Opportunities lost: lessons from the recent federal DSS & IAS tenders

"…the government’s express goals of innovative service delivery and improved outcomes for service users have actually been hindered as a result of the way the tendering process was designed and executed."

Recent federal funding cuts and tendering processes have created much concern for the community sector and the communities they work with. That's been particularly so for Aboriginal and Torres Strait Islander communities under this years Indigenous Advancement Strategy (which Indigenous leader Noel Pearson this week rated at less than 2 out of 10 for reform).

In the post below, Victorian Council of Social Service (VCOSS) Policy Advisor Brooke McKail looks at some of the lessons to be learnt. Her article is published in the latest edition of Insight, the VCOSS member magazine.


In the last year the community sector has faced unprecedented upheaval and widespread uncertainty as a result of federal funding cuts and retendering processes undertaken by the Department of Social Services (DSS) and the Department of Prime Minister and Cabinet through the Indigenous Advancement Strategy (IAS).

Overall, the tendering processes were lost opportunities to meaningfully engage with disadvantaged communities and the services that work with them, and to foster collaborative and innovative service delivery. As a Senate review found:

…the government’s express goals of innovative service delivery and improved outcomes for service users have actually been hindered as a result of the way the tendering process was designed and executed.[1]

In future, governments can reduce disruption by engaging more meaningfully with community organisations, and considering processes that encourage collaboration, including alternatives to competitive tendering. Governments can also reduce disadvantage by protecting the most vulnerable members of the community from budget savings measures.

The Australian Council of Social Service (ACOSS) estimates the 2014-15 and 2015-16 budgets strip approximately $1.5 billion over four years from basic services and supports for low and middle income households, with total projected cuts of $80 billion from health and schools funding to the states over the next decade[2].

Below are four main strategies that could improve services and processes:

Meaningfully engage the community sector in program design and development of outcomes

Community sector organisations have strong knowledge of the communities they work with and play a unique role in supporting people to overcome disadvantage and poverty. They can offer practical solutions to complex problems and contribute valuable program and policy advice for helping people overcome disadvantage and poverty.

They also report a genuine desire to engage more meaningfully with government in the design and delivery of effective, efficient and well targeted services. VCOSS also advocates that self-determination should be the basis of policy and system design on Aboriginal issues.

Governments can maximise the effective implementation of change by collaborating and partnering with the community sector. Working with the sector and its peak bodies to design and reach agreement on the directions of reform and parameters of a new services system is central to partnership.

The Commonwealth Grant Guidelines state that a sound grants process is marked by the building of productive relationships and a two-way flow of information and views. Professor Peter Shergold recommended the contracting of services to the community sector should involve consultation on all significant issues, including the development of policy, planning and service design.[3]

Similarly, ACOSS recommends that where there are significant changes to the size, scope or nature of services tendered, government should ensure there is clear and open consultation and collaboration concerning program design and services outcomes.[4] (See breakout)

However, the interim report by the Senate Community Affairs Reference Committee into the DSS process found that the department did not properly engage with community sector organisations and that the outcomes of the tender process would have been better if they had done so. As a result of the accompanying cuts to frontline services and the lack of meaningful engagement and collaboration, the potential for positive reform and relationship building was undermined.

The Federal Government called the IAS a ‘new relationship of engagement’ with Aboriginal Australians.[5] However, meaningful engagement with Aboriginal communities about the process, system design or outcomes of the IAS tender was also limited. The government could have better embedded self-determination in the IAS tendering process and better supported the growth of the Aboriginal community controlled sector.

Service providers were not given information about the overarching framework or model through which decisions about funding would be made, or the evidence on which they would be based. One result of this was that tender processes were oversubscribed. DSS received more than 5,500 applications seeking over $3.9 billion in funding, where only $800 million was available. The Department of Prime Minister and Cabinet received applications for more than 5,000 separate projects, with about 40 per cent reported to be successful to some extent.

With so many missing out, it is likely organisations allocated significant resources to preparing tender applications that were outside the scope or model sought by the departments. This was particularly the case for services previously administered by other federal departments, including alcohol and other drug treatment services and some legal services, which did not clearly fit into any stream. This process is inefficient, wasting time and resources for service providers and for departmental staff required to assess applications. For example, the National Aboriginal Family Violence Prevention Legal Services (FVPLS) report they were encouraged to see the tender as an opportunity to be innovative and apply to expand services to meet high community need. However all FVPLS were offered funding at the same level as 2013-14, without even a CPI increase. This left many feeling innovation was not genuinely supported or rewarded, and the time spent developing their program models could have been put to other uses.

Consider alternative commissioning/purchase for service models

The process of procuring services through competitive tendering limits meaningful engagement and collaboration. Organisations are placed in a competitive environment that undermines existing and future partnership based, collaborative and integrated service delivery. Competition principles also restrict the amount of information made available to services and communities.

The Productivity Commission, in its report on the Contribution of the Not-for-profit Sector, found that competitive tendering has benefits but will not be appropriate in all instances.[6] Where there are only a few providers, or the service required is specialised or complex – such as with delivering services to disadvantaged communities and to Aboriginal communities in particular – other approaches may be better.

With the IAS, alternative processes may have achieved the same or better outcomes with much less disruption to organisations and communities. There are a range of other mechanisms that can support better collaboration between service providers and co-design between government and community organisations, including consortia and collaborative ventures and direct negotiation.

Minimise disruption to reduce the loss of skilled staff and improve transparency around transition

The cost and disruption to organisations involved in the IAS and DSS tendering processes was significant. Many organisations were required to reallocate staff away from direct service delivery to develop tender documentation. Others used valuable funds to employ additional staff to manage the tender application process.

Funding uncertainty has significant workforce implications. The total loss of workforce capacity as a result of the IAS and DSS processes is as yet unknown, but a number of Victorian organisations have reported high staff turnover since the 2014-15 Federal Budget.

The lack of transparency in information about funding allocation, cuts and changes continues to make transition difficult for organisations currently or previously funded through DSS and IAS. Comprehensive information about which organisations were offered funding for which services and geographic coverage areas either took too long, or remains unavailable. It is difficult for organisations which have lost funding, to transition clients to new supports when they lack vital information about what is available.

Ensure timeframes are adequate to engage service users and support collaboration

Meaningful engagement requires adequate time being provided for services to reorganise, collaborate, change and implement new directions, and the opportunity for organisations to help reshape the service system for their clients.

However the timeframe for IAS tender submissions was only one month. Similarly, organisations offered funding by DSS were offered less than one month to agree to the offers, providing little opportunity to enable due diligence on what organisations were being offered funding for, their obligations under than funding and their capacity to meet those obligations. The Senate inquiry’s interim report said:

The timeframes for explaining the new system, applying for funding, requiring successful tenderers to sign contracts and providing feedback to unsuccessful applicants were poorly thought out. It was conducted too quickly, with too many rounds and was undermined by the initial budgetary cut of $240 million and the further cut of $30 million. The timeframes seemed to compound an inherently divisive process… [7]

Organisations that were interested in collaborative initiatives, particularly those looking to collaborate with Aboriginal community controlled organisations, reported the timeframe was insufficient to discuss and coordinate service integration or form consortia, and to be engaged in co-designing services.

Going forward, governments can get better results for those facing poverty and disadvantage by taking into account the knowledge and expertise of community organisations and nurturing the strong relationships between community organisations and with marginalised communities when planning funding cuts and major reform.

Break out box: Better ways to manage change

ACOSS has made the following recommendations to improve funding certainty for community services:

  1. Guarantee a minimum of 12 months secure funding for existing organisations, while a new funding round is undertaken.
  2. Ensure new contracts are finalised at least six months prior to the ending of existing contracts, in accordance with good governance and risk management principles.
  3. Ensure there is advance notice of at least 6 months of service procurement processes.
  4. Where there are significant changes to the size, scope or nature of services tendered, ensure that there is clear and open consultation and collaboration with services concerning program design and service outcomes.
  5. Support and encourage services to engage service users in service design and evaluation.
  6. Ensure any funding or tendering process preferences the option of direct negotiation or select tender, with open tender processes only being used in circumstances where clear benefits for competitive processes can be demonstrated.
  7. Ensure contracts operate with a presumption of a minimum of five years funding.
  8. Ensure no contracts prohibit organisations from participating in independent research, policy development and public debate, including advocacy.
  9. Provide for industry assistance, including transition funding, and job transfers to reduce the risks of increasing unemployment, and the loss of the expertise and skills of the existing workforces.
  10. Ensure there is adequate provision for redundancies for staff affected by changes in service procurement.

[1] Senate Community Affairs Reference Committee, Impact on service quality, efficiency and sustainability of recent Commonwealth community service tendering processes by the Department of Social Services; Interim report, May 2015, pp 6.

[2] Australian Council of Social Services ACOSS, Budget Analysis 2015/16, May 2015

[3] P Shergold, Service Sector Reform: A roadmap for community and human services reform, July 2013.

[4] ACOSS, Funding uncertainty hurting Australia’s community sector, December 2014.

[5] See for example, ‘Nigel Scullion proclaims ‘new relationship’ with Indigenous Australians’ The Age, 5 March 2015.

[6] Productivity Commission, Contribution of the Not-for-Profit Sector, 2010, p 324.

[7] Senate Community Affairs Reference Committee, Impact on service quality, efficiency and sustainability of recent Commonwealth community service tendering processes by the Department of Social Services; Interim report, May 2015, pp 15.