A federal government software contract approved by the National Disability Insurance Agency in 2019 and estimated to cost taxpayers $10 million blew out to $210 million within three years, according to auditing firm EY in a review obtained by The Saturday Paper.
The true value of the contract is about $75 million higher than the $135 million estimated by a joint committee last month, according to the audit. The contract and issues surrounding it have been referred to the National Anti-Corruption Commission.
In July 2019, the board of the NDIA, under then National Disability Insurance Scheme minister Stuart Robert, authorised a proposal to invest in a customer relationship management platform that was expected to cost the agency $9.5 million. Executives from the winning bidder on the project, United States tech company Salesforce, met on several occasions with Robert, who was NDIS minister until March 2021.
By the time a master subscription agreement was signed with US company Salesforce in April 2020 for 5000 licensed users, the value of the contract had almost tripled, to $27.5 million. It climbed to $42.7 million by the end of the 2020 financial year, according to the EY review.
This is despite the fact that less than half of those 5000 licences had been used within the first year of the contract, due to delays in designing the software and building in core components.
A few months into year three of the contract, only 81 per cent of the licences had been activated, the EY review found.
By November 2022, six months after Labor won the election and Bill Shorten became minister for the NDIS, the cost of the contract had soared to $208.5 million, according to the audit. Moreover, the number of user licences the NDIA was being charged for had doubled to 10,000 – twice the number of people employed by the NDIA at the time.
The agency’s contract for the Salesforce customer relationship management platform is scheduled to run until June 30 next year, and the audit sees a risk of a further escalation in costs.
“Normally, a contract of this size would begin with a line item for a small number of licences (usually around 12 licences) with free sandboxes in the work order for the purposes of allowing developers to build and test instances within a limited environment before committing to a full rollout/scaling up,” the EY report concluded. “This was not observed in the NDIA contract documentation.”
“The NDIA is exposed to (the) risk of not having a clear ‘why’ in the mapping of business and IT requirements,” the EY report found. “Hidden costs could significantly increase the budget of the project. That could have a flow on effect on budget allocation for related projects in the future.”
The EY report was commissioned in 2022 and delivered in November, and the NDIA has never made it public.
Minister Bill Shorten said the agency was now undertaking its own separate investigation into the contracts with Salesforce.
“Deeply concerning information has come to light regarding liaisons between public servants and businesses seeking government work,” Shorten said, adding praise for NDIA chief executive Rebecca Falkingham’s work since she was appointed in October 2022.
The cost blowout mirrors the broader problems of the NDIS, which at its launch in 2013 was expected to cost about $13 billion a year. The cost this year alone is $42 billion, and the scheme is projected to overtake the age pension as the most expensive area of government spending within a decade. It’s estimated that about $2 billion of its current spending is lost to fraud.
Details of the troubled Salesforce contract first emerged during an audit of procurement and contracting that Shorten ordered in November 2022. He commissioned it after The Age and The Sydney Morning Herald published emails showing how Stuart Robert had used his status as a federal member of parliament to help Canberra lobbying and consulting firm Synergy 360 sign up corporate clients, with the promise of helping them win public service contracts.
The “Independent Review of Services Australia and NDIA Procurement and Contracting” was completed by the former head of the Department of the Prime Minister and Cabinet, Ian Watt, in March 2023. It uncovered “further disturbing allegations and a pathology of very concerning decisions,” Shorten tells The Saturday Paper.
The Salesforce contract was then subject to further scrutiny by federal parliament’s Joint Committee of Public Accounts and Audit. The joint committee tabled a report last month finding that while the software itself had been working appropriately, the procurement process conducted by the NDIA fell short of Commonwealth rules and ethical requirements.
The JCPAA report drew particular attention to the fact other vendors had not been given an opportunity to tender for the software platform that was ultimately delivered by Salesforce, and that more than $20 million was added to the value of the contract for the supply of “professional services”.
The most egregious issue arising from the management of the contract, the JCPAA found, was how Salesforce executives wined and dined senior NDIA officials as the value of the contract continued to grow, which NDIA officials failed to declare in accordance with the agency’s own policies surrounding gifts and hospitality.
While gifts or benefits over $100 in value must be pre-approved and then recorded in a compliance log, no such disclosures were made by NDIA officials in relation to the Salesforce contract.
The JCPAA received a detailed, itemised list from Salesforce containing more than 100 instances of hospitality or gifts passed to NDIA officials over an almost five-year period, both before and after the contract to develop the new platform was finalised.
“These included close to 50 items above $100 in value per person including meals, drinks, and golf outings,” the committee report noted.
Examples include a dinner costing $531.33 at high-end Melbourne restaurant Vue de monde in December 2020, a lunch for $320 at Mya Tiger in St Kilda in May 2021, and a $488 dinner and drinks in South Yarra in October 2022.
“Seeking special treatment and access to public servants and potential inside information in order to skew decision-making for extraordinary profit at the taxpayers’ expense is morally debased,” Shorten said.
The JCPAA noted the reason the NDIA had policies in place surrounding the declaration of gifts and hospitality in the first place was to avoid staff having their integrity compromised, adding that in evidence to the committee NDIA officials had further stated “it would be hard to see how a contract manager could maintain their integrity whilst accepting gifts from a vendor”.
“This episode raises further serious questions about how widespread this sort of practice and culture may be in other Commonwealth entities by Salesforce and other major ICT vendors,” the JCPAA report said.
Rupert Taylor-Price, the chief executive of Australian IT company Vault Cloud, tells The Saturday Paper that customer relationship management platforms sold to government agencies such as the NDIA were often wildly overpriced and could be designed and built by an Australian company for a fraction of the cost.
“Just to be clear, there are Australian companies that are building these types of products, and procurements of this nature that end up costing hundreds of millions of dollars could often have a better product or service delivered by an Australian company for a few million,” Taylor-Price said. “And that’s fully customised, fit for purpose, built for purpose and which then creates an opportunity for that Australian company to resell that product to other government agencies.”
Taylor-Price said multinational companies could use their market power to sway public officials who lack the same level of expertise when it comes to such software.
“You have sales and marketing executives who are literally earning hundreds of thousands of dollars a year and the poor public servant is probably on $95,000 or a $110,000 a year and they just get rings run around them.”
The Australian Information Industry Association estimates that only about 8 per cent of Australian government spending on IT goes to domestic companies that produce things in this country. Taylor-Price said there were strong incentives built into the system to keep awarding contracts to foreign multinationals.
“This is how the system rolls and how it works, and then the Australian taxpayer gets ripped off,” Taylor-Price said. “And the worst thing is that it’s not even like you’re getting the best that money can buy. But a lot of people are making money out of it.”
Shorten says the Fraud Fusion Taskforce he established 18 months ago to help stamp out fraud in the National Disability Insurance Scheme and Services Australia was making progress.
Working together with 19 government agencies, the Fraud Fusion Taskforce has investigated more than 100 cases involving more than $1 billion of NDIS funding.
There are 548 investigations currently under way, with 59 people either before the courts or their cases have been referred to the Commonwealth Director of Public Prosecutions. Of those cases, 20 involve NDIS prosecutions with an alleged fraud value of $33.3 million.
Between November 2022 and the end of March this year, the NDIS Commission took 161 compliance actions against providers and individuals, including the issuance of 85 banning orders.
This article was first published in the print edition of The Saturday Paper on
July 6, 2024 as “Exclusive: NDIA audit shows 20-fold contract blowout”.
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