Rushed outsourcing had 'detrimental impact': Qld auditor

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Rushed tendering processes can cost millions, a Queensland Audit Office report has reminded governments.

A lax approach to the outsourcing of the state’s court recording and transcription services has had “a lasting detrimental impact” on the service, it found. In addition, the Department of Justice and Attorney General was unable to show it procured the best value for money outcome for the state, argues the QAO.

In February 2013, DJAG contracted with Auscript to provide recording and transcription services across the state. The change to outsourcing followed several years of complaints by the courts about the quality and timeliness of the services provided by the department and the need to replace its outdated IT system.

The outsourcing was “unprecedented in its scale and nature” for DJAG, placing a premium on the rigour and thoroughness of planning and executing the procurement process, the auditor says — but the department’s handling of it “was rushed and poorly executed in order to meet imposed timeframes” for budget cuts.

DJAG did not do sufficient work on figuring out detailed service requirements, user needs and market analyses, which limited its ability to create a competitive bidding environment. This also meant the department “was not clear about what specific services it was contracting and the manner in which they were to be provided”:

“Limited interest from market participants due to a lack of information and perceived high-risk contract means DJAG does not know whether it got the best price.”

The result is DJAG “did not know at the time of going to market, and still does not know, what service delivery mix is most likely to provide the best value for money outcomes for Queensland courts”.

The change has also led to an increase in court fees. In the rush to cut costs, the department “failed to adequately consider and assess the likely impact of its decisions on the courts and court users”, the report says. The outsourced model has shifted some of the costs associated with producing recording and transcription services to end users, resulting in an estimated 119% cost increase, at a minimum, for users in the civil court jurisdiction and some Magistrates Court matters.

After two and a half years, the arrangement has now broken even, following staff redundancies and infrastructure set up costs involved in transitioning to the new system. While outsourcing the service has saved an estimated $3.4 million, this is only a bit over half the $6 million the department initially promised.

Assuming the current level of savings continue, the state stands to realise around $12.8 million in direct cost savings over the life of the contract, which finishes in 2019. By outsourcing, DJAG avoided the capital costs of replacing its ageing Dalet recording system, though the contract price includes a component to cover the cost of Auscript’s capital investment.

Despite the savings, “lower than estimated annual savings, combined with concerns about quality, timeliness and user cost, bring into question the overall value proposition of the selected model”, QAO reported:

“From this perspective, DJAG cannot reliably demonstrate whether its present outsourcing model for court recording and transcription services represents the best overall value for money that it could have obtained, in terms of either cost or quality and timeliness.

“This is largely because DJAG significantly limited its own ability to create sufficient competitive tension in its tender process by bypassing important procurement steps. These important steps relate to gaining a detailed understanding of user needs and service requirements, and adequately understanding and informing the supply market.”

The cost of the internal team monitoring the contract is projected to rise from around $400,000 to perhaps $900,000 by 2016, eroding savings.

The issue of transcription accuracy highlights some of the problems with the outcome. Lack of agreement on standards has led to disagreement about whether the contracted services are meeting requirements, and may be leading to poor results:

“DJAG and Auscript disagree on how to assess transcript errors. DJAG’s sample testing of transcripts between April 2014 and August 2015 found that more transcripts failed to meet the contract’s minimum standard for accuracy than met it. December 2014 was the only exception.

“But the contract measure used by DJAG for transcript accuracy is simplistic and also not comparable to how DJAG measured [former state service provider the State Reporting Bureau’s] transcript accuracy. Therefore, DJAG are unable to reliably determine if they are receiving an equivalent quality of service in terms of accuracy, than they did under the in-house model.”

The report also points out that when it comes to outsourcing, cheapest is not always best. There are three factors that determine value for money, according to QAO:

• Overall objective and outcome being sought by the procurement;
• Costs, including upfront price, whole-of-life costs and transaction costs associated with the acquisition, use, holding, maintenance and disposal; and
• Non-cost factors such as fitness for purpose, quality, delivery, service, support, and sustainability.