditor-General Mellor pointed to a “limited” identification and assessment of commercial risk, and a diminished day-to-day effectiveness of administration of the contract due to “not fully fit for purpose” managing and planning.

Ms Mellor stated, “Contract variations within the existing contract term have been made with insufficient assessment of risk, consideration of materiality, and justification of value for money. The management of contract performance has not utilised all available levers under the contract.”

The Department of Health contracted Accenture to operate the platform as its chosen national infrastructure operator (NIO) in June 2012. Four years later, the ADHA corporate entity was established and became responsible for My Health Record.

The agency has varied its NIO contract with Accenture eight times between 2018-2023, with total ADHA expenditure on the platform’s NIO service providers seeing 71% of spending flow to Accenture.

Accenture’s My Health Record contract has increased by $699 million from its initial worth of $47 million as of June 30, 2014, to a current total contract value of $746 million for NIO services between 2012-2025.

Ms Mellor commented, “ADHA’s planning and decisions about how to approach the market for the contract in 2019 and 2022 were deficient. For both sole source limited tender procurements, ADHA’s conduct of limited tender processes under Division 1 of the Commonwealth Procurement Rules (including demonstrating value for money, managing probity, and public procurement reporting) was also deficient.”

The ANAO also highlighted a range of issues with the ADHA’s policies and guidance for procurement and contract management, citing inconsistent instructions about policies relevant to managing conflicts of interest and past risk assessments of contract management plans that were not consistently robust.

Mr Hill noted, “We will be carefully evaluating the levels of expertise, governance arrangements, record-keeping, performance measures, and policies and guidelines of a number of recently audited agencies with respect to their external contracts.

“There are also ongoing probity issues which arise during the management of a contract and the Committee will consider whether current frameworks and practices are fit for purpose.”

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