Doubts over process for Serco hospital contracts

THE head of a parliamentary committee investigating the decision to award Serco Australia the contract for non-clinical services at Fiona Stanley Hospital has questioned the selection process used by the government.

The contract is worth $4.3 billion over 20 years for 28 non-clinical services at Fiona Stanley, as well as the management and integration of all of those services.

The Public Accounts Committee tabled a report in state parliament last week, which found the Department of Health had failed to comply with its own policies, particularly given the unprecedented cost and size of the contract.

Committee chairman John Kobelke told WA Business News the letting of the contract to Serco was appropriate but the key problem was that the committee didn’t think there was a competitive market.

At the request-for-submissions stage of the tender process there were only two finalists involved in the process, he said.

“It’s clear that, in terms of weighted numbers used and the comments made, they always saw Serco as way out front,” Mr Kobelke said.

“There is nothing wrong with that because Serco might be better, but … it looked here as if there was clearly a lack of competition and the comment we make is ‘why didn’t the Department of Health do something about this?’

“One of the big factors driving that lack of competitive market was that they bundled everything into the one big contract and this is the first time that this has been done to our knowledge in Australia.”

The report said the department had sought to achieve significant cost savings and efficiencies from bundling together 28 services but it “may have sacrificed the benefits of competition in deciding to make the facilities management services contract so large and complex”. 

The report acknowledged that the department was facing a range of pressures to ensure the hospital started operations in April 2014, and that the services contract was signed nine months later than planned in the project’s procurement plan.

However, it found the procurement plan was based on a poorly scoped ‘services matrix’ rather than detailed specifications that would later be taken to the market, and was based on a 25-year contract rather than the 20-year timeframe.

It said many of the service specifications initially released to the market had not been developed to reflect the scope of the hospital but instead had been taken from other projects, which resulted in Serco’s bid price increasing by 18 per cent.

The report also said it was likely the department did not have a sufficient understanding of the work of its commercial adviser, Paxon Consulting Group, to adequately scrutinise assumptions that were being applied in the public sector comparator. 

The public sector comparison compares the value for money to be achieved through the use of a public private partnership. 

Mr Kobelke said Serco had considerable experience in managing hospitals and contract services to hospitals but had never before run the full suite of non-clinical services in an integrated package. 

“The point being that there weren’t any other companies who were serious about taking on such a big and challenging project and therefore how do you judge value for money if you don’t have a competitive field,” Mr Kobelke said.

United Voice secretary Dave Kelly, who has led a campaign against Serco’s appointment, said Health Minister Kim Hames had overseen a process that was seriously questionable and breached his own government’s policies and procedures.

“This report calls into question the integrity of this government, the health minister in particular,” Mr Kelly said.

“Given the serious findings against the process undertaken, the report and findings should be referred to the Auditor General for examination.”

The government has been given three months to respond to the report.