One of the earliest forms of public accountability rested on the idea that the public should know how government money is spent. The latest version of that accountability in Australia is the tender database, which records who gets what government contracts.
Earlier in our special report on Who Profits from our Foreign Aid? we reported on some AusAID entries in the database that were unhelpfully vague. As we investigated further, we found other entries that are misleading or wrong, undermining the little transparency that does exist.
Last week, we reported on two big private aid companies, GRM International and GHD. This week we move onto two public companies, Cardno and Coffey International, and look more at who gets what slice of the Australian aid pie.
Public companies have to disclose more information than private companies but they also have pressure on them to maximise profits and returns to shareholders.
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Like GHD, Cardno, Australia’s third biggest aid contractor, began life as a humble Australian engineering company but turned into a global services company winning more than $500 million of AusAID contracts over the past three years.
The company has bucked the financial downturn in 2009-10, predicting a final record profit of more than $36 million, thanks partly to a merger with Entrix, a US-based environmental company and oil spills specialist hired by BP to help with its Gulf of Mexico spill.
Public/private partnerships are at the core of Cardno’s success story with new AusAID, US AID and European Union aid contracts as well as 100 projects under the federal government’s $3.2 billion school stimulus package.
Cardno has interests in everything from conflict resolution to law and justice, tourism, financial development, HIV AIDS and bridge building. Aid and development contracts contribute about 35% of the company’s overall revenue. That’s not ongoing guaranteed income, managing director Andrew Buckley points out, but he acknowledges the advantage of less-squeezed public clients in recession.
While Buckley agrees the bottom line is shareholder return, he argues profits won’t grow if Cardno fails to deliver effective aid.
Profitability and aid delivery go together. The word “transparency” appears frequently in Cardno’s corporate communications. According to the latest company magazine Cardno Connect:
“It is no longer socially acceptable for private corporations to operate independently of public scrutiny, indeed they are now obligated more than ever to make sustainable business decisions and act in a manner that demonstrates good corporate citizenship. Corporations today are judged and held accountable by the repercussions of their actions by both shareholders and communities alike; indeed whole teams are dedicated to the task of maintaining a positive corporate image.”
But there are limits to transparency. Asked whether he agrees companies such as NGOS should be required to publish financial statements about aid projects, he declines; it’s “up to AusAID”.
Cardno has blossomed under the rise of technical assistance aid, which rose to nearly 42% of the aid budget under the Howard government and has still been 34.5% under Labor. Over the past three years, Cardno has won close to $100 million for contracts involving the Australia-Indonesia basic education fund and $60 million to alleviate poverty in the Indonesian province of Nusa Tenggara. Between 2003 and 2009, it received $158 million to manage the PNG law and justice program.
In September 2009, it got $50 million project from the US President’s Emergency Plan for Aids Relief Fund to build alliances between public and private sectors. For the past five years, it has led European Commission projects to help China introduce law reforms for integration into world trading systems.
The company’s annual review reports that while the market for international development remains strong, profits are down because of ‘timing of contract” issues. Asked what this refers to, Buckley explains the company hasn’t been able to replace a large USAID project on land title reform in Afghanistan with another big project.
But there are threats to Cardno on other technical assistance companies on the political front in Australia. This form of short-term consultancy aid has been criticised in a national audit and in a report to the government on PNG Aid. The PNG report found:
“The status quo is not an option. There is widespread dissatisfaction with the aid program in both Papua New Guinea and in Australia, at various levels, political, bureaucratic, stakeholder, and in the media. There is a perceived lack of impact, and failure to obtain value‐for‐money. While some recognise its values and stress achievements, others are more dismissive of the program as a whole. These perceptions themselves would be a cause for concern, but they also reflect a growing body of evidence which strongly suggests that substantial change is needed.”
The review calls for an examination of administrative arrangements and staffing of the secretariat for the Law and Justice program. One problem is the high salaries paid to Australian consultants. Recently The Australian reported one of Cardno’s contractors, a former clerk of a Melbourne court, is being paid more than half a million dollars a year, tax-free, as Australia’s law and justice adviser to PNG, while an engineer from Brisbane is receiving $433,000 annually to supervise the maintenance of road construction in Vanuatu.
An AusAID spokesperson explains the high salaries: “We work in some of the most corrupt countries in the world, it is a sticky situation. We manage risk.
“We have an acceptance that this is not sustainable and while salary components can be generous you still have to live in Moresby. Broadband internet, for example, is between $500 and $700 a month.”
AusAID has announced a review of technical assistance, meaning all advisers’ salaries will be monitored for the next financial year.
A curious aspect of the PNG report is that the companies who manage the contracts are not mentioned nor were they involved in the consultation. Buckley would not discuss individual projects but describes some criticisms as “unsophisticated”.
Asked if he had read the reports and whether AusAID was in discussions with Cardno about its review, he declined to discuss the subject. Does he agree the salaries were too high? “It is pretty hard generally to get people to go to developing countries and put their lives on hold in difficult locations, away from the family. I would love to see other people putting up their hand.” He defends the company’s technical assistance, which aims “to deliver efficient outcomes for clients”.
Some AusAID Cardno contracts on the tender database are surprising — one for more than $11 million in office and desk accessories. Says AusAID media: “Of course a reasonable person would be alarmed to know that $10 million was spent on office accessories.” So you agree that it looks bad? “That could be the perception.”
But the perception it seems is wrong. AusAID classifies the codes according to UN regulations — in this case code 44000000 (Office and Desk Accessories) is incorrect. The actual amount budgeted for office and desk equipment including furniture, computers and other equipment is $26,836, with the whole contract delivers the “core component of the Pacific Leadership Program”.
ACIJ also asked about one of Cardno’s Cambodian contracts worth $27 million for what appears to be business administration services. In fact, according to AusAID: “The project aims to increase farmer incomes in the rice-based farming systems of Cambodia by accelerating the value of agricultural production.” Asked about the misleading contract descriptions and the lack of transparency, the spokesperson said: “We are a small agency running an enormous budget.” He said that AusAID is “as transparent as we must be under the law”.
Growing the aid business
In 2003, Cardno was a relatively small aid player with contracts mostly in its core engineering business. Back then NGOS were more active and got a healthier share of the contracts, but government policy was moving towards private companies, the biggest of which was ACIL. ACIL, which had been involved in Victoria’s transport privatisation and prisons, was the biggest corporate aid contractor holding 32 major deals worth $323 million.
In 2004, Cardno was floated on the Australian Stock Exchange and in 2005 merged with ACIL, bringing with it a whole new technical services division of softer forms of business such as conflict management, law, health and policing.
In 2007, Cardno made another strategic move by hiring Charles Tapp, whose own story mirrors the recent history of Australian aid policy. Tapp had been CEO of Care Australia where he attracted attention as the negotiator to release two aid workers accused of being spies in Serbia. Compared to others in the NGO sector, Tapp publicly criticised the “us and them” (NGOs and corporates) attitude among some NGO peers and was open to corporate involvement in aid.
In 2004, Tapp was appointed a deputy director general of AusAID where he played an active roll in reshaping aid policy. Three years later, AusAID contracts for nearly $1 million attracted the attention of the Sydney Morning Herald. AusAID explained the contracts were necessary — Tapp was to leave AusAID but stayed on to fill in for an unexpected senior vacancy.
By time the contracts had expired, Tapp was already working for Cardno. As managing director, Buckley informed the market: “His close working knowledge of the international division’s major clients will no doubt position Cardno to better meet these clients’ needs and objectives.”
In 2006, Cardno took over the UK-based Agrisystems and in 2007 merged with US-based aid contractor Emerging Markets Group. Recently these subsidiaries merged into one big development division, Cardno’s Emerging Markets, operating out of 70 countries including Sri Lanka, Indonesia, Kenya, PNG, the US and the UK with Charles Tapp as general manager.
Meanwhile, Cardno continues to build on its growing chain of smaller engineering, software and environmental management companies.
Because it’s a public company, some information is available on its board and executive salaries. Cardno packages are not exorbitant by Australian corporate standards but they are a factor when considering the cost effectiveness of aid delivery.
There are eight directors — all male — with the best known being former Defence chief Peter Cosgrove, who receives more than $73,000 annually. In 2009 the total package for the board was $1,910,854, with Buckley receiving $753,633 without counting dividends from his Cardno shares. Another $2,084,774 was paid out to five other executives, with Tapp receiving a $369,807 package.
Perpetual Trustee Company is Cardno’s biggest shareholder although the executive directors are also among the top 20 shareholders.
Buckley would like to grow Cardno’s aid business more. One regret is that he would have liked to use the company’s skills in sustainable residential, commercial and retail infrastructure that the company thinks, “has great application to developing countries and where we can do some good”. So far governments have not shown interest.
Wendy Bacon is the director of the Australian Centre for Independent Journalism. Michelle Stephenson is a freelance journalist and UTS postgraduate journalism student.