Ultranet inquiry: claims of Education Department corruption

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Australians tend to see their governments as relatively clean. But public hearings by Victoria’s anti-corruption body have offered a glimpse into the extent of alleged corruption possible when public sector leaders take their eye off the ball.

Senior Department of Education and Early Childhood Development staff became shareholders in the company that delivered the failed Ultranet software system and did not declare conflicts of interest, while the system ended up blowing out by up to $240 million — four times the initially budgeted amount — the Independent Broad-based Anti-corruption Commission inquiry heard on Monday.

The hearing is examining whether departmental staff were engaged in serious corrupt conduct in how contracts were tendered and awarded, and the links between senior department officers and companies involved.

Ultranet was designed to include school reports and records as well as curriculum content and learning activities. After an audit finding that it lacked the features and functionality it was intended to deliver, the Napthine government scrapped it in 2013.

Ultranet “never worked”, counsel assisting Ian Hill QC told the hearing, and cost “somewhere in the vicinity of $180 million to $240 million”. While it was previously believed to have cost $180 million, the full amount may be closer to $240 million, because then-deputy secretary Darrell Fraser “diverted funds from other things into that project”, former principal Graeme Lane told former colleague Nino Napoli in a covertly recorded phone conversation. Lane told Napoli that “the only reason I know that is because he had dinner with us and got pissed” and told former school principal Mick Galleri.

One day prior to the first public announcement that a company called CSG had won the Ultranet contract, John Allman, a one-time acting deputy secretary of the department and close friend of Fraser, purchased $10,000 worth of CSG shares, the inquiry heard.

The recorded phone call also revealed Lane telling Napoli that Fraser “was given shares” and was “a bloody cowboy”.

Fraser later left the department and took up a senior executive role with CSG.

Fraser appointment ‘extraordinary’

Richard Bolt, who was Education Department secretary from August 2011 until December 2014, told the hearing “Darrell Fraser was the leader of the project from its inception” and was supported by Dianne Peck “in particular”, who had been assistant principal at Glen Waverley Secondary College while Fraser was the principal and “followed him” into the department soon after he was appointed.

Bolt said he was unaware of other school principals having been appointed to a deputy secretary role directly from the position of school principal and that he found the promotion “extraordinary”. He explained that he had not formally inquired into how Fraser had been appointed despite it being “a significant jump”.

Bolt also said “informally it appeared he enjoyed strong sponsorship from the government of the day [under premier Steve Bracks], and that appeared to be significant in his appointment”, and that the power to appoint a deputy secretary at the time, in 2004, lay with department secretary Grant Hare.

The ‘Ultranet girls’

The department held an extravagant event for the launch of Ultranet costing $1.4 million. It featured professional singers performing a re-worded version of Madonna’s Material Girl — including the lyrics “we are living in a virtual world and I am an Ultranet girl” — complete with back-flipping back-up dancers, in front of a crowd of more than 3000 department staff, principals and corporate partners.

Teachers not present at the event were asked to sit at their desks to participate in a trial of the software. But the software system did not actually work either on the launch day or the previous day, and teachers “waited at their schools at their desks all morning for the system to become available”, said counsel assisting Ian Hill QC.

It came online later in the day but “suffered further log-in problems and performed slowly and unreliably”.

Lane said events such as the over-the-top launch “were Darrell’s idea about how we communicate well with principals and I’m not sure they were a good way of doing it given the cost of them”. Bolt stated: “I think I would struggle to spend anything like that amount of money on a function of that kind.”

‘Real concern’ about tendering

Hill stated there were irregularities with the tendering process that saw the contracted awarded to CSG, which would drive delivery, with Oracle subcontracted to provide software support. He said Fraser:

“… may well have been leaking confidential information during the tender process to representatives of Oracle and/or CSG, and was having, at the least, inappropriate conduct and contact with these company representatives outside the formal tender process.”

It appeared CSG/Oracle were chosen “in contravention of the requirements” of the request for tender and that a “change appears to have been made in favour of CSG”. He suggested that:

“Fraser wanted Oracle, making it inevitable, despite any tender process, that the Oracle solution was always going to be developed by — or adopted by the department.

“There may have been also a manipulation of the scoring of the tenders by the members of the tender evaluation team, some of whom were close associates of Fraser.

“The CSG bid scored inexplicably high on several criteria in spite of several critical limitations, including that its product had yet to be fully developed.”

CSG had no previous experience in delivering a project comparable to the Ultranet project, Hill contended:

“A real concern existed within some within the Department as to whether CSG had in any event the ability to deliver the Ultranet project.”

The contract, valued at $71 million, was nonetheless signed by the department. The government initially budgeted $60.5 million for the project.

A 2012 Victorian Auditor General’s report, based on older estimates of the cost, concluded:

“The Ultranet has been poorly planned and implemented. None of its three business cases had a well thought out needs analysis or gave comprehensive options to deliver the project … The Ultranet is significantly late and over budget — and with limited functionality — when compared with what was originally announced. The full costs of the project are poorly recorded by the Department of Education and Early Childhood Development and a conservative estimate of actual costs by June 2013 is $180 million, or close to 300% above the first announced budget.

“This audit has detected a number of serious procurement and probity lapses that have triggered further review and action by the department. Although the department’s work is not yet complete, there is no assurance that the tender process was rigorous, or that the chosen delivery option represented value for money.

“Use of the Ultranet is well below expectations, with only 10% of students and 27% of teachers logging into the system. Because of its very low and declining usage, and the ambiguous guidance from DEECD about whether schools can opt out of the system, the viability of the Ultranet as the government’s key learning technology investment is now under serious threat.”

The hearings continue.