Confidential government contracts

I have long been a skeptic when it comes to governments and companies hiding behind confidentiality clauses to evade public scrutiny of government purchases, for example through public-private partnership agreements.

While it is theoretically possible that a government could negotiate a lower price if kept confidential, in practice confidentiality is used because to inflate payments to the private sector from the taxpayer. If the government got a good price, do you think they wouldn’t be boasting about it?

We now discover that license payments to Bernie Ecclestone’s Formula One Grand Prix amount to around $170 million in the five years to 2015. No wonder it has been kept confidential by four premiers.

It is unacceptable that such contracts be hidden from public scrutiny. Only full transparency can provide some discipline on governments to adopt prudent expenditure policies. Governments should also be required to provide a full and transparent cost-benefit analysis to justify decisions to subsidise such events. If such analysis shows a net cost, then the government should provide a justification for funding a project where the costs exceed the benefits.

What has Bernie Ecclestone ever done for Australia?

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J has an economics background and is a part-time consultant
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27 Responses to Confidential government contracts

  1. Steve of Glasshouse

    I was going to use the term ROI, but given that Roxon’s new laws may be a comin’, that’d be an insult to treasury.

  2. Papachango

    Not convinced by this argument. If government contracts were made public, they would probably pay the highest rates for goods and services, as every half-decent private sector buyer would use the government t rates as a starting point for negotiations.

    As it is, government procurement contracts sometimes have very competitive rates because of their massive volumes; think how much travel, fleet cars, software, advertising services etc that federal or state governments buy in a typical year. I say ‘sometimes’ because government procurement is intensely bureaucratic, as is all dealing with all the different government departments and agencies under whole of government contracts, so suppliers will factor this into their pricing.

    So how to avoid obviously corrupt, or even subtly favorable deals with suppliers? Same way the private sector does – professional procurement teams, independent probity auditors etc. making sure that none of them are politically aligned.

  3. Rabz

    What has Bernie Ecclestone ever done for Australia?

    I’m sure he could specify a list of ‘things’ as long as your arm if prompted. None of which would bear any resemblance to reality.

    Anyway, those wild and wacky S&M nazi dungeon orgies run by his colleagues aren’t cheap, you know!

  4. Rabz

    It is unacceptable that such contracts be hidden from public scrutiny.

    Classic case in point – the cross city tunnel in Syd-dee, which contained confidential clauses redirecting and or closing public roads to basically force motorists to use the tunnel, which had an utterly exorbitant toll of around $4. The main alternate route into the CBD from the east was also reduced to one lane and choked with “managed” traffic lights sequenced to ensure advancing traffic would get red lights at every set. This was also put in place for the routes across (and near) the CBD heading east.

    Once this was all public knowledge, the sleazy corrupt morons responsible literally gloated about it.

    Of course it all eventually turned to shit, both for the politicians and the tunnel operators, ending up being mired in backflips, litigation and stupendous amounts of hand wringing. The public, in the meantime, continued to be right royally screwed.

    As noted, it is a classic study in how not to implement a “Public-Private Partnership”, brought to you all by none other than NSW labore.

  5. Tel

    As it is, government procurement contracts sometimes have very competitive rates because of their massive volumes; think how much travel, fleet cars, software, advertising services etc that federal or state governments buy in a typical year.

    So on what basis does this need to be secret? If anyone comes along insisting on getting the same price, the supplier just insists they buy the same volume. Pretty simple negotiation there.

  6. Tom

    Ecclestone is a blood-sucking rent-seeker who has turned preying on governments into an artform.

    Australia and Victoria in particular has them in abundance: the public transport operators live in a corporate dreamland of cost-plus zero risk where their profitability is decided by gullible public servants with zero experience in business.

    Likewise, the power companies who play the public service like a piano in their fully regulated pricing. The latest outrageous satire is that their purchase of the formerly state-owned networks somehow doesn’t cover their network maintenance costs. Once again, they’re laughing all the way to the bank and raising two fingers at the mugs at the retail end of the system.

    The key for the blood-suckers is to understand that no-one in government understands how business works. If you’re really good at it, you can write your annual reports in advance, including your detailed profitability figures.

    But no-one sucks blood — and plays the politics — like the ugly little Pommy greeedhead:

    The fee demanded by the sport’s chiefs to stage the 2012 race was $US32.5 million, the documents show – more than half the $56.7 million Victorian taxpayers paid overall to subsidise that event once other expenses such as building and dismantling the Albert Park circuit were included.

  7. Pat Heuvel

    Do you have any figures on the equivalent costs of the Phillip Island events – World Superbikes and MotoGP (yes, I’m a bike nut)?

    How would one really measure the ROI of these events? Surely some of that is the exposure of Australia to those from overseas, if not actual dollars spent on our shores?

  8. cohenite

    And what about the employment contracts with senior ABC commentators who are doing such grand work in propping up this government and spruiking green policies like AGW?

  9. Concerning the Formula One events.
    Don’t forget that besides Ecclestone raking in a fortune,the other major beneficiaries are the Premiers and their hangers-on (and maybe,a few of their mates in industries that can rake in a quick profit from the event).

    These people get to rub shoulders with the business elite,get access to the best seat in the house (or race track),make contacts (showing that they are prepared to bend the state over for a stiff rogering for some brief status) and lead an exciting life.
    All at the public’s expense.

    It’s a no brainer for them.
    They even have the media access to claim it’s all been an incredible success.

  10. Craig Mc

    That’s the problem, isn’t it Pat? The outgoing is easily measured by looking at the cheque stub. The incoming is a lot harder to measure. To measure that you need to look at every hotel, restaurant, bar, taxi, caterer, supplier, casual, et al in town.

    Then, as you say, there’s the even harder to measure promotional effect of Melbourne as a destination to future travellers and investors.

    Successive governments of either flavour have obviously decided it’s a net positive, or at least too small a net negative to be seen losing it to another city. I’m not in a position to argue.

  11. Rob

    Do you have any figures on the equivalent costs of the Phillip Island events – World Superbikes and MotoGP (yes, I’m a bike nut)?

    How would one really measure the ROI of these events? Surely some of that is the exposure of Australia to those from overseas, if not actual dollars spent on our shores?

    I’d imagine the best comparison would be an event with largest imaginable carbon footprint, with lots of celebrities in private jets. An event that makes the most unimaginable noise with all the participants going round in circles at high speed – clearly the closest comparison is a UN climate change conference. Comparatively, the f1 is a bargain.

  12. Luke

    It’s long been the open joke in the Public service that ‘government discount’ means hugely inflated rate. I saw an IT quote once where the prices were ‘government discount’ but were in reality 50% more than what the machines cost at any retail store.

  13. Steve of Glasshouse

    Rob..ROI calculations are easy. All the NBN required was 2 paper napkins..

  14. H B Bear

    Ecclestone’s fee, whilst outrageous, is a rounding error compared to Myki or the Wonthaggi de-sal plant. Brumby deserves to be placed right up there with Cain and Mother Russia in the damage done to the Victorian economy.

  15. dianeh

    I just booked some accommodation for work and the special rate for work was around $20 a night cheaper than the govt rate. Rest assured that the company I work for doesnt rival the public service in size, so I cant begin to guess as to why our rate is better than the govt rate. Most likely better negotiators on our part, as we have incentives to be cost effective.

  16. Chris M

    “I cant begin to guess as to why our rate is better than the govt rate”

    Funny that, I always charge the govt more too. Could have something to do with them charging me top dollar every time?

  17. Funny that, I always charge the govt more too. Could have something to do with them charging me top dollar every time?

    So does St George Bank. A ‘government’ designated NFP account attracts an account fee. A ‘non-government’ account for a NFP is free.

    Good on them I say.

  18. Dan

    Well’ Lewis Hamilton got done for hooning in 2010 and paid a fine. That money in the bank right there

  19. Jim Rose

    you misunderstand auction theory and agent-principal conflicts. auctions aid collusion and prevent multiple rounds of hard bargaining to push prices down.

    auctions remove discretion of junior officials in organisations with soft budget constraints.

  20. Leigh Lowe

    The post below “Nanny’s agenda exposed” cites Eric Crampton having a crack at “economists for hire” producing bullshit reports inflating the intangible costs of [insert name of social scourge here] to suit their client’s agenda (usually government).
    I commented on that one about the Butterfly Foundation commissioning a report from Access Economics “finding” that the cost of the Foundation’s pet cause (eating disorders) is $70 billion per annum.
    “What harm does this do?” one might ask.
    Well, the Ecclestone subsidy illustrates the harm.
    That is, Governments pissing away millions based on a dodgy economists report of inflated Grand Prix “employment creation” and “indirect multipliers”.

  21. WhaleHunt Fun

    There’s always the right of a state to introduce of retrospective criminal laws mandating a severe penalty. A state is quite entitled to retrospectively make a prior act illegal and quite entitled to enact a severe punishment, preferably one where the body forever more bears witness.
    One would only need to do it once and thereafter the risk would constrain the behaviour of future carpetbaggers.
    So the moral question becomes: does the financial disembowellment of tens of thousands of persons by self-promoting leeches justify the caning of just one leech.
    If Singapore can execute people whose drug trafficking destroys the lives of dozens or hundreds, then surely we can merely flog someone who has bullshitted a whole state.
    There would be a long list of volunteer floggers.

  22. WhaleHunt Fun

    Came to me yesterday. Odd coincidence. Pls pardon the silly joke. Just that it is topical

    The Fence Repair – Sounds Very Familiar…
    Three contractors are bidding to fix a broken fence at Government House.
    One is from Cabramatta, another is from Marrickville, and the third is from Lane Cove.
    All three go with an official to examine the fence.

    The Cabramatta contractor takes out a tape measure and does some measuring, then works some figures with a pencil. “Well,” he says, “I figure the job will run about $900, $400 for materials, $400 for my crew and $100 profit for me.”

    The Marrickville contractor also does some measuring and figuring, then says, “I can do this job for $700. That’s $300 for materials, $300 for my crew and $100 profit for me.”

    The Lane Cove contractor doesn’t measure or figure, but leans over to the government official and whispers, “$2,700.”

    The official, incredulous, says, “You didn’t even measure like the other guys. How did you come up with such a high figure?”

    The Lane Cove contractor whispers back, “$1000 for me, $1000 for you, and we hire the guy from Marrickville to fix the fence.”

    “Done!” Replies the government official.

    And that, my fellow tax payers, is how a Government Stimulus plan works.

  23. Charles

    Bernie has given us a salutary lesson in the sucker/non sucker dichotomy.

    Thank you Mr Ecclestone.

  24. I have a couple of questions. The above does not seem likely to me and if true then governments can literally hide billions in expenditure. What do they put this down as in the books? I am aware of how it is done in Thailand but I thought we were a little more transparent. So if the above answer is the government can’t really hide it then isn’t the real issue that the government can write contracts that have future liabilities which can’t be scrutinized such as the secret “co-investments” in the car industry?

  25. Helen Armstrong

    It is true, Kelly. I worked in the Finance Depoarment in the Government Department (Housing and Construction) that managed the GP when SA had it, anything that overran budget was syphoned off to another ‘hidden’ Account, to make it look like there were no cost overruns. But there always were. I cant remember how much but it was a lot at the time.

    I guess the Government thought it was worth the expense for the spin offs that came with it, advertising for Tourism etc, forcing Victorians to visit SA, and it did have a certain pride for the locals, apart from a few whingers who complained about the pre-race traffic and the noise on the day.

    It was a great spectacle, with the F111′s blowing out the glasshouses at Virginia and the atmosphere in the leadup was very exciting, but for me, the one time I went, on a paddock pass, I could see about 3 feet of track when standing on a chair, so left, sold my ticket full price outside and went home and watched it on the telly.

    And of course, it made the other states terribly jealous.

  26. Helen Armstrong

    Department, can’t

  27. anything that overran budget was syphoned off to another ‘hidden’ Account, to make it look like there were no cost overruns.

    Helen so we shouldn’t throw stones when talking about developing nations as we are just as bad by the sound of it. You have made me think even a little less about our governments than I already did.

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