Buried in the Australian National Audit Office’s excoriating audit of the Department of Immigration’s offshore processing contracting process is an extraordinary story of bureaucratic malpractice that explain much about the mentality of the Department of Immigration.

The lessons from reports about Immigration from previous governments — especially the Vivian Solon, Cornelia Rau and Mohamed Haneef cases — is that bad procedure is contagious. Encouraged by the Howard government to regard asylum seekers with contempt, Immigration ended up detaining and deporting Australian citizens due to serious flaws that had developed in its internal processes and systems. And the circumstances around the rushed re-establishment of offshore processing by Labor in 2012 infected Immigration procedures around offshore processing thereafter, creating a shambolic series of failed tender processes.

2012: Rush rush rush

Once the Gillard government decided it wanted offshore processing reopened stat in 2012, Immigration approached global services giant Serco and the International Organisation for Migration for indicative costings to start negotiations. Serco responded with a proposal including indicative pricing assumptions; IOM demurred. Two days after Serco responded, Transfield — which hadn’t been approached — emailed the Secretary of the Department, Martin Bowles, saying:

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“It has been a while since we have spoken. How is it going in the world of the Department of Immigration, I am sure it is very busy to say the least. Reason for contact is to enquire how Transfield Services can support you in your task in Nauru.”

Bowles quickly got back to Transfield and had the Immigration Department send Transfield the same request as Serco, which was then told its bid was rejected. Transfield sent a reply that, according to the ANAO, “did not provide details of the services Transfield offered or the associated costs,” although the following day Transfield emailed some hourly wage rates. That very day, Transfield was told it had got the gig and was to start a week later, with details to be negotiated in the interim.

Why was Serco dumped? The company was never told why, and the ANAO can’t find any evidence the department compared what Serco gave them with the (vague) details Transfield provided. Bowles told the ANAO it might have been because Serco was busy managing onshore detention centres and didn’t need the pressure. And why was Transfield picked? One reason cited internally was that the company was on a Department of Defence panel for garrison support services. But:

“Defence advised the ANAO that it did not have such a panel arrangement in place at that time. Defence further advised that it has no record of a request from DIBP seeking its views in August or September 2012 regarding the performance of its garrison support suppliers. Available DIBP records indicate that it had regard to Defence panel rates but it is not clear how this was possible if no Defence panel existed.”

2013: Costly consolidation

A similar fate to Serco befell security provider GS4 when Immigration was ordered, after the election of the Abbott government and the commencement of “Operation Sovereign Borders”, to save money by “consolidating” services contracts as part of a process meant to reduce costs until a full-blown, proper tender process could be conducted the following year. Somewhere, a decision was taken to dump G4S as part of that process. Separately, after Transfield had met new minister Scott Morrison in November 2013, Transfield — again seemingly very well placed — picked up Serco’s contract.

[Meet the companies that run our immigration detention camps]

At the time, former Transfield chairman Tony Shepherd’s National Commission of Audit was looking for efficiencies in offshore processing; it ended up recommending “by renegotiating contracts and better targeting of services, the per person cost of operating the Onshore immigration network be reduced to 2011–12 levels and similar efficiencies be sought for the offshore network”. (Shepherd had divested himself of his Transfield interests before the commission started).

The problem was, the department didn’t have a reason for why it was junking G4S for Transfield. It certainly wasn’t because it would have saved money, as they’d been instructed to do — Transfield’s services were going to cost more, not less, than G4S’s on Manus Island. An Immigration Band 3 SES officer complained “… in communicating and dealing with G4S and TSA [The Salvation Army], we do not have [a] line on ‘why is Transfield continuing, and not us’. This is another way for the issue of performance to be raised. What do we say about that.” A reply came back from an underling that that was a “‘their performance has been better than yours’ discussion which we don’t want to get into”.

To justify the decision to dump G4S, the Department tried to convince the Department of Finance “we have had a scrutiny and recommendation report recommending that we not take up the extension option available to us due to the underperformance by the service providers”. But there was no such report at any time, and G4S had never been told of any problems. Bowles later told the ANAO there was only a report that “did highlight areas for improvement and potential areas of change to the nature of the services provided”.

This left a problem — Immigration had been told by the government to cut costs through consolidation; now it was awarding Transfield a more expensive contract. It tried to argue that the new deal was “value for money” by saying it had negotiated Transfield down to a price that wasn’t as expensive as the initial offer, and blamed the drop-off in boat arrivals for depriving the company of economies of scale. The department kept Morrison and new minister Peter Dutton in the dark about the higher cost, but Finance spotted it, and calculated that the cost per person of the new contract was well over twice that of the previous contracts.


2015: Competition at last? Nope

In 2015, the department finally undertook an open tender process for the offshore processing contracts. The process was a debacle from the outset — records were lost, IT systems didn’t function properly, KPMG, which was helping the department with the process, didn’t provide conflict of interest guarantees until near the end of the process, evaluation processes weren’t finished properly. The final result was — surprise! — Transfield won the tender, with Serco as the runner-up. Still, all was well, wasn’t it?

No — the department had its worse stuff-up yet to come. It proceeded to go and commit one of the most common errors in public service procurement: it negotiated a different set of services with the tender winner than it had advertised for. This is a huge mistake in government procurement, because it means the winner has been given an advantage over other tenderers. Companies have been awarded huge damages claims for such errors.

[Transfield’s $2.7 billion PR nightmare]

These negotiations added over $1 billion to the price of the contract — at a time when the department had already received a prime ministerial rebuke for constantly exceeding its offshore detention budget (despite the boats having been stopped). To establish that Transfield’s new, far more expensive final proposal was value for money, the department only compared it to the existing Transfield contract, which as we’ve already seen had no basis as a decent benchmark anyway.


In December last year, the finalised contract went to the relevant Band 2 senior executive service officer for signature. The whole process was done and dusted, the procurement team was being disbanded and the bureaucrats were probably enjoying some celebratory afternoon tea and looking forward to Christmas. Then the probity adviser struck, pointing out that negotiating a far more expensive contract than what tenderers had been invited to bid for, and being unable to show it was value for money, were major breaches of procurement guidelines. “This raises significant probity and process risks,” the adviser warned — the equivalent of a bright red flashing light. Either the department should start the whole process over again, or go back to the tenderers to get them to tender for what had been negotiated with Transfield.

That killed the contract. And, inevitably, the department wound up doing both the adviser’s recommended actions. Early this year, the department went back to Serco to ask for a new, proper bid. Then, in July, the entire process was stopped. According to the report, “the Department is now conducting market testing to determine our next steps”, with Transfield’s contract being extended.

All of this doesn’t begin to describe the extent of all the errors and misjudgements between 2012 and this year, including the department’s own procurement area suggesting the Commonwealth Procurement Rules could be avoided by the department conducting a tender process from Nauru or Manus Island. Together, they form a rule book of how not to engage in Commonwealth procurement processes that should be taught to public servants for decades to come.

Except that’s what they’ve said about every previous procurement debacle.

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Peter Fray
Peter Fray
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