This three-part series for our procurement audience by Paul Rogers is about the award of a $30m+ contract to a non-approved supplier by a Department in the Victorian State Government. The perspective adopted is not a political one, but rather an exploration of the procurement processes that may help organisations avoid similar malpractice in the future.
Part two of this three-part series will explore the contract for acquiring security services from one provider, Unified Security. Security services were needed to prevent any COVID-19 infected passengers from infecting others in the community.
Work started without a contract
We know that the contract was finalised on the 9th April, although work commenced on 29th March 2020.
Clause Two ‘Services’
There is no evidence of a tender being submitted by Unified Security, and the contract appears to have been adapted from a standard DJPR template. Clause two is a standard clause about the quality of service to be delivered. I will analyse the scope of work separately, but this clause states that work should be:
“Adequate and suitable for the purposes for which they are required”.
Could, should, might, will, may, shall or must?
Anyone who has drafted contract clauses knows that the word ‘must’ is preferred over such aspirational alternatives as ‘might’, ‘could’ or ‘should’. So what are we to make of “…which at a minimum include consideration of the issues listed above…” (clause 7.2, below)
The author of the contract clause is on a roll by this stage, and repeats the phrase in the wording of Clause 7.3:
“Preferred Quality Systems Standards that should be taken into consideration under clause 7.2 are…”
Evidence of a security guard
“Everything I know about COVID-19 is from Channel 9 or the ABC,” Luke Ashford, who worked as an officer of the Department of Health and Human Services at Melbourne’s Stamford Plaza, said in a statement.
Mr Ashford told the inquiry he had completed a one-hour lesson on how to use the COVID-19 app and a course on diversity and inclusion.
“No other training or induction was given prior to commencing this first shift or subsequently,” he said. “There was no training in infection control and I had no prior training from my previous roles.”
So a contract term about training was included in the contract (easy) but no-one at DJPR or Unified checked whether the guards were actually trained in managing cross infection (a bit harder)?
Indemnifying the State
Clause 18 purports to ensure that a tiny company with less than 90 staff and sales turnover of less than $10m should indemnify the Victorian State Government against all loss.
This reveals that DJPR knew that there were significant risks in the provision of services, but their risk mitigation strategy was to transfer the risk, rather than to minimise the likelihood. Or maybe I am being generous imagining that they even considered risk.
The initial quote from the Unified Security CEO was $51 per hour, though they reduced that to $49.95 in the light of a $30m contract. A 2% discount!
Subcontracting
Katrina Currie claimed that no subcontracting was allowed, but in fact sub-contracting was rampant.
$18 per hour?
When the contract rate was $49.95? When you are buying the equivalent of 590,000 hours that is a lot of money. My estimate is that (assuming 90% of the hours were sub-contracted @$18/hour) the ‘worst-case scenario’ amount that might have been claimed by Unified Security and others involved in sub-contracting is more than $17.5m.
Ensuring value for money for the State
Not content with paying an hourly rate that was 10-13% higher than the other panel members, the contract also includes an additional meals allowance.
Presumably, the logic of this is that … wait…no, I can’t think of anything that makes sense.
So what were the agreed payment terms?
The payment terms have been redacted from the published contract. The contract notice states that the contract value was $30,200,000 (fixed). If Unified were paid a fixed sum for the provision of 592,000 hours of security service, we would hope that there was a means to validate that they actually provided 592,000 of security service.
My guess is that there wasn’t.
And the winner is… David Millward!
We should recognise David Millward, the CEO of Unified Security, as the best negotiator in Australia.
Imagine getting a good flat rate, (knowing that you could subcontract at less than half the agreed rate), then getting a premium for Sundays. And Public Holidays. And a separate rate for managers!
And then asking for an additional meal allowance!
Call that a specification?
I have previously referenced the scope of work or specification. At least the word ‘must’ makes an appearance, instead of ‘should be taken into consideration.’ However, the specification is appalling. The services were high risk and the lack of specificity of what the security guards were actually there to do (prevent returned travellers from leaving their rooms?) is unforgivable.
Contractual outcomes
The hotel quarantine scheme cost $195m in total. The use of casual security guards not trained in infection control contributed to the escape of the virus into the community. This lead to at least 800 deaths, caused untold economic, social, mental and emotional damage, and damaged public confidence in the Government.
And no one has taken responsibility.
