Corruption Matters - June 2016 | Issue 47
Integrity in outsourced facilities maintenance
Each year, the NSW government spends billions of dollars on facilities maintenance (FM). The outsourcing trend that has characterised government process since the 1990s has meant that spending on contractor services is of considerable financial value. In the past decade, 25% of the ICAC’s investigations have involved corruption in FM contracts totalling $62.6 million. Given the importance of contracting arrangements, how then do agencies ensure that integrity is maintained for the outsourced delivery of FM services?
Many FM managers who engage contactors have expressed concern over the challenges in efficiently and effectively managing contracts and limiting opportunities for corruption. Australian corporate respondents to the 2014 Global Economic Crime Survey by PricewaterhouseCoopers said that vendor contracting and/or maintenance was the place in which procurement-related frauds primarily occurred.1
FM contracting is characterised by a variety of delivery models, ranging from a high number of small specialised firms to one-to-one contracts between large agencies and integrated service providers. The work varies from straightforward services to highly specialised technical tasks, and from planned, preventive jobs to reactive, corrective and emergency work.
If unchecked, pre-existing or “legacy relationships” between in-house FM staff and contractors can easily create opportunities for corruption. Outsourced FM delivery is particularly vulnerable to integrity breaches, including nepotism, over-scoping and over-servicing (known as “scope creep”), over-charging and under-delivery.
Over the years, there have been a number of ICAC investigations that have underscored the challenges faced in managing outsourced FM services. In one case, excess budgets and loose cost control enabled a project manager to use his own companies to do the work at inflated prices without the organisation noticing it. In another case, a loosely controlled FM contingency budget was used to source corrupt benefits. In another, changes to the scope of works, coupled with poor budget visibility, allowed the use of favoured contractors to complete the work.
The ideas below are based on better practice operations in a number of organisations researched by the ICAC. While there is no single right answer to solve every problem raised when outsourcing FM services, there are ways to tighten outsourced FM operations, such as:
- improving visibility about assets and optimal maintenance regimes to tighten scopes of work
- tightening budgetary controls and gaining insight into maintenance and transaction costs to avoid over-charging and inflated variation claims
- choosing a contracting model that matches the organisation’s needs and the maturity of its internal capabilities
- designing key performance indicators to incentivise desired behaviour
- implementing competitive work allocation mechanisms to provide strong performance incentives
- integrating databases of asset and contractor performance and analytical skills and capabilities to identify patterns and red-flag corrupt over- or under-service
- using customer feedback to provide quality information about contractor performance
- conducting a random or independent audit to clear under-performing contractors from the books.