Scandal-plagued NSW state insurer icare used an unreasonably short tender process as part of an “opaque” procurement for its $260 million insurance platform, according to a damning review which found several other serious governance issues and potential conflicts of interest.
In 2015, a $31.4 million dollar contract was handed to Capgemini – a consultancy whose management had an undisclosed personal relationship with the then-icare chief executive – to implement a new claims management platform using software from US vendor Guidewire.
The deal followed an “unreasonably short” and opaque tender process at the agency, which was able to avoid normal procurement rules through the exemption of the National Insurer it manages, according to a review conducted by retired Supreme Court Judge Robert McDougall.
Released late on Friday, the McDougall review found the tender process was indicative of a troubling culture at the agency in 2015.
“Overall, the procurement process adopted for the Guidewire/Capgemini tender, and the attitude expressed by former senior leaders of icare, demonstrate an issue that recurs throughout this report: that the outcome was of primary importance, and that process was at best secondary. Indeed, it is open to conclude that, in this case, process was seen as an impediment to achieving a predetermined outcome,” Mr McDougall said.
Mr McDougall’s review found a ‘startup’ culture at the agency was driven by urgency and often came at the expense of procedure and probity. Those who sought to establish sound processes at icare were “ostracised” and a whistle-blower was discouraged from investigating his concerns before being bullied and harassed, according to the report.
Mr McDougal described the overhaul of the state’s insurance scheme as well-intentioned but “sloppy”.
A dedicated inquiry into the tender process formed part of Mr McDougall’s wider review. It concluded the Capgemini and Guidewire tender process was uncompetitive and had “inadequate documentation around how conflicts were managed”.
An invitation to the market to register interest for the claims management core system lasted just five days and only three respondents were issued with a request for proposal, which had to be completed within 17 days. Only one proposal was ever provided, and the contract was awarded to a consortium of Capgemini and Guidewire.
According to tender notices for the deal uploaded nearly five years later, Guidewire was initially awarded $37.6 million but the contract was later extended to more than $87 million.
An update by icare this year revealed the agency will pay more than $140 million over eight years for software and consulting fees for the project.
Mr McDougall’s review found the lack of process had undermined the guidewire deal.
“[The procurement process] fundamentally compromises the probity and integrity to the transaction and ability for icare to obtain a value for money outcome.”
At the time icare was operating under “principles-based policy” and had no guidance on tender response times. But, according to the review, the insurer should have been “on notice” about the risks when only one response to the request for information from the market was received.
icare executives argued a more robust process would still have produced the same result and the market had been aware a tender was coming. But Mr McDougall rejected the argument.
“I do not accept, let alone agree, that the result would necessarily have been the same had the market been properly able to respond. After all, the whole purpose of a properly conducted tender process is to assess the market: to compare products, prices, and other relevant criteria,” he said.
The icare CEO at the time, Vivek Bhatia, had a potential conflict of interest because of a friendship he had with the head of Capgemini. He told the review he avoided involvement in Capgemini deals but accepted no record declaring his potential conflict of interest was made despite a process existing to declare it.
Concerns about the tender process were raised at the time but appear to have been disregarded by external advisors managing the procurement and there was no record of if the concerns were provided to the project’s steering committee or the icare board.
Mr McDougall was highly critical of icare conducting the procurement of several very large contracts, including Capgemini and Guidewire, through the National Insurer (NI) – the agency managed by icare and explicitly exempt from a number of NSW procurement rules.
“[P]rocurements for the NI, often involving very large sums of money, were conducted on an opaque basis, and in a way that did not ensure that the NI was obtaining value for the money (derived, of course, substantially from premiums paid by employers) that it spent,” he said.