NSW contractor spend doubles to $1.2bn in pandemic

Spending on contractors at New South Wales’ biggest government agencies has doubled since the start of the pandemic, climbing from just over $600 million to more than $1.2 billion last financial year.

Contractor stints are also becoming protracted, with almost half of the agencies reporting that they have engaged the same contractors for more than five years, as routine work is increasingly farmed out.

The findings are contained in an annual audit of the internal controls and governance at the state’s largest 25 agencies that also reveals similar concerns over the use of the same consultants year in, year out.

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The audit, released late last month, found that the agencies “recorded over $1.2 billion in combined contractor fees” in the 2021-22 financial year, a slight increase on the approximately $1.1 billion it spent in 2020-21.

But the data shows a significant increase of almost $600 million in spending on contractors between 2019-20 – when agencies appear to have begun collecting the data – and 2020-21, to reach the $1.1 billion figure.

While the reason for the increase is not discussed in the audit, the timeframe coincides with the series of COVID-19 waves that occurred following Australia’s first confirmed case in January 2020.

The audit also found 36 per cent of agencies are outsourcing work that is considered a “core capability” for the agency, with the contractors providing these services also the “highest paid” at the agencies

At 46 per cent of agencies, the timing of the work was also “not unpredictable or infrequent”, with one agency paying an individual contractor in a senior management role more than $599,000 in 2021-22.

As is the case with consultants, more than 40 per cent of agencies are also re-engaging the same contractor for five or more years, with an unnamed agency engaging a contractor continuously for 19 years.

Contractors were used on a recurring basis over the last five years by 80 per cent of agencies, but only 55 per cent of them had “reassessed the contract against the market before renewing the contract”.

“While there are benefits from re-engaging a contractor who has already gained experience and familiarity working with the organisation, agencies may not be achieving the best value for money if they have not reviewed the market,” the report said.

“This risk is particularly heightened the longer a contractor has been re-engaged as technological, regulatory and other environmental developments may have occurred to bring new suppliers on the market.”

At one agency the Auditor-General also found that “at least ten vendors each year from 2018 to 2022 that are linked to active employees”, none of which had declared secondary employment or pecuniary interests.

The agency also “transacted with at least 15 vendors each year from 2018 and 2022 that are linked to former employees”, including a former employee that recommended the vendor for a procurement and quit three months later.

“In one instance, a senior officer at the agency responsible for procurement had recommended a vendor for a $10 million contract in January 2018, left the agency in April 2018 and took a manager position with the vendor in September 2018. This individual then became a director at the vendor in 2019,” the audit said.

“No declaration of conflict of interest was made while the individual was an employee or as part of the procurement process.”

“Agency management were unable to locate key documents relating to this transaction such as the signed briefing paper, original recommendation to award the contract, and tender evaluation records.”

The Auditor-General has recommended agencies “ensure that contractor engagement that have been renewed over multiple years for the same role are periodically reassessed against the market to demonstrate that the contractor continues to represent value for money”.

Do you know more? Contact James Riley via Email.

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