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The Department of Home Affairs will investigate how the little-known Paladin Group came to win $423 million in refugee service contracts on Manus Island, the first official acknowledgement of potential problems during the closed tender process.
The department has until now fiercely defended its appointment of Paladin and used a Senate Estimates hearing last month to criticise an investigation into the contracts by The Australian Financial Review.
But in an abrupt change of position the department confirmed it had called in internal auditors, Ernst & Young, to investigate the contracts.
"An audit into the tendering and procurement process associated with Paladin Solutions PNG Ltd was recently added to the internal audit program," the department said in a statement.
It said the internal audit was to ensure "good corporate governance practices" were carried out across the department.
The Auditor-General has also been asked by Labor to conduct an urgent review of the circumstances surrounding Home Affairs decision to award Paladin the contracts, which cover security, IT, maintenance and local transport for some of the refugees on Manus Island in Papua New Guinea. The request is being considered and a decision expected any day.
An earlier review by the Australian National Audit Office into the offshore processing centres in Nauru and PNG concluded the department had "fallen well short of effective contract management practice".
Concerns raised
Areas of potential examination for Ernst & Young include if the departments procurement guidelines were followed, if the limited or closed tender was justified and what could potentially be done better in the future.
The accounting giant is also expected to examine the role of rival firm, KMPG, which provided the department with a financial strength report on Paladin, but crucially did not make any recommendations about its suitability for such a large tender.
During estimates hearings the department said KMPG did not identify any "significant issues that were drawn to" its attention. But it is understood KMPG did raise concerns about Paladins financial position, given it was being awarded such large contracts but only had registered capital of $50,000.
Paladin PNG Solutions was paid $89 million under four letters of intent with the department between September 2017 and February 2018. At that point a formal contract was signed with the groups Singapore entity for the period starting February 28, 2018, to June 30, this year, which is worth a further $333 million.
Paladin was the only party invited to tender, despite sources telling the Financial Review the likes of Toll Holding, a multinational giant with a long history in remote logistics, was interested in bidding for the lucrative service contracts.
One person with knowledge of how such internal audits work said Ernst & Young was likely to "call-out some irregularities" and "provide process recommendations" for future contracts.
Home Affairs secretary Michael Pezzullo told estimates he could have put a "torpedo" in a series of reports about the Paladin contract by the Financial Review, but that "might have put a few journalists out of work for a couple of days".
At the same time he was careful to say the decision to appoint Paladin was taken by one of his direct reports in the department, David Nockels.
Mr Nockels then sought to pass some responsibility onto KMPG, which he said provided "advice around the whole procurement process, particularly as it related to value for money" and checked the "financial viability" of Paladin.
This followed Finance Minister Mathias Cormann saying Prime Minister Scott Morrison knew nothing about the $423 million contract. Immigration Minister Peter Dutton, meanwhile, said procurement was the responsibility of the department.
Home Affairs is coming under increasing scrutiny for its frequent use of closed tenders for contracts to provide refugee services on Manus Island and Nauru.
The AusTender website shows the department has used limited tenders on at least six occasions totalling $1.17 billion for refugee service contracts.
The Financial Review revealed this week the department also abruptly cancelled a building project on Manus Island costing taxpayers almost $9 million.
Lack of time
In a decision described as "bizarre" by one person involved, Toll Group was contracted to build extra accommodation at the East Lorengau Refugee Transit centre on Manus Island but the project was suddenly abandoned on September 4, 2017, just as staff were preparing to fly to the island.
Home Affairs officials said there was a lack of time to conduct an open tender for the Paladin contract, as the PNG government in early July reversed its decision to take over the management of refugees and run the related tender processes.
The department said it was therefore scrambling to ensure services were in place when Broadspectrum (previously Transfield) finished their contract on Manus in October 2017.
Broadspectrum had told the federal government more than a year in advance that it did not wish to continue as the main service provider for refugees on Manus and Nauru.
The audit also comes amid calls from prominent PNG government officials including the prime minister Peter ONeill for Australia to investigate the awarding of the contracts.
"We welcome any investigation by Australian authorities in the manner in which the issued Paladin contract was awarded to an inexperienced and unknown company but that is a matter for the Australian government," Mr ONeill told local journalists, according to PNGs Post-Courier newspaper last month. |
