Part 6: Other allegations made by the contractor

6.1 In this Part, we set out:

• our expectations; and
• our consideration of allegations made by the contractor about:
  • suppressing and "watering down" of internal audit findings;
  • a lack of contestability of the PMAS contract;
  • inappropriate reporting lines within the National Property Improvement team; and
  • the organisational culture within the Corporation.

6.2
As with the allegations discussed in Part 5, the lack of detail provided by the contractor in support of his general allegations made it difficult for us to be sure that we had adequately dealt with each of the allegations made.

Our expectations

6.3
We expected to find:

• clear accountability and reporting lines for both accounting functions and programme management;
• that management provided direction and support for staff, and undertook quality assurance and sign-off where appropriate;
• that management had appropriately considered the use of line or functional reporting structures;
• internal audit findings that were subject to an appropriate level of review, with internal auditors free to report findings without pressure to omit or "water down" issues; and
• appropriate tender guidelines to ensure that the approach to tenders was consistent with, and followed, relevant public sector procurement guidelines.

Alleged suppressing and "watering down" of internal audit findings

6.4
The Corporation's internal audit function comprises an internal auditor and a quality audit team. Some "internal" audit work is outsourced to PricewaterhouseCoopers. The external auditor, appointed by the Auditor-General, works closely with both arms of the Corporation's internal audit function.

6.5
Regardless of which source internal audit reports originate from, the Corporation's internal audit reports go through a standard quality, fairness, and natural justice process. The process includes circulating draft reports for comment on factual accuracy. There are, inevitably, amendments made to reports because of this process. When finalised, internal audit findings are presented to the Board's Assurance Committee. Because internal audit reports tend to be lengthy documents, generally only Executive Summaries are presented to the Committee.

6.6
The contractor alleged that internal audit findings were "watered down", and pressure exerted to keep sensitive issues from being included in internal audit reports.

6.7
We put this allegation to the Corporation staff we interviewed, and all denied putting undue pressure on internal auditors. We also discussed the allegation with the Internal Audit Project Manager, PricewaterhouseCoopers, and the external auditor (all of whom attend Assurance Committee meetings).

6.8
We give credence to the views of the internal and external auditors. They told us that teams will rigorously challenge findings if they consider this necessary, but no more so than would normally be expected in an internal audit process. We were also told that there is no undue pressure to dilute or omit any issues raised in internal audit reports.

6.9
The Corporation told us that a summary of the internal audit findings is provided to the Assurance Committee, rather than the report in its entirety. We were told that this is at the Committee's request. However, each topic is discussed in detail at Assurance Committee meetings.

6.10
In addition, each of the Internal Audit Project Manager, the GM Assurance Services, PricewaterhouseCoopers, and the external auditor have individual sessions with the Assurance Committee. All told us that this provides an opportunity for them to raise sensitive issues that they may prefer not to discuss in the company of the other attendees.

Our view of the allegation

6.11
Nothing came to our attention that would indicate a specific example of either internal audit issues being diluted or undue pressure not to report particular internal audit findings. We consider it normal for draft audit findings to be challenged, and for legitimate changes to be made between draft and final reports.

6.12
The procedures around reporting to the Assurance Committee are adequate to ensure that there is an opportunity to raise all sensitive matters. The Assurance Committee is notified of issues affecting the Corporation's programmes at an operations level, such as the Auckland Modernisation programme discussed in paragraphs 5.99-5.100.

6.13
In addition, the Auditor-General requires external auditors undertaking annual audits on his behalf to comply with AG-604: Considering the work of Internal Audit. This standard requires external auditors to assess the work of the Corporation's internal audit function. In making this assessment, our auditors take account of several factors, including whether the head of internal audit:

• is free from the influences of operational management, and from operating responsibilities;
• has direct access to the governing body and Chief Executive, and whether they can communicate freely with the external auditor; and
• has freedom or flexibility from direct management instruction on the scope and direction of an audit.

6.14
Our external auditor has raised no concerns about the Corporation's internal audit function.

Contestability of the Property Maintenance Assessment System contract

6.15
The contractor expressed concerns about the contestability of the PMAS contract that was put out to tender in 2005. In particular, the contractor expressed concerns about:

• rollovers of the contract during the previous 4 years;
• the tender process that led to the existing PMAS private sector company being reappointed in 2005; and
• a relationship between a senior manager within the Corporation and the principal of the company holding the PMAS contract - the contractor alleged this manager was influential in the private sector company being reappointed.

6.16
We reviewed the history of the PMAS contract that resulted in rollovers for 4 years before the 2005 tender process. We spoke to staff at the Corporation to gain a general understanding of tender processes, and we considered the involvement of the senior manager in question with the tender. We also reviewed the Corporation's tendering policy and processes, assessed the robustness of the 2005 PMAS tender against these, and reviewed the independent assurance obtained by the Corporation about the PMAS tender process.

Figure 2
History of the Property Maintenance Assessment System contract

6.17
The Corporation used a 2-stage tender process. A request for a Registration of Interest was publicly advertised, and 30 Expressions of Interest were received by the due date of 14 June 2004. The tender process was then delayed, evidently because of a loss of crucial staff and other work pressures. It was not until May 2005 that the Expressions of Interest were evaluated. Seven contractors were approached and asked if they wished to submit a proposal. Four tenders were received, but one did not conform to requirements and was not included in the final analysis.

6.18
Tenders for the PMAS contract closed in June 2005, which was a month later than originally planned, and the tender evaluation panel considered tenders on or about 15 July. The panel recommended that the tender be awarded to the existing provider. There were some delays in completing the evaluation process, caused partly by lack of documentation, but the National Property Improvement Manager, GM Asset Services, and Chief Executive approved the recommendation on 23 September 2005.

6.19
The tender evaluation panel consisted of 3 staff members, including the contractor - whose engagement with the Corporation ended on 8 August 2005. The contractor told us he had responsibility for preparing tender documentation and day-to-day management of the procurement process. Corporation staff told us they found significant gaps in documentation on the PMAS procurement file after the contractor left the Corporation. Additional work had to be done to address these gaps.

6.20
An "evaluation kit", which included the evaluation rules and procedures, and guidance on relative scoring, was provided to the panel. The evaluation rules and procedures required each of the tenders to be evaluated independently by each of the 3 panel members, and then for the panel members to meet and agree on the score to be included in the evaluation. If the panel members were not able to reach a consensus, the evaluation was to be put aside for a peer review. The rules and procedures also provided for the evaluations to be peer reviewed by the Special Programmes Manager and Property Improvement Support Manager. If the peer reviewers did not agree with the initial evaluation, it was to be discussed with the panel members. If a consensus could not be reached, the peer reviewers' decision would prevail and the reasons for it recorded. From the information provided to us, it appears that the panel reached a consensus that was agreed through the peer review process.

6.21
An independent reviewer from PricewaterhouseCoopers was engaged to review and observe important steps in the tender process. He told us that the evaluation process was in line with the Corporation's policy, and that he did not observe any undue pressure for the panel to recommend one tender over another.

6.22
Having reviewed the documentation, we consider that the decision to award the tender to the existing provider was appropriate, and in keeping with the weighting system and the information available to the evaluation panel, but that the process and supporting documentation could have been better.

6.23
The senior manager who the contractor alleges had undue influence over the reappointment of the existing provider was not involved in the tender process until the tender evaluation panel had made their recommendation. We found no evidence that the senior manager was involved in the assessment of the tender (although, as a line manager, he did approve the recommendation).

Our view of the allegation

6.24
We found no evidence that the previous rollovers of the PMAS contract before the 2005 tender process were anything other than commercial decisions.

6.25
The 2005 tender process followed the Corporation's tender policy, and we consider that the decision to award the tender to the existing provider was appropriate. However, there was not enough documentation detailing what took place during the tender process, and there was no clear audit trail. For example:

• The Corporation's policy requires tenders to be opened in the presence of at least 2 people. Although we were told by Corporation staff that this was complied with, there was no record that this happened.
• The panel used a weighted scoring approach to assess the tenders, but the scores were not underpinned by sufficient analysis describing how they had been arrived at. It is therefore difficult to see the basis for the scores given.
• The independent reviewer concluded that the Corporation's procedures had been "reasonably complied with", but we found no audit trail to support their findings or the work they performed. Also, the opinion given provided no assurance about the quality of the tender process. Rather, it focused on whether the process complied with procedures.

6.26
Further, while the Corporation followed good practice in using an independent reviewer, it is important that reviewers are instructed to take account of the quality of the process and properly document their findings.

6.27
We also have some concerns about the adequacy of the Corporation's procurement policy. Overall, the policy sets out an adequate process, but it provides only minimum guidance on how and when decisions should be made. For example, the policy provides for Registrations of Interest for tenders to be advertised, but there is no guidance about when this is appropriate. Similarly, the policy lists the factors to be taken into account when contracts are put out for tender, but provides no guidance about when this is appropriate.

6.28
Also, although the National Property Improvement team is using draft guidelines (Proposed Guidelines for Tender Evaluation Using Weighted Criteria for Building Works and Maintenance Services) that are comprehensive and reflect good practice, these guidelines are not a formal part of the Corporation's procurement policy.

6.29
We found no reason to suspect that the existing provider succeeded with its tender because of an existing personal relationship with a senior manager in the Corporation. The senior manager was not involved in the tender evaluation panel.

Alleged inappropriate programme reporting structure

6.30
The Special Programmes team, within which the contractor worked, sits within the National Property Improvement team. The Special Programmes Manager has 6 Project/Contract Managers and the Programme Logistics Manager reporting directly to him. These Project/Contract Managers are able to call on the services of Contract Administrators, whose line reporting is to the Property Improvement Support team.

6.31
The contractor alleged that the Modernisation project manager was prevented from dealing directly with a contractor with a crucial delivery role in the Modernisation programme. The contractor also raised concerns that the Contract Administrator working on the Modernisation programme did not report to the project manager.

6.32
We discussed this matter with various Corporation staff, including the Modernisation project manager.

6.33
We understand that the Modernisation programme team was created after a restructure of the Asset Services Group in 2004. A management decision was made that, while the new team gained experience, the day-to-day management of one important contract would remain with the Contract Administrator. The Contract Administrator was managing this contract when the Modernisation programme team was created. These decisions meant that a matrix form of management operated.

6.34
We were told that this was meant to be a transitional situation for the 2004-05 financial year. However, at the end of this time, the Corporation decided that the Contract Administrator should continue to be the point of contact for the provider, while remaining part of the Property Improvement Support team. The role of the Modernisation project manager was made clear to the provider at this time.

6.35
We were also told that it is the Corporation's intention to have a single point of contact for their programme providers, and there was a preference that the existing point of contact for this contract remains unchanged.

Our view of the allegation

6.36
The issues raised involve management decisions about the structure of reporting requirements and contractor relationships. This is outside the mandate of the Auditor-General, and it is not a matter for us to express a view on.

Organisational culture

6.37
The agreed list of allegations signed on 23 November 2005 said that the contractor felt bullied by the approach of some managers.

6.38
Although this is an issue more within the mandate of the State Services Commissioner, we did discuss this allegation with the contractor. We understand his concern arose out of staff reactions after he expressed concerns about the Corporation's practices, and that he believed that he had been told to "apologise or go".

6.39
We also asked a number of Corporation staff about the contractor's allegation and about bullying in general. Regardless of job, location, or position, no one reported any experience or awareness of bullying (either direct or indirect) in the Corporation's workplace.

6.40
Our view, based on our discussions with those involved and our review of the e-mail correspondence, is that the contractor's concern arose out of differences of opinion with staff members that perhaps were not handled or managed in the most appropriate manner. There is a distinction between strong management and workplace bullying.

6.41
We also analysed the Corporation's Staff Satisfaction Survey (August 2005). The survey results can be analysed down to team level, and the survey covers the period that the contractor worked for the Corporation. We therefore assessed the results for the relevant teams. Survey respondents remained anonymous, and the survey was carried out by an independent organisation. None of the teams concerned had negative overall findings.

6.42
Based on the results of our interviews and the information in the Staff Satisfaction Survey, we did not find any basis to refer the contractor's allegations to the State Services Commissioner.