Contractors and Consultants: Management

DPC's guidelines

DPC's 2019 professional services and labour hire guidelines were in effect from October 2019 to 30 June 2024. DPC introduced them to provide the VPS with decision-making principles and guidance about when using professional services and labour hire is appropriate. 

DPC updated the guidelines on 1 July 2024. 

VECs for professional services

The 2019 professional services guidelines stated that departments should not engage professional services to do work identified as a universal and enduring public service function.

All departments were required to follow the guidelines for any engagements where a universal and enduring public service function was expected to form a material part of the engagement, regardless of value. 

The department secretary needed to approve these engagements unless a VEC could be demonstrated. In this case, the secretary could delegate their approval to the responsible deputy secretary. In the 2019 professional services guidelines, the VECs were:

• the work requires skills or expertise not efficient to recruit or maintain within an organisation
• the need for genuine independence
• the engagement connects the VPS with the latest technical advances, emerging key skills or expertise and builds VPS capability
• the work requires more capacity due to unpredictable demands that require immediate or time-critical action.

For those engagements where a VEC applied, there were also relevant conditions that needed to be met. More information about VECs and conditions is provided in Appendix D.

Professional services procurement

We compared all 10 Victorian departments' processes against the 2019 professional services guidelines.

We found that all departments’ processes comply with the 2019 professional services guidelines.

This compliance is a positive step. It should help departments limit their reliance on contractors and consultants to perform universal and enduring public service functions, in line with:

• the guidelines
• broader government objectives.

VECs for labour hire

The 2019 labour hire guidelines recognise that labour hire workers play a role in the VPS to make sure the government delivers its priorities. They also require departments to limit labour hire use to certain VECs. These include:

• if internal and/or external recruitment has not been successful or is unlikely to be successful
• where an existing VPS employee is on short-term leave or secondment
• where recruitment is underway to fill a vacancy and temporary backfill is required.

Where an engagement meets a VEC, the guidelines also specify approval requirements and minimum wage requirements.

Departments must also demonstrate that they meet the associated conditions for each circumstance. For more information about the labour hire guidelines, please see Appendix D.

Labour hire procurement

All 10 departments require written approval from the appropriate level of authority before entering into a labour hire contract. This good practice shows that departments abide by the approval requirements in the guidelines.

But we found gaps in the processes and policies for engaging labour hire staff under the 2019 labour hire guidelines for:

• DFFH
• DH
• DTF.

The 12-month guideline intends to limit extended labour hire engagements to specific circumstances. If staff consistently seek to engage labour hire workers for an extended term, this may increase the risk of non-compliance with the guidelines.

Providing clear and accessible guidance to staff

Providing clear guidance to staff who procure goods and services is an important safeguard that helps build a high-compliance environment. 

Clear guidance provides policies, training and advice about: 

• the requirements for professional services and labour hire, including the circumstances where they can and cannot be engaged
• what staff should do in their day-to-day work to make sure they meet these requirements.

Guidance should also be available to all staff who procure goods and services in their role. 

Inadequate guidance may increase the risk of staff applying departments' policies inconsistently or incorrectly. Departments may then become non-compliant with the guidelines. 

We reviewed departments' intranet pages, procedures, guidance staff and training materials related to professional services and labour hire engagements.

Implementing updated guidelines

DPC updated the 2019 professional services guidelines in July 2024. 

The updated guidelines:

• introduced record-keeping requirements for departments 
• strengthened requirements on departments when engaging and approving professional services and labour hire.

Departments are at different stages of implementing the 2024 guidelines. 

We looked at departments' policies and procedures and found that 2 departments (DEECA and DFFH) had not fully integrated the 2024 professional services or labour hire guidelines as of February 2025. 

DEECA has a time-limited exemption from DPC to finish its implementation by June 2025, and DFFH had an exemption from DPC to finish this by October 2024. 

The other 8 departments have updated their templates, policies and guidance in line with the new requirements. 

Implementing the updated guidelines may improve transparency and reduce the number of contractor and consultant engagements for enduring public service functions.

The VGPB accreditation

The VGPB's procurement framework provides guidance and policies that support departments when they procure goods and services. Departments must apply to the VGPB for accreditation with the framework. 

The VGPB assesses departments' applications for accreditation, which include internal compliance audits, policies and other relevant documentation. 

To maintain accreditation, departments must complete 2 internal audits in each 3-year audit cycle. Departments can choose focus areas within the framework based on their assessment of risk. 

As of October 2024, all departments are accredited with the VGPB framework. 

Compliance with the VGPB framework means that departments have processes in place to get value for money when they procure contractors and consultants. 

This provides:

• accountability and transparency over departments' procurement processes
• assurance to the VGPB that processes are in place to respond to recommendations from internal audits.

Addressing gaps from audits required by the VGPB

All departments have documented processes to:

• acquit internal audit recommendations and implement management actions
• manage and oversee internal audit actions through their audit and risk committees 
• maintain a record of audit actions
• follow up on overdue actions.

Annual reporting processes

Under FRD 22, departments must report specific information about their use of consultants in their annual reports, including details of each consultancy valued at $10,000 or more. 

We reviewed all departments' processes and data quality controls to make sure the information they report about spending is complete and accurate. 

All departments provide staff with templates, guides and advice on how to categorise contractors and consultants for annual reporting. 

All departments have processes to prepare and review their data for annual reporting, as required by FRD 22. However, these processes differ by department. 

All departments except DFFH and DH:

• extract data at a transaction level directly from their financial systems
• manually clean and categorise transactions according to general ledger account codes and descriptions (either contractor or consultant) and exclude transactions not required for their annual reports
• collate their data into the annual report format
• have governance mechanisms and operational processes in their workflows to validate information. 

Both DFFH and DH:

• engage an external supplier to:
  • consolidate their transaction data
  • provide reports on their consultancy and contractor spending
• analyse these reports manually before publishing their annual reports. 

Validating data

Departments also take different steps to check annual report data is complete and accurate.

Case study 1 explores how VAGO analysed departments' spending data to check if it is complete.

Accuracy of spending 

The largest factor that contributed to the difference we found was spending on contractors, which departments are not required to report. 

Public transparency about spending

Public transparency about departments' spending on contractors could be improved.

As noted in case study 1, departments spend significant public funds on external suppliers that they categorise as contractors. These are not required to be publicly reported. 

Departments also interpret and apply reporting requirements differently, which means that spending data is not always comparable. 

In our 2023 audit Contractors and Consultants in the Victorian Public Service: Spending, we recommended that DTF assess whether changing FRD 22 to require departments to include both contractor and consultant spending in their annual report would increase transparency on government spending and advise government accordingly. 

DTF accepted our recommendation. While DTF originally advised that it would address this recommendation by June 2024, it has not yet completed this as of February 2025. 

How departments should use professional services

Departments use professional services to help them achieve their priorities. For example, they might engage a consulting firm to provide advice about a technical matter if they do not have enough internal expertise to inform decision-making. 

They might also engage a contractor to provide professional services. For example, a contractor might act as a project or program manager for the department. 

Under the 2019 professional services guidelines, departments should only use professional services under certain conditions. This helps the government meet its commitment to reduce spending on consultants and contractors. 

Getting value for money in procurement

In its guidance documents to departments, the VGPB states that value for money is a foundational principle that applies to all procurement activities, regardless of:

• complexity
• value. 

Under the VGPB's procurement framework, departments should aim to get the right combination of factors to get value for money. Figure 5 outlines the VGPB's definition.

Our methods

We asked DEECA, DFFH and DJCS to show us how they managed a selection of professional services engagements. We selected 5 engagements from each department that represented a range of functions, total costs, duration and other factors.

We used the value-for-money definition in the VGPB procurement framework to make our assessment. We also asked departments to show us that they: 

• had a VEC before going to market 
• actively managed the contract to make sure suppliers delivered milestones within cost and time requirements 
• used the deliverables as intended. 

We determined that departments could only show value for money across the whole engagement lifecycle if they:

• met the procurement requirements in the professional services guidelines
• considered the combination of value-for-money factors in the VGPB procurement framework
• actively managed the contract
• received and used deliverables as intended. 

Figure 6 shows the results from our tests. 

Good practice case study

We saw examples of good practice at each of the deep-dive departments across different stages of an engagement. For example:

• DFFH showed good practice in selecting suppliers with the right experience and capability
• DJCS showed us it received and used the deliverables from all the engagements we looked at.

Case study 2 shows an example of how DEECA demonstrated value for money across the full engagement lifecycle. 

Good practice 

DEECA demonstrated a VEC for all applicable engagements we reviewed. DEECA determined that one engagement was not an enduring public service function and so it did not require a VEC. 

DEECA's approval form for professional services engagements includes fields where staff must:

• state if the engagement is a universal and enduring public service function
• nominate the VEC that applies to the engagement if applicable
• justify their reason for not using VPS staff for the engagement. 

DFFH also demonstrated a VEC for all but one of the applicable engagements we reviewed. DFFH's professional services approval form also asks contract managers to explain why the procurement meets the nominated VEC. 

These are examples of good practice that support compliance with the professional services guidelines.

Please see Section 3 for a list of VECs.

Gaps in documenting VECs

DFFH and DJCS could not always show us they documented a VEC for the applicable engagements we reviewed. 

The 2024 professional services guidelines introduced record-keeping requirements for departments. To comply with the new guidelines, DJCS has implemented a new record-keeping procedure that should address the gaps we found in its documentation. 

The VGPB value for-money factors

The weight that departments give to each value-for-money factor from the VGPB procurement framework varies based on:

• their priorities
• the type of engagement
• other factors, such as market conditions. 

DEECA, DFFH and DJCS showed us that they considered a combination of these factors during the procurement stage of all the professional services engagements we reviewed.

Clear intentions

The deep-dive departments showed us they had a clear purpose for engaging professional services in all the engagements we reviewed. 

They outlined how they intended to use the products they were buying in their procurement documentation. 

This is important because it makes it easier for the departments to:

• pick the right supplier that can deliver what they need
• establish their budget and timeframe
• assess the quality of products they receive against their requirements. 

Supplier capability

The deep-dive departments evaluated supplier capability when procuring all the professional services engagements we reviewed.  

These departments assessed each supplier's experience and capabilities against the department's requirements to determine their suitability for these engagements.

Picking a supplier with the right experience and capability helps departments achieve their project objectives within cost, time and quality requirements. 

Total costs of an engagement 

The deep-dive departments showed us they evaluated the total proposed costs of all the engagements we reviewed. 

For example, where departments ran a competitive procurement process, they assessed the relative costs of each supplier that responded to their request for quotes. In some cases, departments assessed costs against other benchmarks, such as standard purchasing panel rates, if it was a direct approach or sole-supplier procurement. 

Departments must use state purchasing panels for certain goods and services unless they have an exemption. For example, they must use the professional advisory services contract for most professional services engagements. 

This arrangement intends to improve value-for-money outcomes for departments.

Managing risk

Departments should also take steps to identify and mitigate risks that may compromise if they can deliver their projects on time and within budget.

The deep-dive departments showed us that they have processes to:

• consider risks to their projects
• make plans to mitigate these risks.

For example, DFFH's procurement plan template includes a section on risk management. 

The deep-dive departments demonstrated to us that they used these processes in the procurement stage to consider the overall engagement risk. 

Considering broader government objectives

Departments must also consider broader government objectives in procurement. These objectives can be:

• economic
• social
• environmental
• ethical. 

The deep-dive departments' procurement templates require staff to consider relevant policy objectives. 

We saw examples of where departments had used their procurement templates to document how engagements aligned with government objectives in the areas of:

• energy policy
• family violence reform
• gambling policy. 

Monitoring milestone delivery 

We saw examples of good practice in contract management at the deep-dive departments. 

DEECA showed us how they tracked costs and milestone delivery in 4 out of 5 engagements we reviewed. DJCS also did   this in 4 of the 5 engagements we reviewed. 

For example, both departments showed us:

• status reports provided by the consultant or contractor
• project-management documents and tools they used to track costs
• draft deliverables
• evidence that they regularly met with the consultant or contractor to check their progress and provide feedback on their work.

Gaps in showing active contract management

However, the deep-dive departments could not always show us how they managed the engagements we looked at.

This means that these departments could not demonstrate that they fully got value for money for these engagements.

Impact

It is important for departments to actively manage their contracts to make sure that the products they receive are:

• high quality
• within budget
• on time
• able to be used as intended.

This helps departments to get value for money over the lifecycle of their engagements with contractors and consultants for professional services. 

Using deliverables as intended

DJCS showed us that it received and used the deliverables from all 5 engagements we looked at. This is an example of good practice.

While the other deep-dive departments have clear intentions for engaging professional services, DEECA and DFFH could not always show that they:

• received the products they paid for
• used these products as intended. 

DEECA could not show us the final deliverables it received for one engagement. And DFFH could not show us that it used the deliverables for 2 engagements as intended.

This reduces these departments' ability to show that their engagements were a good use of public funds and got value for money for the department.

For example, DFFH engaged a consultant to provide advice for decision-making about housing policy. DFFH showed us evidence that it received modelling from the consultant, but it could not show us if or how it used this advice to inform decision-making. 

How do departments use labour hire? 

At times, departments need short-term support so they have enough capacity or capability to deliver key projects and services. They may use labour hire to fill these temporary workforce gaps. Labour hire is carried out by contractors. 

Most departments' people and culture teams provide guidance and templates for procuring labour hire. 

Day-to-day management of labour hire workers sits with individual business units and line managers. This is because labour hire staff often work within a VPS team and contribute to the overall objectives of their business unit. 

This is different to professional services, where a supplier is engaged to deliver a discrete project or piece of work. 

Our methods

We asked DEECA, DFFH and DJCS to show us how they managed a selection of labour hire engagements. We selected 5 engagements from each department that represented a range of functions, total costs, duration and other factors.

We used the value-for-money definition in the VGPB procurement framework to make our assessment. We also asked departments to show us they: 

• had a VEC before going to market 
• selected the right worker to meet the department's needs
• actively managed the labour hire workers to make sure they delivered on key role accountabilities 
• received work that met their intended needs.

We determined that departments could only show value for money across the whole engagement lifecycle if they met the procurement requirements in the labour hire guidelines, considered the VGPB's combination of value for money factors and actively managed the contract to receive work that met their needs. 

Figure 7 shows the results from our tests. 

Good practice

DEECA showed us it had a VEC for all 5 of the labour hire engagements we reviewed, in compliance with the labour hire guidelines. 

DJCS and DFFH both demonstrated that they had a valid rationale for 4 engagements. 

Gaps in documenting VECs

DJCS and DFFH could not show they had a VEC for all the engagements we reviewed. 

DJCS told us it does not have this documentation for one engagement because the engagement was transferred from DPC following MoG changes. 

DFFH could not show it had a VEC for one engagement. This is because DFFH's rationale for engaging the worker was in line with a VEC, but it did not document how the engagement met the required conditions for that VEC. 

It is important that departments have a valid rationale to engage labour hire workers so that they comply with the labour hire guidelines. It also reduces the risk of departments engaging external suppliers for work that its own existing staff could deliver.

Clearly outlining intended work

The 2019 labour hire guidelines noted that when departments decide to seek external support, this is often driven by the need for specialist or technical skills or additional capacity. They do this to make sure new initiatives are delivered in a timely and effective manner.

We asked departments if they could clearly identify the intended scope of work for the labour hire workers in the engagements we reviewed. Departments demonstrated that they could clearly outline what they needed labour hire workers to do in all but one of the engagements. 

DJCS could not show us its intended use for one engagement. DJCS told us that this is because it does not have all the documentation for this engagement due to MoG changes.

Assessing costs

As part of our assessment of value for money in labour hire engagements, we assessed if wages paid to labour hire were equivalent to the VPS level of the position being filled. 

Departments must use the Victorian Government staffing services contract when they procure certain labour hire positions. 

The staffing services contract:

• provides agreed rates that change depending on how long the department engages the labour hire worker
• is intended to provide competitive prices and a simple pricing structure that helps departments get value for money when they need to use labour hire. 

The deep-dive departments showed us that they paid labour hire workers according to the relevant staffing services rate outlined in the contract, except one engagement at DJCS. DJCS could not locate the rate information for this engagement due to MoG changes. 

Paying standardised rates is good practice that should help these departments get value for money in their engagements. 

Assessing supplier capability 

DEECA, DFFH and DJCS showed us they carried out competitive procurement processes. They considered the capabilities and experiences of candidates when selecting a suitable worker. 

All 3 departments have processes to evaluate labour hire candidates against pre-determined criteria. In some cases, where the departments engaged a candidate directly due to time pressures, they provided a rationale to support their choice. 

This means that the deep-dive departments were able to show us they selected a supplier who represented value for the department through their:

• capability
• experience
• cost.

Completing deliverables

Departments could not always show how they monitored the performance of labour hire workers, or what work or deliverables they completed while working for the department.

Departments told us that it is more difficult to demonstrate that they monitored and received quality work from labour hire engagements than professional services.

This is because the engagements are fundamentally different, with labour hire workers working under the direction of VPS staff rather than delivering distinct projects. 

However, it is still important for departments to manage labour hire workers effectively and demonstrate that the services they receive get value for money in line with the Standing Directions 2018.