Home Affairs didn't get value for money on contracts for off-shore processing on Manus Island, including with the controversial company Paladin, the audit office has found.
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The government has been under pressure over the outsourcing of contracts to run detention centre facilities for asylum seekers in Papua New Guinea and Nauru, with particular attention paid to the more than half a billion dollars paid to Paladin.
In a report tabled on Thursday, the audit office criticised the limited tender processes the department ran for the centres in both countries, but said value for money could be proven for the contracts in Nauru.
While the department had used provisions available to it under the Commonwealth Procurement Rules to run limited tenders, the report found the department didn't document why it only requested tenders from three companies when it knew 11 that had the potential to offer such services on Manus Island.
Questions have been raised about the size of the contract given to Paladin, which was 35 times bigger than the company's revenue in 2016, the year before the contract started. The report shows the department's chief financial officer raised this as an issue, but the risk was not addressed.
"This contract represents a significant step up in size for Paladin which represents a high risk for the Commonwealth, the then chief financial officer wrote.
"The financial strength assessment raises a number of concerns; Paladin's largest recorded revenue is less than $6 million AUD pa highlighting the significance of the upscale required to fulfil a $152 million AUD contract; and the cash sufficiency ratios indicate that Paladin will be very reliant on access to capital to establish. The line of credit reported ($2m) looks to be insufficient in the circumstances."
Home Affairs' management of the procurement for the services was largely appropriate, the report found, but judging whether value for money was achieved was muddied by changes made in the negotiation process.
"For Manus Island it did not appropriately benchmark costs for similar services, and the effectiveness of negotiations with providers was unclear due to the department's substantial expansion of the services required during the negotiation process," the report said.
While the department faced delays in procuring new contracts in both Manus and Nauru due to changes in local government, the audit office found in the case of Nauru, Home Affairs had more than a year's warning that the previous service provider wouldn't be asking for an extension.
The report also found that when the companies were acting under letters of intent, before the contracts were signed, there was no performance monitoring or reporting requirements for an average of more than eight months. Once the contracts were established reporting frameworks were appropriately applied in most instances.
Management of contractors in offshore detention has been an area of focus for the audit office over a number of years, but recent reporting on the company Paladin found that despite the hundreds of millions of dollars paid, the company breached its contracts almost 4000 times in a year.