Administration of the Australia Network Tender Process

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ANAO Audit Report No.29 201112Administration of the Australia Network Tender Process

2

Commonwealth

of Australia 2012

ISSN 10367632

ISBN0642812365

COPYRIGHT INFORMATION

This work is copyright. Apart fromany use as permitted under theCopyright Act 1968, no part may bereproduced by any process withoutprior written permission from theCommonwealth.

Requests and inquiries concerningreproduction and rights should beaddressed to:

Executive DirectorCorporate Management BranchAustralian National Audit Office19 National CircuitBARTON ACT 2600

Or via email:

[email protected]


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3

Canberra ACT3 April 2012

Dear Mr PresidentDear Mr Speaker

The Australian National Audit Office has undertaken an independentperformance audit in the Department of Foreign Affairs and Trade,Department of Broadband, Communications and the Digital Economyand the Department of the Prime Minister and Cabinet in accordancewith the authority contained in theAuditor-General Act 1997. Pursuant toSenate Standing Order 166 relating to the presentation of documentswhen the Senate is not sitting, I present the report of this audit, and theaccompanying brochure, to the Parliament. The report is titled

Administration of the Australia Network Tender Process.

Following its presentation and receipt, the report will be placed on theAustralian National Audit Offices Homepagehttp://www.anao.gov.au.

Yours sincerely

Ian McPheeAuditor-General

The Honourable the President of the SenateThe Honourable the Speaker of the House of RepresentativesParliament HouseCanberra ACT


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ContentsAbbreviations .................................................................................................................. 7 Glossary ......................................................................................................................... 8Summary and Recommendations ............................................................................ 11Summary ...................................................................................................................... 13

Introduction ............................................................................................................. 13Key aspects of the Australia Network tender process ............................................ 14Media interest and Parliamentary requests for an audit ......................................... 15Audit objectives and scope ..................................................................................... 16Overall conclusion ................................................................................................... 17Summary of responses to the proposed report ...................................................... 26Full responses to the proposed report .................................................................... 29

Audit Findings ............................................................................................................ 311. Background and Context ........................................................................................ 33

Background on the Australia Network ..................................................................... 33Proposals for the future of the Australia Network ................................................... 35Key aspects of the Australia Network tender process ............................................ 43Media interest and Parliamentary requests for an audit ......................................... 45Audit objective, criteria and methodology ............................................................... 46Audit report structure............................................................................................... 49

2.Administrative Arrangements for the Tender Process ............................................ 50Introduction ............................................................................................................. 50Roles and responsibilities ....................................................................................... 51Tender timeframe .................................................................................................... 54Tender planning ...................................................................................................... 56Concluding comments............................................................................................. 64

3. The Initial Tender Process ...................................................................................... 67Introduction ............................................................................................................. 67Evaluation of the Australia Network tenders ........................................................... 67Consideration of the Tender Evaluation Report ...................................................... 73The Governments role in the decision-making process for the tender .................. 74The basis of the decision to amend the tender process ......................................... 79Decision and announcement on the tender process .............................................. 87Concluding comments............................................................................................. 88

4. The Amended Tender Process ............................................................................... 90Introduction ............................................................................................................. 90Implementing the amended process ....................................................................... 90Complaints relating to the tender process .............................................................. 92Supplementary tender evaluation process ............................................................. 97Consideration of the Supplementary Tender Evaluation Report ............................ 99


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Concluding comments........................................................................................... 1025. Tender Termination and New Arrangements for the Operation of the Australia

Network ................................................................................................................. 104Introduction ........................................................................................................... 104Termination of the tender ...................................................................................... 104Impact of the termination ...................................................................................... 110Future arrangements for the operation of the Australia Network .......................... 112Concluding comments........................................................................................... 115

Appendices ............................................................................................................... 117Appendix 1: Full responses to the proposed report .............................................. 119Index ........................................................................................................................... 131Series Titles ................................................................................................................ 132Current Better Practice Guides .................................................................................. 136Tables

Table 1 Recipients of the proposed report or extracts of the proposed

report .................................................................................................. 25

Table 1.1 Summary of the ABCs performance against the 2006 KPIs ............. 39Table 1.2 Key events in the 2011 Australia Network tender process ................. 45Table 2.1 Original timeline for the Australia Network tender .............................. 55Table 2.2 Published indicative timetable under the amended tender

process ............................................................................................... 55Table 2.3 Order of importance of evaluation criteria in the evaluation

process ............................................................................................... 62Table 2.4 Approved budget and departmental costs for the Australia

Network tender (as at 20 March 2012) ............................................... 64Table 3.1 Evaluation processAustralia Network tender .................................. 69Figures

Figure 1.1 Report structure .................................................................................. 49


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7

Abbreviations

ABC AustralianBroadcastingCorporationAFP AustralianFederalPoliceAFR AustralianFinancialReviewAGS AustralianGovernmentSolicitorANAO AustralianNationalAuditOfficeANC AustralianNewsChannelPtyLtdAPS AustralianPublicServiceCPGs CommonwealthProcurementGuidelinesDBCDE DepartmentofBroadband,CommunicationsandtheDigital

EconomyDFAT DepartmentofForeignAffairsandTradeFinance DepartmentofFinanceandDeregulationFMAAct FinancialManagementandAccountabilityAct1997FMARegulations

FinancialManagementandAccountabilityRegulations1997

KPI

KeyPerformance

Indicator

PM&C DepartmentofthePrimeMinisterandCabinetRFT RequestforTenderTEB TenderEvaluationBoard


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8

Glossary

Approach to the

market

Anynotice invitingpotential suppliers toparticipate in a

procurement,including

arequest

for

tender,

request

for

expressionof interest,requestforapplicationfor inclusion

onamultiuselist,orinvitationtotender.

Approver An approver is the person or decisionmakingbody that

decides whether or not to spend public money. This

includes decisions aboutwhether to select apreferred or

successful tenderer as the result of an approach to the

market.

The

FinancialManagement

and

Accountability

Act

1997regulationsdefineanapprovertomean:aMinister;a

Chief Executive of an FMA Act agency or a person

authorisedby or under an Act to exercise a function of

approvingproposals tospendpublicmoney.Thecapacity

for a Minister or Ministers collectively to undertake a

decisionmakingroleinrespecttodecisionsaboutwhether

to spend public money is provided for in the financial

management legislation provided that they are identified

asthe

approvers.

AusTender ThecentralwebbasedfacilityforpublicationofAustralian

Governmentprocurement information, includingbusiness

opportunities, annual procurement plans and contracts

awarded.Availablefrom:.

Commonwealth

Procurement

Guidelines

(CPGs)

The CPGs establish the Australian Governments core

procurementpolicyframeworkandarticulateexpectations

for all departments and agencies subject to the FinancialManagementandAccountabilityAct1997and theirofficials,when performing duties in relation to procurement. An

officialperformingdutiesinrelationtoaprocurementmust

actinaccordancewiththeCPGs.

Evaluation

criteria

Thecriteriathatareusedtoevaluatethecomplianceand/or

relativerankingof tenders.Allevaluationcriteriamustbe

clearlystated

in

the

request

documentation.


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9

Opentender

process

Aprocurementprocedure inwhicharequestfortender is

published invitingall suppliers that satisfy the conditions

forparticipationtosubmittenders.

Procurement Procurement encompasses thewholeprocessofacquiring

property or services. It begins when an agency has

identified a need and decided on its procurement

requirement.Procurementcontinuesthroughtheprocesses

of risk assessment, seeking and evaluating alternative

solutions,contractaward,deliveryofandpaymentforthe

property and services and, where relevant, the ongoing

management of a contract and consideration of options

relatedto

the

contract.

Requestfor

Tender(RFT)

A published notice inviting suppliers who satisfy the

conditions for participation to submit a tender in

accordancewithrequirementsoftherequestfortenderand

otherrequestdocumentation.

Valueformoney The CPGs explain that valueformoney in procurement

requires a comparative analysis of all relevant costs and

benefitsof

each

proposal

throughout

the

whole

procurement cycle (wholeoflife costing).1 Valuefor

money is enhanced in government procurement by:

encouragingcompetition;promotingtheefficient,effective

and ethicaluse of resources; andmaking decisions in an

accountableandtransparentmanner.

1Australian Government, Commonwealth Procurement Guidelines, Department of Finance and

Deregulation, Canberra, p.10.


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11

Summary and

Recommendations


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13

Summary

Introduction

1. TheAustraliaNetworkisanAustralianGovernment2fundedoverseas

televisionbroadcastingserviceestablished topursueforeignand tradepolicy

objectives,including:

promotingAustralias engagement across theAsiaPacific and Indian

subcontinent;

fostering an understanding of Australia as a dynamic, culturally

diversenation;and

raisingawarenessofAustraliaseconomicandtradecapabilities.3

2. TheAustraliaNetworkserviceisavailableviasatelliteandonlinevideo

and is rebroadcastacrossAsia, thePacificand the Indian subcontinent.The

service is: freetoair, operating 24 hours a day, seven days a week; and

broadcasts a mix of news, current affairs and business, Englishlanguage

learning, education, documentaries, drama, sports and childrens programs.

The Australia Network is also used to transmit consular information to

Australianslivingabroad,particularlyintimesofcrisis.4

3. Since 2001, the Australian Broadcasting Corporation (ABC) has

delivered theAustraliaNetwork serviceunder twosequentialcontractswith

theCommonwealth ofAustralia, representedby theDepartment of Foreign

Affairs and Trade (DFAT). The most recent contract was due to expire on

8August2011.Priortotheexpiryofthecontract,theGovernmentconsidereda

rangeofoptionsforthecontinueddeliveryoftheservice,withadecisiontaken

on 22November2010 to award the contract through a competitive tender

process.

Procurement framework

4. The letting of Australian Government contracts involves the

expenditure ofpublicmoney and is therefore subject to applicable financial

2For the remainder of this report, the Australian Government will be referred to as the Government,unless otherwise indicated.

3DFAT,Annual Report 201011, p. 130.

4

Australian Government Budget 201112, Budget Paper No. 2 Budget Measures, p. 202.


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RFTattractedtendersfromtheABCandtheAustralianNewsChannelPtyLtd

(ANC),ajointventureofNineDigital,adivisionofNineEntertainmentCo.,

Seven Media Group and British Sky Broadcasting.8 Both organisations that

tenderedhadalsoparticipatedinthe200506tenderforthe200611Australia

Networkcontract.

9. DFAT initially planned for a sixmonth tender process. However,

significantchangestotheprocessweremadebytheGovernmentatkeypoints,

which extended the timeline. These changes included the Governments

decisioninJune2011to:addanewevaluationcriteriontotheRFTandtoseek

further information from tenderers;and change thedecisionmakingprocess

forawardingthetenderbyreplacingtheSecretaryofDFATwiththeMinister

forBroadband,Communicationsand theDigitalEconomy (Communications

Minister)as

the

approver.

The

Government

sought

agreement

from

the

ABC

to

extend the contract for six months until 8February2012 to allow for the

continuation of the Australia Network service while the amended tender

processwascompleted.

10. InNovember2011, the tenderwas terminatedby theGovernmenton

publicinterestgrounds9,followingmediareportsthatreferredtoconfidential

information relating to the tender process. Subsequently, inDecember2011,

theGovernmentdecided that theAustraliaNetworkwouldbedeliveredby

theABC

on

apermanent

basis.

Media interest and Parliamentary requests for an audit

11. TheAustraliaNetworktelevisionbroadcastingservicehas,overmany

years,beenanimportantavenuethroughwhichAustraliaispromotedtoother

partsoftheworld.Whenconsideredagainstthebackgroundofthehighlevel

of interest inmediaownershipandbroadcastingrights inAustralia, itwasto

beexpectedthatthetenderfortheAustraliaNetworkcontractwouldgenerate

moremedia

interest

than

many

other

government

procurement

activities.

12. Initial reporting in the media focused on the degree to which the

Government wouldbe able to influence editorial andbroadcasting content.

Laterreportsspeculatedon,andreportedon,aspectsoftheconfidentialtender

8The ANC owns and operates Sky News Australia, Sky News Business, Australian Public AffairsChannel, Sky News Local and Multiview, and provides news content on both free-to-air and subscriptionservices in New Zealand.

9The RFT provided at clause 4.7.1 that the contract may be suspended or terminated if the

Commonwealth, represented by DFAT, considered that it was in the public interest to do so.


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16

evaluation process, delays in awarding the contract, changes to the tender

requirements and the perceptions of government interference in the tender

process. The probity of the tender process was also questioned following

reportsthatseniorABCexecutiveshadapproachedtwogovernmentMinisters

atthe

time

the

Government

was

considering

changes

to

the

tender

process.

13. The tenderprocess also attracted considerable Parliamentary interest.

Inthiscontext,inSeptember2011,theDeputyLeaderoftheOppositionwrote

tome requestingan investigation into theconductof theAustraliaNetwork

tender,particularlythetransferofthedecisionmakingresponsibilityfromthe

Secretary of DFAT to the Communications Minister. My response on

28September2011 indicated that, given the advanced stage of the tender

process, an audit would notbe undertaken at that time,but that I would

continueto

monitor

the

tender

process

and

outcome,

and

keep

open

the

option

ofundertakinganauditatalaterdate.

14. TheDeputyLeaderoftheOppositionagainrequestedthatIinvestigate

mattersrelatingtotheAustraliaNetworktenderprocesson8November2011,

following the announcement of the termination of the tender process. The

CommunicationsMinisteralsowrotetomeon22November2011requestinga

review of the tender process in the interest of ensuring that future tender

processesareasrobustaspossible.

15. Following consideration of these requests and the broader

Parliamentary and public interest, I announced on 24November2011 that a

performance audit of the administration of the Australia Network tender

processwouldbeundertakenundersection18oftheAuditorGeneralAct1997.

Audit objectives and scope

16. TheauditobjectivewastoreportontheadministrationoftheAustralia

Network

tender

process

and

to

identify

lessons

learned

from

the

conduct

of

the

processtoinformfutureprocurementactivities.

17. Theauditexaminedtheadministrationofthetenderprocess,including:

planning; conduct of the tender; and managing the change in tender

conditions.Theauditalsoconsideredtheadviceprovidedtogovernmentand

the manner in which government decisions were implemented, including

compliancewithprocurementrequirements.

18. The Australia Network tender process has been subject to ongoing

considerationby

the

Government.

The

Government

has

performed

akey

role

in the decisionmaking process and, in doing so, has taken into account the


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Summary


17

advice provided by several departments and advisers. The departments

concernedhadalsoobtainedadvicefromexternalprobityand legaladvisers.

Inseveralareasofthisreport,referencehasbeenmadetotheadvicereceived.

The report also includes relevant references to briefings and submissions

provided

to

Cabinet,

Cabinet

decisions,

and

the

deliberations

and

recommendations of the Tender Evaluation Board, including the preferred

tenderer,aswellascomplaintsmadeaboutthetenderprocess.Ihavetakenthe

extraordinarystepofincludingthisinformationinthisreportasitiscentralto

understandingtheissuesinvolvedinthetenderprocessandtoprovidecontext

fortheauditfindings,conclusionsand lessons learned.Ihaveconcludedthat

the inclusion of the information is not contrary to the public interest.10 The

report on the audit does not extend to commenting on the deliberations of

Cabinet,except

where

such

matters

have

been

specifically

referred

to

by

Ministerstoinformtheauditonkeyissues.

19. Aseparate investigation isbeingconductedby theAustralianFederal

Police (AFP) into thepossibleunauthoriseddisclosureof confidential tender

information.11 The audit did not directly examine these matters, but did

include consideration of the confidentiality and document handling

arrangementsestablishedbyDFATforthetenderprocess.

Overall conclusion20. The Australia Network is an Australian Government funded

international television servicedesigned topresentan impartial, reliableand

independent voice in Asia, the Pacific and the Indian subcontinent. Since

commencement of an internationalbroadcasting service in 1993, it hasbeen

operatedbyacommercialbroadcaster,andalsoby theABC,whichheld

thecontracttodeliverservicesfrom4August2006until8August2011.Under

thetermsofthecontract,DFATwasrequiredtoprovide12monthsnoticeto

theABC

regarding

any

intention

to

extend

the

contract

for

afurther

five

years,

effectivelyestablishingadeadlineof8August2010foradecisiononthefuture

10Section 37 of theAuditor-General Act 1997outlines the circumstances in which particular information isnot to be included in public reports, including if the Auditor-General is of the opinion that disclosure of theinformation would be contrary to the public interest.

11The AFP informed the Senate Legislative and Constitutional Affairs Committee on 14 February 2012,that some interim findings had been provided to the Secretary of the Department of the Prime Ministerand Cabinet (the matter was referred to the AFP by the Secretarysee paragraph 37). The departmentsubsequently informed the ANAO that it has provided additional information to the AFP and that the

department had not received further findings.


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18

ofthecontract.Thisnotificationdeadlinewasextendedtwicetoprovidetime

fortheGovernmenttomakeadecisiononwhethertoextendthecontract.

Retendering for the Australia Network service

21. To informthedecisionregarding thefutureoperationoftheAustraliaNetwork,DFATreviewedtheABCsperformanceundertheexistingcontract

and conducted an industry submission process. The review and the

submissionprocess identifiedbenefits togovernment from a longer contract

periodandstrengthenedperformanceindicators.Atthesametime,aproposal

outlined in an earlier 2009 submission sponsored by the Communications

Minister for theAustraliaNetwork tobepermanentlyoperatedby theABC

wasstillbeingconsideredbygovernment.

22. In response to a briefing from the former Foreign Minister, theHon.KevinRuddMP, theGovernmentdecidedon22November2010 thata

10yearcontractforthedeliveryoftheAustraliaNetworkshouldbeawarded

througha competitive tenderprocess,with thedetails tobe settledbetween

Ministers. Inherent in thisdecision toapproach themarket for theAustralia

Network,was an obligation that the tender processbe undertaken in good

faithandconductedinafair,transparentanddefensiblemanner.

23. Whileformalrecordswillnotnecessarilyreflectallmatterscanvassed,the

Governments

decision

to

select

aservice

provider

for

the

Australia

Network throughanopen tenderprocesswas silenton thedecisionmaking

processforthetender.Thelackofadocumentedgovernmentpositiononthis

issuecreatedsomeuncertainty in relation to thedecisionmakingprocess for

thetender,andsubsequentlyledtomodifiedarrangementsfor,anddelaysin,

thetenderprocess.

24. InDecember2010,theformerForeignMinisterappointedtheSecretaryofDFATasthepersontoapprovetheoutcomeofthetender.TheMinisterlater

explainedthat

his

decision

was

taken,

amongst

other

reasons,

to

ensure

that

the decision was, and was perceived tobe, on thebasis of merit and not

influencedbyanyother consideration.TheMinisteralsowrote to thePrime

Minister, Deputy Prime Minister, the Communications Minister and the

Minister for Finance and Deregulation seeking nominations from their

departments for representation on the Tender Evaluation Board (TEB) and

agreementtothedetailsforthetenderprocess.TheMinisterscorrespondence

referred to the TEB assessing the tenders and making recommendations to

Ministers.


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Summary


19

25. In response to the former Foreign Ministers correspondence, thePrimeMinisterinherletterof25January2011notedthattheoutcomesofthe

tender wouldbe subject toCabinet consideration, with Cabinet to agree the

successfultenderbid.Thiswasthefirstdocumentedreferencetoaformalrole

forCabinet

in

the

decision

making

process

although

asubsequent

briefing

preparedbytheCabinetSecretary12 indicatedthatMinistershadagreedatan

October2010meetingthatthedecisionwastobemadebyCabinet.However,

arrangementsalreadyputinplacebytheForeignMinisterfortheSecretaryof

DFAT to approve the tender outcome did not envisage an explicit role for

Cabinet.

26. During December 2010 and January 2011, DFAT establishedgovernance and administrative arrangements to manage the approach to

marketand

the

evaluation

of

tenders,

having

regard

to

specialist

advice,

including probity advice. These arrangements were, in the main, effective.

Probity arrangements were also put in place for the tender process.

Compliancewith thesearrangementsbyallpartieswouldhaveprovided the

basistobettercontroltheflowofconfidentialinformationduringthecourseof

thetenderevaluation;informationsecuritywaslatertobecomeanissueinthe

tenderprocess.

27. Over the initial five months of the tender process, issues around theapproval

arrangements

for

the

tender

remained

unresolved.

Against

the

background of this uncertainty, on 4May2011 the TEB, through the tender

Steering Committee, recommended to the Secretary of DFAT, in his role as

approver, that he accept the ANC as the preferred tenderer. While the

Secretary of DFAT had the authority to make a decision on the preferred

tendereroncehewassatisfiedthatallrequiredstepshadbeenundertaken,he

consideredthatmakingadecisionwouldbeinappropriategiventhediffering

views that existed within government, including at the ministerial and

departmentallevels,

as

to

how

the

decision

on

the

future

provider

was

to

be

made.Inthecircumstances,thiswasareasonableapproachtotake.

The amended tender process

28. Itwasnotuntil6June2011thattheGovernmentrequestedtheformerForeignMinistertobringforwardasubmission inrelationtothetenderwith

the aim of the Government agreeing the successful tender. The submission,

12

This brief to the Prime Minister was prepared on 14 June 2011 (paragraphs 3.37 and 3.55 refer).


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Summary


21

whether the additional evaluation criterionwould elicitmuch in the

way of further insights into the tenderers capacity to deliver the

service,giventherewasconsiderableweightofopiniontosuggestthat

the original tender scope of requirements was sufficientlybroad to

captureglobal

events14;

and

the added time and cost of the revised tender arrangements for the

partiestenderingtoprovidetheAustraliaNetworkservice,andtothe

Government.

31. Key Ministers were provided with a range of advice from theirdepartments ahead of the abovementioned government decisions, which

raised matters along the lines of the issues referred to in the preceding

paragraph.In

the

process

of

developing

advice

for

ministerial

consideration,

theTEBdeliberationsandrecommendations,whichfavouredtheANCasthe

preferred tenderer,wereprovided to staff inPM&Cand the formerForeign

Ministers officeby DFAT. In addition, the TEB report was provided to a

DBCDEofficerby thedepartmentsTEBmemberfor thepurposesofbriefing

theCommunicationsMinister shortlybefore theGovernmentsconsideration

ofchangestothetenderprocessthebriefwasmadeavailabletoanumberof

departmentalofficers and theMinistersoffice.While itwas appropriate for

thedepartments topreparebriefings forMinisterson the tenderprocess, the

briefingsshould

have

had

greater

regard

to

the

confidentiality

and

sensitivity

of the informationbeingprovided forwhatwas still a live tenderprocess.

Ultimately,informationwasnotastightlycontrolledasitshouldhavebeen.

32. FollowingtheGovernmentsdecisiontochangethetenderprocess,anAddendum to theRFTwas issuedon8July2011.TheTEBwas reconvened

and,after reviewing the revised tenders, submittedaSupplementaryTender

Evaluation Report to the CommunicationsMinister on 30August2011. The

report indicated it was the unanimous professional judgement of all TEB

14The initial Australia Network RFT required tenderers to provide an international television service andother digital media services that broadly supported Australias national interests. The original conditionswere considered by the Government to relate to Australias enduring interests in the Asia-Pacific region.The additional evaluation criterion focused on Australias national interests in light of changedinternational circumstances, particularly emerging markets in South Asia and the Asia-Pacific, politicaltransformation in the Middle East and North Africa, and recent consular crises. At the time the RFT wasreleased in February 2011, political unrest had been experienced in Tunisia and Egypt, but conflict hadyet to arise in other parts of the Middle East, including Libya and Syria. While the additional criterionrelated to international developments in the Middle East and North Africa, the Australia Network does notcurrently broadcast to the Middle East or North Africa and the RFT did not specify an expansion to these

regions as a requirement of the new contract.


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22

members that the ANCbid offers thebest overall valueformoney; [and]

accordinglytheBoardsoriginalrecommendationofselectingtheANCasthe

PreferredTendererremainsunaltered.15

33.

The

Communications

Minister

sought

additional

information

from

the

TEBonaspectsof theevaluationon twooccasions.TheMinisteralsosought

advice regarding the option of conducting parallel negotiations with both

tenderers.TheadviceobtainedbytheMinisterindicatedthat,whileitwasnot

withoutrisk,itwasopentotheMinistertoonceagainreferthematterbackto

theTEBandrequestDFATtoopenparallelnegotiationswithbothtenderers.

34. Againstthebackgroundofthisadvice,theCommunicationsMinistersoffice advised the Secretary of DFAT that, following consultation with his

ministerialcolleagues

and

in

order

to

make

afinal

recommendation

to

government,theMinisterhaddecidedthatbothtenderersshouldgothrougha

parallel negotiation process to: further test the financial reliability of each

tenderer given the duration of the proposed contract; clarify commitments

madeinthetenders;andfirmupaspectsofbothoffers.

Termination of the tender process

35. However,beforeparallelnegotiations commenced, theMinister,withtheagreementoftheGovernment,announcedtheterminationoftheAustralia

Networktender

on

7November

2011,

as

follows:

duetosignificantleaksofconfidentialinformationtothemedia,theAustralia

Network tenderprocesshasbeen compromised to such adegree thata fair

andequitableoutcomemaynolongerbeabletobeachieved.

36. While the stimulus for this decision was the publication of mediaarticleson17and24October2011,therehadbeenaseriesofearlierreferences

inthemediainMay,JuneandJuly2011toconfidentialaspectsofthetender.

37.PM&C

requested

that

the

AFP

commence

an

investigation

into

the

possible unauthorised disclosure of tender information in the October2011

media articles,but not the earlier possible disclosure of confidential tender

information. These earlier articles were not considered to contain tender

informationreflectingthesamelevelofaccuracy.

15DFAT, Supplementary Tender Evaluation Board Report, RFT DFAT11-CPD-02 Australia Network

Addendum 1, 30 August 2011, p. 3.


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Summary


23

38. The Communications Minister acted on the basis of legal anddepartmental advice16 in relation to key decisions on the tender process,including thedecision to terminate the tenderonpublic interestgrounds (asprovided for in theRFT).Nevertheless, it is clear that theMinister hadnotbeen convinced,upuntil the time of the termination of the tender, that theproposal by the ANC represented the best outcome for the AustralianGovernmenttodelivertheAustraliaNetworkservices.The costs and consequences

39. TheANChasestimatedthedirectcostsofparticipationinthetenderataround $1.4million plus additional preparation and indirect costs; the ABChasestimatedaround$475000indirectcosts;andDFATscoststoMarch2012were

around

$770

000.

The

ANC

has

approached

the

Government

to

seek

compensationforthedirectcostsofparticipationinthetender.40. The end result is that,afterhaving embarkedon a tenderprocess inNovember2010 for a 10 year contract for the delivery of the AustraliaNetwork, the Government changed courseon public interest groundstomake a policy decision in December2011 that the ABC would provide theserviceonapermanentbasis.41. While the Government was entitled to take such a decision, theAustraliaNetworktenderprocesshaspresentedtheAustralianGovernmentina poor light and cost the two tendererstheANC and theABCtime andmoney.Inthiscontext,theANCinformedtheANAOthat:

ANCexpended significantcostsparticipating in two tenderprocesseswhichwereultimatelycancelledforpoliticalreasonsandthroughnofaultofANC.17

42. DespitetheGovernmentagreeingtoatenderprocess,keyMinistersdidnot hold a common view of the approval processes, including any role forgovernment inbeing consulted on, agreeing to, or making the decision inrelation to thepreferred tenderer.Theapprovalarrangementswere changed16

The advice relied on by the Minister included: briefs from both PM&C and DBCDE in June 2011 thatindicated that there were no substantive conflict of interest or probity issues with the Minister becomingthe approver. The brief provided by PM&C (and relied on by DBCDE) incorrectly stated on the coverpage that the advice had been cleared by the AGS. While the AGS had reviewed earlier versions of thepaper, it did not review the specific paragraphs drafted by PM&C in relation to a possible conflict ofinterest for the Communications Minister, prior to the papers finalisation and circulation to Ministers.Further legal and probity advice relating to parallel contract negotiations with the tenderers andtermination of the tender was provided to the Minister in September and October 2011, respectively.

17

ANC, advice provided to the ANAO, 14 March 2012.


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24

fourmonths after the initialRFTwaspublished, and the additionof anew

evaluationcriterion for the tendernecessitated retendering,butdidnotalter

theviewsoftheTEBastothepreferredtendertheANC.Thisadditionalstep

addedalmost fivemonths to theprocessandadditionalcosts.Further, there

wereindications

of

possible

leaks

of

information

as

early

as

May

2011,

and

following further significant leaksof confidential information to themedia,

theGovernmentdecided,on thebasisof legaladvice,thatthe tenderprocess

hadbeencompromisedandshouldbeterminated.

43. The manner and circumstances in which this high profile tenderprocess was conducted brought into question the Governments ability to

deliver sucha sensitiveprocess fairlyandeffectively.This isdespite the fact

thatmany other tenderprocesses are employed in all areas of government,

someinvolving

decisions

by

Ministers,

on

more

substantial

and

complex

proposals,andareconcludedsatisfactorily.

44. One of the reasons for conducting this auditwas to identify lessonslearnedfromtheconductofthetenderprocessto informfutureprocurement

activities.Thereare threemain issues tobear inmind.Firstly, it is important

that,where it is intended thatMinisters orCabinet have a formal role in a

tenderprocess, that thisbemade clear;departmentshavea role inassisting

governmenttobeexplicitaboutthis.Secondly,informationsecurityiscritically

importantto

effective

tender

arrangements

and

there

are

accepted

ways

within

governmentofmanaging this,namely,bynotcirculatingconfidential tender

information toanydepartmentalofficers,Ministersor theirstaff,unless they

arepartof the tenderdecisionmakingprocessorhaveademonstrableneed

forsuchspecific information.Finally,allparties involved in themanagement

of a tender process should have regard to the importance of adhering to

conventionalprocurement arrangements and effectivelymanaging the range

ofrisksinvolved,giventheycanchangesignificantlyovertime.

45. TheGovernmentmayalsowishtoreflectonMinistersperformingtheroleofanapprover,insituationswheretheMinistersportfoliobodiesmaybe

submitting tenders for services to be determined by government. In such

circumstances,anyperceptionofaconflictofinterestcouldbemitigatedbythe

Government agreeing to another Minister, or more than one Minister,

approvingthetenderoutcome.

46. The audit has not made any recommendations in the light of thetermination of the tender process. That said, the abovementioned lessons,

together with some further suggestions in the concluding comments ofChapters 2 to 4 in this report, are designed to inform future procurement


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Summary


25

activitiesabout importantprocesselementsnecessarytoachieveefficientand

effective outcomes which have the confidence of tenderers and the wider

community.

Provision of the proposed report

47. UnderSection19of theAuditorGeneralAct1997, theAuditorGeneral

mustprovideauditedagencieswithacopyof theproposedreport,andmay

provideacopyof,oranextractfrom,theproposedreporttoanyone(including

a Minister) who, or anybody that, in the AuditorGenerals opinion, has a

special interest in thereportorthecontentof theextract.Subsection19(4)of

theActprovides that, if therecipientof theproposedreport,oranextractof

theproposed report, giveswritten comments to theAuditorGeneral within

28days

after

receiving

the

proposed

report

or

the

extract,

the

Auditor

General

mustconsider thosecommentsbeforepreparing the final report. Inaddition,

subsection19(5)oftheActrequirestheAuditorGeneraltoincludeinthefinal

auditreportallsuchcommentsreceived.

48. Accordingly,copiesoftheproposedreportorextractswereprovidedto

thefollowingagencies,organisationsandindividuals.

Table 1

Recipients of the proposed report or extracts of the proposed reportRecipient Role in the tender process Received

Department of Foreign Affairs andTrade

Administering agency

Designated subject of the audit underSection 18 of theAuditor-General Act1997

Full report

Department of Broadband,Communications and the DigitalEconomy

Policy agency


Full report

Department of the Prime Ministerand Cabinet

Co-ordinating agency


Full report

Senator the Hon. Stephen Conroy

Minister for Broadband,Communications and the DigitalEconomy

Approver for the Australia Networktender

Full report

The Hon. Kevin Rudd MPMinister for Foreign Affairs from14 September 2010 to 22 February2012

Full report


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26

Recipient Role in the tender process Received

The Hon. Mark Dreyfus QC, MP Cabinet Secretary Full report

The Hon. Stephen Smith MPMinister for Foreign Affairs from3 December 2007 to 14 September

2010

Extract

The Hon. Martin Ferguson AM, MP

Minister for Resources and EnergyMinister for Tourism

Contacted by a tenderer

Extract

Australian BroadcastingCorporation

Tenderer Extract

Australian Federal PoliceConducting an investigation intounauthorised disclosure of tenderinformation

Extract

Australian Government SolicitorProbity adviser to the tender

Adviser to the CommunicationsMinister

Extract

Australian News Channel Pty Ltd Tenderer Extract

Department of Finance andDeregulation

Policy department responsible foradministering the FinancialManagement and Accountability Act1997

Extract

Ms Pamela Fayle Chair of the Tender Evaluation Board Extract

Source: ANAO.

Summary of responses to the proposed report

49. TheAustralianNewsChannelPtyLtd,oneof the tenderers, and thethree departments subject to the audit provided the following summaryresponses.Australian News Channel Pty Ltd

50. The Australian News Channel Pty Ltd provided the followingsummaryresponse,withthefullresponseatAppendix1:TheAustraliaNetwork tenders represent a failure of public administrationandhighlight thepotential risk toa commercialorganisationofengaging inbusinesswith theCommonwealth, particularlywhen a government ownedentityisthecompetitor.NoAustralianbusiness,regardlessofindustryorsize,shouldbeexposedasANCwasbyparticipating,notoncebuttwice,intenderprocesses thatwereultimately cancelled throughno faultof theirown.Thiscannotbeinthenationalinterest.


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Summary


27

Department of Foreign Affairs and Trade

51. TheDepartmentofForeignAffairsandTradeprovided the following

response:

TheDepartment

of

Foreign

Affairs

and

Trade

believes

it

managed

the

Tender

process for the Australia Network consistent with the requirements of

Commonwealth Procurement Guidelines. The Department notes that the

Guidelines neither suggest nor require that APS officers sign individual

confidentialityundertakings.IftheANAObelievesthatthisshouldbeso,then

it should sort it outwith theDepartment of Finance andDeregulation.The

DepartmentbelievesitisuntenablefortheANAOtohaveastandarddifferent

tothatrequiredinofficialProcurementGuidelines.

TheDepartmentofForeignAffairsandTradenotesthathighlysensitiveand

classifiedmaterial

is

regularly

handled

through

the

Cabinet

communications

systemandcanseenoreasonwhytheAustraliaNetworkmattershouldhave

beentreatedanydifferently.

ANAO comment on the response from DFAT concerning confidentialityundertakings

52. As isoutlined inparagraph 2.3 in the report, theCPGs establish the

procurementpolicyframeworkforAustralianGovernmentagenciesandassist

seniormanagement inmeeting the financialmanagementandaccountability

requirementsof

the

FMA

Act.

Outlined

in

the

CPGs

are

mandatory

requirementsandmattersofsoundpractice.TheCPGsarenotexhaustiveand

it is the responsibilityofagencies to implementappropriatearrangements to

manageprocurementprocesses inaway that isproportional to the riskand

sensitivityofthevariousprocurementsinwhichtheyareinvolved.

53. The Australia Network tender process was a sensitive procurement

given the profile that media issues of this kind attract in Australia. In

administeringthetenderprocess,DFATimplementedarrangementsthatwere

overand

above

the

mandatory

requirements

of

the

CPGs

including:

establishinga steeringcommittee tooversee the tenderprocess;conveninga

multidepartment evaluation board with an independent chair to evaluate

submissions; and engaging external probity, legal and technical advisers to

assistwiththeongoingconductofthetender.

54. Where there is a sensitive tender process, theANAO considers that

askingevaluationboardmemberstoformallyacknowledgetheconfidentiality

and information security requirements outlined in the probity plan, or,

alternatively,complete

aconfidentiality

undertaking

reinforces

their

personal

responsibility for safeguardingconfidential tender informationandassists in


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28

managing the flowof such information.AGS in responding to theproposed

auditreportadvisedtheANAOthattheremaybesomecaseswhereobtaining

a writtenacknowledgement is appropriate and this is a practice which AGS

oftenadopts.18

55. The issueraisedbyDFAT inrelationtotheCPGs isonlyoneelement

relatingtoinformationsecuritythatthisreportrefersto.Themoresignificant

matter is the wide range of ministerial and departmental officers that had

access to theTEBsdeliberationsandrecommendationswhile the tenderwas

still live. There is also the separate issue of the AFP investigation into the

possible unauthorised disclosure of confidential tender information to the

media.

Department of Broadband, Communications and the DigitalEconomy

56. The Department of Broadband, Communications and the Digital

Economyprovidedthefollowingsummaryresponse,withthefullresponseat

Appendix1:

The Secretary of DBCDE, in reviewing the particular circumstances of the

14JuneCabinetconsiderationof the tenderandamendedarrangements,has

concluded that the circulation of briefing within the Department and

MinistersOffice

could

not

have

been

limited

to

fewer

officers.

The

Secretary

supportsgreaterclarityinarrangementstoexplicitlyauthorisethebriefingof

Ministers by TEB members when the tender is the subject of Cabinet

deliberation.

Department of the Prime Minister and Cabinet

57. The Department of the Prime Minister and Cabinet provided the

followingresponse:

1. TheDepartment

of

the

Prime

Minister

and

Cabinet

considers

that

the

reportinaccuratelydescribesthetenderasbeingconductedinaclimate

of uncertainty as to the decisionmaking process. The Prime Minister

hadadvisedon25January2011,beforethetenderwasreleased,thatthe

tenderbebroughtbacktoCabinetfordecision.Anydelaystothetender

in order to implement that decision did not arise from uncertainty or

lackofclarity.

18

AGS, advice provided to the ANAO, 22 March 2012.


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Summary


29

2. TheDepartmentagreesthatinformationsecurityisimportantfortender

processes. Departmental officers are subject to broader duties and

confidentiality obligations outside the tender process. Any

confidentialityarrangementsput inplace for tenderprocessesneed to

beconsidered

in

that

light.

ANAO comment on the response from PM&C concerning the decision-makingprocess for the tender

58. TheevidenceobtainedbytheANAOindicatesthattherewerediffering

viewswithingovernment,includingattheministerialanddepartmentallevels,

about thedecisionmakingandapprovalprocessesfor theAustraliaNetwork

tender.Therewasnoformaldocumenteddecisionofgovernmentinrelationto

theapprovalprocessintheearlystagesofthetender.Rather,therewereclear

indicatorsof

different

views

being

held.

59. InDecember2010,theformerForeignMinisterappointedtheSecretary

ofDFATasthepersontoapprovetheoutcomeofthetender.Inrespondingto

correspondence from the former Foreign Minister regarding the tender

process, thePrimeMinister incorrespondenceof25January2011noted that

the outcomesof the tenderwouldbe subject toCabinet consideration,with

Cabinet to agree the successful tender bid. A subsequent briefing by the

Cabinet Secretary19 indicated that Ministers had agreed at an October 2010

meetingthat

the

decision

was

to

be

made

by

Cabinet.

However,

arrangements

alreadyput inplaceby theForeignMinisterdidnotenvisageanexplicitrole

forCabinet.

60. Thedecisionmakingarrangementsforthetenderremainedunresolved

until such time as Cabinet appointed the Communications Minister as the

approverinJune2011.

Full responses to the proposed report

61. Fullresponses

provided

by

the

Australian

News

Channel

Pty

Ltd,

the

Hon. Martin Ferguson AM MP, the Department of Broadband,

Communications and theDigital Economy, and theAustralianGovernment

Solicitor,areincludedatAppendix1.

19

This brief to the Prime Minister was prepared on 14 June 2011 (paragraphs 3.37 and 3.55 refer).


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33

1. Background and Context

ThischapterprovidesbackgroundontheAustraliaNetwork,examinesthecontextforthe tenderprocess and refers to the media, Parliamentary andpublic interest in the

AustraliaNetworktender.Theauditobjective,criteriaandscopearealsooutlined.Background on the Australia Network

1.1 The Australian Government20 funds the Australia Network, an

overseas televisionbroadcasting service to pursue foreign and trade policy

objectives.Theseinclude:

promoting Australias engagement across the AsiaPacific and Indian

subcontinent;

fostering an understanding of Australia as a dynamic, culturally

diversenation;and

raisingawarenessofAustraliaseconomicandtradecapabilities.21

1.2 The Australia Network service is available via satellite and online

video,andisrebroadcastacrossAsia,thePacificandtheIndiansubcontinent.

The service is: freetoair, operating 24hours a day, seven days a week; and

broadcasts a mix of news, current affairs and business programs,Englishlanguage learning,education,drama,sportsandchildrensprograms.

TheAustraliaNetworkserviceisalsousedtotransmitconsularinformationto

Australianslivingabroad,particularlyintimesofcrisis.22

1.3 Since 2001, the Australian Broadcasting Corporation (ABC) has

delivered theAustralia Network serviceunder twosequential contracts with

the Government, administered by the Department of Foreign Affairs and

Trade(DFAT).

20For the remainder of this report, the Australian Government will be referred to as the Government,unless otherwise indicated.

21DFAT,Annual Report 201011, p. 130.

22

Australian Government Budget 201112, Budget Paper No. 2 Budget Measures, p. 202.


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34

Overview of service delivery arrangements for the AustraliaNetwork

1.4 The television broadcasting service now known as the Australia

Network

was

established

in

1993,

following

a

proposal

by

the

ABC

to

develop

aninternationaltelevisionservicethatwouldtransmitprogramstosouthand

southeast Asia. Australia Television International was established as a

subsidiary company of theABC and fundedby theGovernment through a

grant of $5.4million, repayable if the service returned a profit. The ABC

launched Australia Television International on 17February1993, initially

transmitting to 15countries. The ABC continued to operate Australia

TelevisionInternationalforfiveyears,duringwhichtimetheserviceoperated

ataloss.23

1.5 In1997,theGovernmentapproachedtheABCregardingtransitioning

AustraliaTelevision International to theprivate sector and in February1998

theSevenNetworkpurchasedtheservicefromtheABC.24TheSevenNetwork

operated Australia Television International for three years, closing it in

March2001. At the time, the Seven Network noted that the service was

operating in a crowded marketplace25 and that it was not commercially

viable.26

1.6

Following

the

closure

of

Australia

Television

International,

the

Governmentsoughtproposalsfromindustryregardingtheestablishmentofan

enhanced television service to the AsiaPacific region to project accurate

imagesandperceptionsofAustralia.27Afteralimitedselectionprocess28,the

Government announced in June 2001 that the ABC would be funded to

establish the service under a $90.4million fiveyear contract, spanning the

23Further information on the establishment of Australia Television International can be found in: KS Inglis,

Whose ABC?: The Australian Broadcasting Corporation, 19832006, Black Inc., Melbourne, 2006,pp. 2869.

24R Alston, (former Minister for Communications, Information Technology and the Arts), ABC base fundingretained in budget, media release, Parliament House, Canberra, 13 May 1997.

25Seven Network Limited, To Re-Assess Ongoing Viability of Australian TV, Announcement to theAustralian Stock Exchange, 7 August 2000.

26Seven Network Limited, Seven to close Australia Television, Announcement to the Australian StockExchange, 19 March 2001.

27DFATAnnual Report 200001, p. 177.

28A Downer, (former Minister for Foreign Affairs and Trade), Australian television service to the

Asia-Pacific region, media release, Parliament House, Canberra, 20 June 2001.


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Background and Context


35

period 2001 to 2006. The ABC recommenced international television

broadcasting,underthenameABCAsiaPacific,on31December2001.

1.7 In2005,thelastyearofthecontractwiththeABC,atenderforanew

five

year

contract

was

initiated,

with

the

aim

of

testing

the

market

for

potential

suppliersandselectingthemostsuitableprovidertocontinuetheinternational

televisionbroadcastingservice.Twoproposalswerereceived thatconformed

tothetenderrequirementsfromtheABCandtheAustralianNewsChannel

PtyLtd(ANC).TheANCisajointventureofNineDigital,adivisionofNine

Entertainment Co., Seven Media Group and British Sky Broadcasting.29 The

ABCwasassessedasthepreferredtenderer,andthethenGovernmententered

intoacontractwith ittodeliver internationaltelevisionbroadcastingservices

until 8August2011. The service was renamed Australia Network in

August2006.

Proposals for the future of the Australia Network

1.8 From 2009, the Government considered a range of options for the

ongoing operation of the Australia Network. These included: the Australia

Network being permanently operated by the ABC; the existing fiveyear

contractwiththeABCbeingrolledover;oranopentenderprocesstoselectthe

mostsuitableprovider.

1.9 Under the termsof theexisting200611AustraliaNetworkcontract,

DFAT was required toprovide 12months notice to the ABC regarding any

intention to extend the contract for a further five years. This effectively

established a deadline of 8August2010 for a decision on the future of the

contract.Ultimately,theGovernmentsdecisiontoinitiateacompetitivetender

processwasmadeon22November2010,aftertheABChadagreedtodeferthe

notification date to 8November2010 because of the Federal Election and

subsequentlyfurtherextenditto26November2010.

29The ANC owns and operates Sky News Australia, Sky News Business, Australian Public AffairsChannel, Sky News Local and Multiview, and provides news content on both free-to-air and subscription

services in New Zealand.


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36

Proposals for the Australia Network to be permanently operated bythe ABC

1.10 InNovember2009, theManagingDirectorof theABCdelivered the

Bruce

Allen

Memorial

Lecture.30

The

lecture

discussed

the

role

of

international

broadcasting and soft diplomacy, and proposed expanding the ABCs

internationalservice(theAustraliaNetwork)throughafourstageapproach:

Stage one: enhancing Australias media presence in the AsiaPacific

region,inparticular,IndiaandChina;

Stage two: expanding to 22countries in the Middle East and

53countriesinAfrica,includingArabiclanguagecontent;

Stagethree:expandingtoLatinAmerica;and

Stagefour:globalexpansionviabroadbanddeliverysystems.

1.11 Thecoreelementsof thisproposalhadpreviouslybeenprovided to

thethenPrimeMinister(theHon.KevinRuddMP) inearly2009followinga

requestfromthethenPrimeMinisterfortheABCtoprovideitsfuturevision

fortheAustraliaNetwork.

1.12 The Managing Directors lecture also informed government debate

aboutthefutureoftheAustraliaNetwork.InNovember2009,theMinisterfor

Broadband,Communications

and

the

Digital

Economy,

Senator

the

Hon.

StephenConroy (Communications Minister), sponsored a submission to the

Government31 outlining a proposal for the ABC to provide the Australia

Networkserviceonapermanentbasis,expanding its reachandaligning the

servicewithAustraliasdiplomatic sphereof influenceby integrating itwith

the ABCs other international broadcasting service, Radio Australia. The

submission stated that this approach would allow the ABC to deliver the

Australia Network as part of its core business, moving the international

televisionbroadcasting

function

from

the

Foreign

Affairs

and

Trade

portfolio

intotheBroadband,CommunicationsandtheDigitalEconomyportfolio.

30M Scott, A Global ABC: Soft Diplomacy and the World of International Broadcasting, Bruce AllenMemorial Lecture, Macquarie University, Sydney, 5 November 2009.

31

This proposal was titled ABC International Broadcasting Expanding Australias Voice.


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37

1.13 This submission was considered by the Government and it was

agreedthatthethenMinisterforForeignAffairs,theHon.StephenSmithMP,32

couldbringaproposalforwardaspartofthe201011Budgetconsiderations,if

it was his preferred option. However, the Minister opted not tobring the

proposalforward

in

the

Budget

considerations

as,

by

that

time,

he

was

consideringlaunchingaformalindustryconsultationprocess.

DFAT advice to government

1.14 InJanuary2010,DFATbriefedthethenForeignMinisterontheneed

toinformtheABCby8August2010oftheGovernmentsintentionsregarding

anextensionoftheexistingcontract.Thebriefoutlinedaproposedtimelinefor

thepreparationofasubmissiontotheGovernmentto informafinaldecision

onthe

contract

for

the

Australia

Network.

DFAT

expected

this

process

to

be

completeby earlyJuly 2010. At the request of the Minister, thebrief also

included information about an industry submission process expected to

commence inearlyJanuary2010andbecompletedby theendofApril2011.

There were ongoing discussionsbetween the Minister and the department

about the industry submissions process, with the Minister endorsing the

processinJune2010.

Industry submissions

1.15 The thenForeignMinister launchedan industry submissionprocess

onAustraliasinternationalbroadcastingserviceon18June2010withaclosing

dateof19July2010.ThroughthisprocesstheGovernmentsoughttheviewsof

interestedpartiesonthreekeyissues:

future opportunities and challenges for a governmentfunded

internationalbroadcastingservice toeffectivelydeliverahighquality,

credibleandreliableserviceintheAsiaPacificregion;

optionsfor

the

delivery

and

funding

of

an

international

broadcasting

serviceintheAsiaPacific;and

whether future delivery of the services should be the subject of a

competitivetenderprocess.33

32The Hon. Stephen Smith MP was the Minister for Foreign Affairs from 3 December 2007 to14 September 2010.

33S Smith, (former Minister for Foreign Affairs and Trade), Australian International Broadcasting Service:

Request for Industry Submissions, media release, Parliament House, Canberra, 18 June 2010.


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38

1.16 The Federal Election was announced on 17July2010two days

before the closing date for receipt of industry submissions. The subsequent

caretakerperiodcontinueduntil14September2010.Aspreviouslymentioned,

attherequestoftheGovernment,theABCagreedtodeferthenotificationdate

foran

extension

of

the

existing

contract

to

8November

2010.

1.17 Intotal,14submissionswerereceivedfromindustry.Themajorityof

submissionsdidnotsupporttenderingforthecontractandconsideredthat,if

thepurposeoftheAustraliaNetworkwastoactasatoolofpublicdiplomacy,

the service should remainwith theABCas thenationalbroadcaster.Several

submissionsalsonoted that itwasunusual foran internationalbroadcasting

servicefundedbyagovernmenttooperateunderacommercialarrangement.

1.18 Twoparties

indicated

an

interest

in

the

opportunity

to

tender

for

the

contract if a competitive tender process was tobe undertaken. It was also

suggestedthatalongertermcontractarrangementwouldsupportthefinancial

security of the service and, therefore, longterm planning, and brand

developmentandrecognition.

Review of the ABCs performance

1.19 Under the 200611 contract, a detailed performance review of the

ABCs operation of theAustraliaNetworkwas scheduled tobe undertaken

after thecompletionof the thirdyearof thecontract (that is, from late2009).

DFATcommencedthereviewinApril2010andprovidedthereviewreportto

the then ForeignMinister on 28June2010, fiveweeks ahead of theAugust

deadline tomake adecisionon the futureof theABCs contract.34Asnoted

above,thisdeadlinewasnotmet,largelybecauseoftheannouncementofthe

FederalElectionandassociatedcaretakerperiod.

1.20 CentraltothereviewwasanassessmentoftheABCsperformancein

meetingthekeyperformanceindicators(KPIs)establishedunderthecontract.

The reviews findings regarding theABCsperformanceagainst theKPIsare

summarisedinTable1.1.Overall,DFATconcludedthattheABCsdeliveryof

theAustraliaNetwork servicehad consistentlymetor exceededmostof the

established KPIs. Factors beyond the ABCs control had influenced

achievementofsomeoftheKPIs,withthesefactorsraisedwithDFATduring

thecontractperiod.

34The review was conducted by a committee comprised of two officials from DFAT and one official from

DBCDE.


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39

Table 1.1

Summary of the ABCs performance against the 2006 KPIs

KPI Performance review finding

Appeal/distribution and re-distribution of theAustralia Network

Met and exceeded contractual requirements.

Reach/conducting surveys and measuringaudience appeal

Partially complied with contractualrequirements, but found that the KPIs were, onreflection, unrealistic.

General programming mix and schedulingLargely met contractual requirements, withroom for improvement in the dramaprogramming.

News, current affairs and business programsLargely met contractual requirements, withroom for improvement in the lack of news

broadcast on weekends (interrupted by sport).

Marketing, branding and revenue raising

Marketing targets compliant with contractualrequirements.

Revenue targets did not meet contractualrequirements, but the targets were, onreflection, unrealistic.

Ancillary services Met contractual requirements.

Management and business plan Largely met contractual requirements.

Source: ANAO analysis of Performance Review of the Australia Network, August 2006March 2010,

29 June 2010 (DFAT). [Internal document]

1.21 On30June2010, twodaysafterproviding the thenForeignMinisterwith the ABC performance review,but prior to the receipt of all industrysubmissions, DFAT againbriefed the Minister, highlighting the need for adecisiontobemadebyAugust2010.TheoptionofnegotiatingwiththeABCan extended notice period was raised, along with suggested options for thefutureoftheAustraliaNetwork.Theseoptionsincluded: exercisingtheGovernmentsoptiontoextendtheexistingcontractfora

furtherfiveyearswiththesametermsandconditions; puttingtheAustraliaNetworkcontractouttocompetitivetender;or bringing forwardaproposal forconsiderationby theGovernment,as

part of the Budget process, for the ABC to provide the service on apermanentbasis.

1.22 ThisbriefwasnotactionedpriortotheannouncementoftheFederalElectionon17July2010.


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41

assessed asnotmeeting.While supporting the rolloverof the contract for a

further fiveyears,DFATadvised theMinister that thisoptionwould forego

theopportunityto:developmorequantifiableKPIs;establishalongercontract

period; and increase the flexibility of the programmingmix. By contrast, a

tenderwould

give

the

Government

greater

scope

to

use

the

Australia

Network

asapublicdiplomacytool,andgivegreateracknowledgementtomultimedia

platforms,suchasvodcasts.

1.27 TheGovernmentdidnotmakeadecisionbytheextendeddeadlineof

8November2010.DFATsubsequentlynegotiatedwiththeABCtoextendthe

notice period until 26November2010. The department also advised the

ForeignMinister that theABCwasunlikely toagree tofurtherextensions,as

delayswould impacton renegotiations for thirdparty service contractsand

mayresult

in

afinancial

burden

for

the

future

Australia

Network

provider.

1.28 In response to a briefing from the former Foreign Minister, the

Government decided on 22November2010 that a 10 year contract for the

deliveryof theAustraliaNetworkshouldbeawarded throughacompetitive

tender process. The Governments decision was announcedby the Foreign

Minister on 23November2010.36 TheMinisters announcement stated that a

competitivetenderprocesswouldensurethebestpossibleserviceinreturnfor

theAustralianGovernments investment,and thata10year contract for the

servicewould

be

used

to

provide

greater

certainty

to

the

service

provider.37

1.29 The expectationwas that the tenderprocess couldbe concludedby

June2011,allowingsufficienttimeforthepossibletransitiontoanewservice

providerbytheexpiryoftheexistingcontractinAugust2011.

Procurement framework

1.30 The letting of Australian Government contracts involves the

expenditure ofpublicmoney and is therefore subject to applicable financial

management legislation. Specifically, the Financial Management andAccountability Act 1997 (FMA Act) provides a framework for the propermanagementofpublicmoneyandpublicproperty.This framework includes

requirements governing the process by which decisions are made about

36 K Rudd, (former Minister for Foreign Affairs),Australia Network for the future, media release, ParliamentHouse, Canberra, 23 November 2010.

37

ibid.


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42

whether publicmoney shouldbe spent, aswell as accountability for such

decisions.

1.31 The procurement policy framework is a subset of the financialmanagement

framework

related

to

the

procurement

of

property

or

services.

FordepartmentsofstateandagenciesprescribedundertheFMAAct,thecore

policy framework is established by the Commonwealth Procurement

Guidelines (CPGs), which are issued under the authority of the Financial

ManagementandAccountabilityRegulations1997theFMARegulations.

1.32 TheFMARegulations requireMinistersandagencyofficials tohaveregardtotheCPGswhenperformingdutiesrelatedtoprocurement.TheFMA

Regulationsalsorequirethataproposaltospendpublicmoney(includingfor

theproposed

procurement

of

property

or

services)

must

be

considered

and

approved by an appropriately authorised party before contracts or other

arrangements involvingtheexpenditureofpublicmoneycanbeenteredinto.

In this respect, theFMARegulations require thatanapprovernotapprovea

spendingproposalunlesssatisfied,aftermakingreasonableenquiries,thatthe

proposal is an efficient, effective, economical and ethical use of

Commonwealth resources that is not inconsistent with the policies of the

Commonwealth.Whereatenderprocessisconductedinrelationtoaproposed

procurement,considerationoftheoutcomeofthetenderevaluationprocessby

therelevant

decision

maker

may

result

in

adecision:

to

enter

into

acontract

with a successful tenderer; to select a preferred tenderer for further

negotiationswith a view to subsequently entering into a contract; or to not

proceedwiththeproposedprocurementactivitywithanyofthetenderers.In

eachcase,thiswill,inthenormalcourse,representadecisionaboutwhetherto

approvethespendingofpublicmoney.

1.33 ThedecisionaboutwhethertospendpublicmoneymaybemadebyaMinister, by Ministers collectively (such as in Cabinet), an agency Chief

Executive,officials

acting

under

the

authority

of

aMinister

or

their

Chief

Executive,orotherpersonsauthorisedby legislation tomakesuchdecisions.

Thecapacity foraMinisterorMinisterscollectively toundertakeadecision

making role in respect todecisionsaboutwhether to spendpublicmoney is

provided for in the financialmanagement legislationprovided that they are

identifiedastheapprovers.


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43

Key aspects of the Australia Network tender process

1.34 The Request for Tender (RFT) for the provision of the Australia

Network was lodged on the Governments central procurement website,

AusTender,on

4February

2011.

The

RFT

sought

tenders

from

appropriately

qualified organisations to provide an international Australian television

serviceandassociateddigitalmediaservices.38Theservicewasvaluedatupto

$223.1million over 10years, commencing on 9August2011. An industry

briefing was conducted by DFAT on 11February2011 for those parties

consideringsubmittingatender.

1.35 Thepurposeofthetenderprocesswastoselectaserviceproviderthat

demonstratedvalueformoneyandcouldbroadlysupportAustraliasnational

interestsand

meet

the

Governments

objectives

of:

providingacredible,impartialandindependentvoice,deliveredtoan

international audience via innovative as well as conventional

multimediaplatforms;

promotingan imageofAustraliaasadynamicandculturallydiverse

nationoftheAsiaPacificregionandraisinginternationalawarenessof

Australiasstrengthsandachievementsacrossarangeoffields;

presentingAustralian

perspectives

on

the

world

and

fostering

public

understandingofAustraliasglobalandregionalrole;

increasing awareness of the strong linksbetween Australia and the

AsiaPacificregion;and

providing consular information to Australians living abroad,

particularlyintimesofcrisis.39

1.36 The RFT attracted tenders from the ABC and the ANC. Both

organisations that tendered had participated in the 200506 tender for the

200611AustraliaNetworkcontract.

1.37 DFAT initially planned for a sixmonth tender process. However

significantchangestotheprocessweremadebytheGovernmentatkeypoints,

whichextendedthetimeline.

38DFAT, Request for Tender for the provision of an international Australian Television service andassociated digital media services, DFAT11-CPD-02, 4 February 2011.

39

ibid., p. 27.


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44

ThesechangesincludedtheGovernmentsdecisioninJune2011to:

add a new evaluation criterion to the RFT and to seek further

informationfromtenderers;

changethe

decision

making

process

for

awarding

the

tender

by

replacingtheSecretaryofDFATwiththeCommunicationsMinisteras

theapprover;and

allow theCommunicationsMinister tomake a decision that did not

reflecttherecommendationsoftheTenderEvaluationBoard(TEB).

1.38 The Government also decided to exercise its option to extend theABCs contract for six months until 8February2012 to allow for the

continuation

of

the

Australia

Network

service

while

the

amended

tender

processwascompleted.

1.39 InNovember2011,thetenderwasterminatedbytheGovernmentonpublic interest grounds40, following media reports referring to confidential

information relating to the tender process. Subsequently, inDecember2011,

theGovernmentdecided that theAustraliaNetworkwouldbedeliveredby

theABConapermanentbasis.Table1.2outlines the timeline forkeyevents

duringthetenderprocess.

40The RFT provided at clause 4.7.1 that the contract may be suspended or terminated if the

Commonwealth, represented by DFAT, considered that it was in the public interest to do so.


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45

Table 1.2

Key events in the 2011 Australia Network tender process

Date Event

4 February 2011 Request for Tender announced on AusTender (DFAT11-CPD-02).

25 March 2011 Tender closed.

4 May 2011Tender Evaluation Board

41submitted its recommendation to the

Secretary of DFAT as the decision-maker for the tender.

6 July 2011

The Government requested tender participants to submit amendedtender documentation relating to an additional evaluation criterion, andchanged the approver from the Secretary of DFAT to theCommunications Minister.

27 July 2011 Closing date for amended tenders.

27 October 2011 The Australian Federal Police requested to investigate the leaking oftender information (not announced until 7 November 2011).

7 November 2011The Government announced that the tender process had beenterminated and that the Australian Federal Police was conducting aninvestigation into alleged leaks.

5 December 2011The Government announced that the ABC would provide the AustraliaNetwork service on a permanent basis.

Source: ANAO analysis.

Media interest and Parliamentary requests for an audit1.40 TheAustraliaNetworktelevisionbroadcastingservicehas,overmanyyears,beenanimportantavenuethroughwhichAustraliaispromotedtootherpartsoftheworld.Whenconsideredagainstthebackgroundofthehighlevelof interest inmediaownershipandbroadcastingrights inAustralia, itwastobeexpectedthatthetenderfortheAustraliaNetworkcontractwouldgeneratemoremediainterestthanmanyothergovernmentprocurementactivities.1.41 Initial reporting in the media focused on the degree to which theGovernment wouldbe able to influence editorial andbroadcasting content.Laterreportsspeculatedon,andreportedon,confidentialaspectsofthetenderevaluation process, delays in awarding the contract, changes to the tenderrequirements and the perceptions of government interference in the tenderprocess. The probity of the tender process was also questioned following

41The Tender Evaluation Board was responsible for conducting a detailed and comparative evaluation of

tender submissions and preparing a report for the decision-maker.


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46

reports that theABChadapproached twogovernmentMinistersat the time

theGovernmentwasconsideringchangestothetenderprocess.

1.42 ThetenderprocessalsoattractedconsiderableParliamentaryinterest.

In

this

context,

in

September

2011,

the

Deputy

Leader

of

the

Opposition

wrote

tome requestingan investigation into theconductof theAustraliaNetwork

tender,particularlythetransferofthedecisionmakingresponsibilityfromthe

Secretary of DFAT to the Communications Minister. My response on

28September2011 indicated that, given the advanced stage of the tender

process, an audit would notbe undertaken at that time,but that I would

continuetomonitorthetenderprocessandoutcome,andkeepopentheoption

ofundertakinganauditatalaterdate.

1.43 The

Deputy

Leader

of

the

Opposition

again

requested

that

Iinvestigate matters relating to the Australia Network tender process on

8November2011, following the announcement of the termination of the

tender process. The Communications Minister also wrote to me on

22November2011requestingareviewofthetenderprocess inthe interestof

ensuringthatfuturetenderprocessesareasrobustaspossible.

1.44 Following consideration of these requests and the broader

Parliamentaryand public interest, Iannounced on24 November 2011 thata

performanceaudit

of

the

administration

of

the

Australia

Network

tender

processwouldbeundertakenundersection18oftheAuditorGeneralAct1997.Audit objective, criteria and methodology

1.45 The audit objective was to report on the administration of the

Australia Network tender process and to identify lessons learned from the

conductoftheprocesstoinformfutureprocurementactivities.

1.46 The audit examined the administration of the tender process,

including:planning;

conduct

of

the

tender;

and

managing

the

change

in

tender

conditions.TheauditalsoconsideredtheadviceprovidedtotheGovernment,

the decisions made by the Government and the manner in which those

decisions were implemented, including compliance with procurement

requirements.

1.47 The Australia Network tender process hasbeen subject to ongoing

considerationbytheGovernment.TheGovernmenthasperformedakeyrole

in the decisionmaking process and, in doing so, has taken into account the

advice

providedby

several

departments

and

advisers.

The

departments

concernedhadalsoobtainedadvicefromexternalprobityand legaladvisers.


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47

Inseveralareasofthisreport,referencehasbeenmadetotheadvicereceived.The report also includes relevant references to briefings and submissionsprovided to Cabinet, Cabinet deci

Administration of the Australia Network Tender Process

Documents