Western Australia’s 148 local government entities (entities) spend billions of dollars each year on purchasing a wide range of goods and services. A significant number of these purchases involve contracts.
Procurement contracts vary in complexity, value, duration and risk, but all benefit from a strong approach to contract management. Robust contract management processes centred around the principles of probity, accountability and transparency help to ensure that contracting is effective, meets the standards expected by the community and the Parliament and provides good value for money for the ratepayer.
Comprehensive policies and good management of contract extensions and variations are essential to achieving these outcomes. It is important for all entities to maintain a summary of their contracts in a register or database (hereafter referred to as register), with all key contract details, to help effectively manage contract extensions and variations. This is essential from an accountability perspective and also assists entities in meeting their financial reporting obligations.
At 5 entities there was insufficient documentation to demonstrate that extensions or variations were given due consideration, so we were unable to conclude if they were appropriately managed. At 3 entities, some extensions did not have evidence of contractor performance reviews, and at 3 entities some variations were not approved by delegated officers.
Most entities need to enhance their policies with comprehensive guidance. All entities’ contract registers lacked key information essential to effective monitoring of contractual obligations.
The focus of this audit was to assess if entities adequately managed extensions and variations to their contracts, and if they maintained comprehensive summaries of their contracts.
We assessed the policies, procedures and practices for managing contract extensions and variations at 8 entities of varying sizes in both metropolitan and regional Western Australia. We assessed the following criteria:
- Do entities have adequate policies and procedures for managing contract extensions and variations?
- Do entities have complete and accurate summaries of their contracts?
- Are entities adequately:
- controlling contract extensions, including the review of contractor performance before extending contracts
- controlling contract variations, and determining if a variation significantly changes the original scope of the contract
- complying with management approved delegations before a contract is extended or varied?
When testing against these criteria, we had regard for Part 4 of the Local Government (Functions and General) Regulations 1996, which deals with the provision of goods and services, and includes specific requirements relating to contract extensions and variations. In addition, we expected entities to meet the principles of the Local Government Act 1995, which requires entities to have policies, and to keep proper accounts and records. We also had regard to the broader principles of good internal control and governance and general better practice principles that help reduce procurement risks and support value for money.
The audit focused on whether controls were in place to support effective management of contract extensions and variations after a contract was finalised. It was not designed to review the adequacy of procurement processes undertaken prior to the signing of the original contracts.
The following 8 entities were included in this audit:
|City of Bayswater (Bayswater)|
|City of Kwinana (Kwinana)|
|City of Rockingham (Rockingham)|
|City of Swan (Swan)|
|Shire of Narrogin (Narrogin)|
|Shire of Wagin (Wagin)|
|South Metropolitan Regional Council (SMRC)|
|Town of Cottesloe (Cottesloe)|
Table 1: Entities included in the audit
We assessed contract extensions and variations processed from 1 January 2018 to the date of the audits, in mid-2019.
Detailed findings have been reported to audited entities. Their audit committees should follow up to ensure audit findings and recommendations are appropriately addressed by management in a timely manner.
We conducted this audit under section 18 of the Auditor General Act 2006 and in accordance with Australian Auditing and Assurance Standards. The approximate cost of undertaking the audit and reporting was $177,500.