The review of the management of job network contracts case study illustrates key issues in managing the risks associated with the delivery of services to clients by the public sector.

Case study: review of the management of job network contracts (round 1)

Source: Australian National Audit Office Audit Report No.44 1999-2000 Performance Audit management of Job Network Contracts Department of Employment, Workplace Relations and Small Business.

On 1 May 1998 the Government introduced the Job Network that replaced the 50 year old public employment services provider, the Commonwealth Employment Service (CES), its case management arm (Employment Services Australia), and most labour market programs. Job Network members are contracted to provide a range of services to unemployed people. For a job seeker, the initial contact with the Job Network generally occurs through Centrelink.

Under the first round of Job Network contracts there was a national network of around 300 private, community and government provider organisations. The first contract with providers concluded on 27 February 2000. A tender assessment for a second round of contracts was held in 1999, with conditional offers being announced for 205 tenderers to provide a wide range of employment services under a contract to begin on 28 February 2000 and run for three years.

The Job Network contract managed by DEWRSB covers all the different types of service provision in the one document. Certain parts of the contract are the same for all providers, whereas other parts that contain prices and quantities of services vary with the individual providers and also vary for different regions.

The ANAO commented that it should be noted that individual providers had limited control over the mix of services that was finally offered to them in the contract. They would have bid for what they considered to be an acceptable and viable workload. However, it was not always the work they had tendered for.

During the operation of the first round of contracts, it was necessary to make some changes to the contract to ensure that the Job Network members remained viable and the Government was able to achieve its objectives for the Network.

The contract between DEWRSB and each of the employment service providers was subject to five general contract variations during the first 18 months of the contract period. Changes to individual contracts were also made at the request of providers and, on occasion, as a result of Departmental decisions. Individual contract variations range from simple changes, such as new bank account details, to more complex amendments such as changes in contracted capacities.

The ANAO concluded that the Department managed the first round of Job Network contracts in an efficient and effective manner, bearing in mind that the Job Network is a completely new structure for the delivery of employment services. Management of the contract variations was also found to be acceptable.

Nevertheless, the ANAO considers that the Department can improve its management of contracts in certain areas. These areas include:

• communication with provider representatives and Centrelink on strategic, higher level issues
• the process for monitoring the compliance of providers with the contract would be improved through directing resources towards 'higher risk' providers or sites, as part of an effective risk management approach. The monitoring process would also be strengthened by producing written summaries of monitoring visits, and through establishing a quality assurance system for monitoring visits
• better resource planning for the management of Job Network contracts in state and district offices

Risk management issues – management of job network contracts

Coordination of many stakeholders interested in the delivery of services

The audit found that there was insufficient ongoing communication between the contract managers, provider representatives and Centrelink on strategic and operational management issues. A high level representative group was suggested to address this issue. The lack of high level strategic communication between important stakeholders is a major source of risk when trying to coordinate the delivery of many services to a large number of geographically scattered clients. Other risks associated with such a situation include:

• the potential for different priorities to be placed on particular activities by the various parties, without understanding the points of view of the other participants in the Job Network
• decisions affecting the Job Network being made without adequate consideration of all the information available
• 'band aid' changes being made in light of narrow points of view without an understanding of the bigger picture issues
• the potential growth of an us v them organisational culture
• missed opportunities for coordinated services to clients

Contract management on a risk management basis

Applying the Pareto principle to contract management suggests that more resources should be directed towards monitoring the critical few than towards monitoring the trivial many. For the Job Network, this would mean more intensive monitoring, and monitoring at an earlier stage of the contract process for those providers assessed as presenting a high risk. This high risk assessment may be a result of financial viability concerns, the general inexperience or lack of sophistication in the market place of the particular provider, concerns about track record of performance. It may also emerge during the life of the contract from client complaints, apparent inability to meet the conditions of the contract or other performance management problems.

Another example drawn from this case study involves the requirement, introduced by the Department during the operation of the contract, that providers give a statutory declaration with their invoices for each month, certifying that the claims included are true and correct. The ANAO found that the statutory declaration is intended to provide a deterrent to fraudulent claims. However, providers were unhappy with the requirement because it added another administrative layer. From the Departmental perspective, the ANAO found that the requirement resulted in approximately 3600 statutory declarations being provided each year.

The conditions of the contract have always imposed an obligation that the provider take all reasonable steps to prevent fraud upon the Commonwealth. It also included provisions related to repayments to the Department of amounts owed. Given the Department's position under the contract, it seems that the application of risk management principles to this aspect of contract management might have led to the conclusion that a statutory declaration with each invoice did not substantially add to the Commonwealth's security. In fact, this decision caused substantial administrative overhead for both parties.

Establishing the price to be paid for services

The ANAO found that, since the inception of the Job Network, the Government has had to increase the remuneration paid for certain services and broaden eligibility to help the providers of Job Matching services survive as viable commercial entities. A risk assessment would have indicated that this result was to be expected when tenders are submitted by a relatively under developed or unsophisticated provider market.

This risk should have reduced for the Job Network two tender, as providers would have had more experience in providing the services and would be in a better position to price their services at commercially viable levels. However, some new services were added, and some services that were paid under fixed price arrangements in the Job Network one tender were open to price competition in the second round of tenders. Accordingly, the supplier market must still be regarded as somewhat under developed in its ability to accurately price all the services tendered.

In addition to the supply side risk factors in determining a sustainable price for employment services are the problems associated with the Government having a monopoly purchaser arrangement for these services. DEWRSB is the only purchaser of these employment services in Australia, and is therefore in a dominant position in regard to prices paid for the services. The Department also provides no guarantee of the volume of work that a provider will achieve under the contract.

These factors combine to make the pricing of services at a level that is commercially viable , but also sustainable for Government, a major risk associated with this activity.

Managing contract variations

Good risk management principles for managing contract variations include:

• variations should be in writing.
• variations should be actioned expeditiously, and in accordance with any internal guidelines laid down for time frames.
• variations should be handled in a standardised manner, so that similar requests receive similar handling and outcomes.
• relevant experts should be consulted about the variation, if necessary. Such experts might include legal or financial advisers, as well as staff with operational knowledge.
• decisions should be made at the lowest appropriate organisational level commensurate with risk management and standardisation principles. An individual's authority in this regard should be documented so that decisions are not made at inappropriate levels, either too low in the organisation or too high.

Application of these principles will assist in maintaining productive working relationships with providers, in keeping the delivery of services running smoothly and in ensuring contractual certainty between the parties.

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