The federal digital agency has come under fire over its use of contractors in an audit report finding it fell short of ethical standards by increasing the value of a contract by 40 times the original cost.
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An Auditor-General's report on the Digital Transformation Agency found it had grown the scope of contracts with private companies, instead of going back to the market for the additional work.
In one case, the agency increased the contract value by 40 times to nearly $5 million as it made 10 variations to its scope over two years, the audit found.
The Australian National Audit Office also found the DTA did not adequately consider value for money when it varied its contracts, and overpaid suppliers due to weaknesses in the agency's payment controls.
It recommended an overhaul of the agency's approach to contracting, after finding the DTA had not effectively managed any of the nine contracts audited - including two related to the ill-fated project to develop and roll out the COVIDSafe app.
The DTA has agreed to reforms, but defended its handling of the contracts saying they still achieved their intended goals and supported "critical delivery requirements" in the pandemic.
The audit report found the DTA's approach fell short of ethical requirements, singling out its handling of a contract with consultancy firm Nous Group for criticism.
In that case, the agency changed a contract with Nous Group relating to a myGov project 10 times over two years, growing it to 40 times its original value from $121,000 to $4.94 million, the report said.
"Varying a contract in this way is not consistent with ethical requirements," the national auditor said.
The DTA also significantly increased the scope of the contract - originally involving providing advice on a business case - to include writing ministerial briefs and other correspondence, and strategic advice on different projects for four different teams, the audit found.
Under the contract, Nous Group worked on up to four separate projects at one time, the report said.
The digital agency told the audit office it had "leveraged" the contract for additional work in another team.
The DTA's corporate finance and procurement teams advised against several of the variations, asking after one request to vary the contract: "Why aren't we conducting an approach to market (rather than leveraging the Nous contract)?" the audit report said.
DTA senior officials also met resistance from the agency's finance and procurement team when they tried to vary the contract with Nous Group to include work on another project, the report said.
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Instead, the officials directly approached the consultancy and set up a separate contract, it said.
"These contracts with Nous, which were the result of direct approaches, are an example of the DTA leveraging contracts and substantially changing the scope of contracts through variations for multiple teams across the DTA," the audit report said.
The audit office recommended the DTA strengthen its internal guidance and controls to prevent officials from varying contracts to avoid competition or obligations and ethical requirements under rules for Commonwealth procurement.
The audit office said agencies should not significantly change the scope of contracts through variations.
"Further, they should not extend a contract due to a failure to appropriately plan procurement needs, to continue supplier relationships, to avoid competition or to avoid obligations under the Commonwealth Procurement Rules," it said.
The report also said agencies should seek multiple quotes to "generate competitive tension" and achieve value for money.
The audit office also identified two duplicate payments - resulting in overpayments totalling $380,600 - for a COVIDSafe App development contract.
When it drew the payments to the DTA's attention, the agency said they had "likely occurred due to human error", the audit report said.