NSW state insurer slammed for 'sloppy' Capgemini deal

NSW public insurer icare used an “unreasonably short tender” that appears to have had a “predetermined outcome” to find a $260 million claims and billing platform, a root-and-branch review of the troubled state government agency has found.

The independent review, conducted by retired Supreme Court judge Robert McDougall and released late last week, details significant deficiencies with the tender process that resulted in a contract being awarded to Capgemini and Guidewire.

McDougall found that the procurement for the nominal insurer single platform (NISP) IT implementation project – one of icare’s largest contracts – was symptomatic of icare’s broader trouble, which stemmed from “sloppy” procedures and culture.

“The tender process… is of particular significance, both in its demonstration of a deficient approach to procurement in icare’s earliest stages, and because it is so closely linked to the introduction of the NCOM [new claims operating model],” he said [pdf].

'Tender was not competitive'

The origins of the contract date back to March 2015, when icare’s predecessor, Safety Return to Work & Support NSW (SRWS), engaged Capgemini to develop the business case and identify potential vendors.

The business case, as well as a separate procurement strategy developed by PwC’s Strategy& consultancy, paved the way for registrations of interest four months later in July 2015, though the process was kept open for just five days.

Four of the seven respondents were subsequently shortlisted, three of which were later invited to take part in the request for proposal process in August 2015 that allowed only 14 days (later increased to 17 days) for responses to be submitted.

The timeframe – which one down-selected respondent said was insufficient to provide a response – meant that only Capgemini submitted a response, which icare approved just two months later at a cost of $31.4 million for Capgemini and $17.4 million for Guidewire.

A separate report by RSM Australia [pdf] that considered probity and procurement matters - cited in the review - describes the timeframe as being of “material concern” and one which “fundamentally compromises the probity and integrity of the transaction”.

“The RSM report concluded that the tender was not competitive, had ‘inadequate documentation around how conflicts were managed’ and that there was generally a lack of overall documentation,” McDougall said.

RSM also found that although icare negotiated with Guidewire/Capgemini to receive a “substantial discount”, the “baseline or starting value was never market tested due to the lack of alternative submissions”.

Despite Capgemini also having been engaged to develop the business case for the NISP, RSM also found no evidence of a business case or pre-tender estimate that could be used to benchmark the submission.

“Notwithstanding the negotiations, RSM does not consider the procurement activity was conducted in a competitive manner and consequently we are unable to determine whether the procurement achieved value for money,” it said.

McDougall’s review also reveals the “problems were known to icare” before the Capgemini and Guidewire proposal was accepted, with a health check of the procurement confirming that “the time in the market was exceptionally short” in August 2015.

Despite this, the report notes that the agency was able to rely on the nominal insurer (NI) exemption to bypass government procurement rules for the contract, as well as for a number of other “very large contracts”.

Former chief executive Vicek Bhatia, who had a “potential conflict of interest” through his undocumented personal relationship with Capgemini, told the review that, ultimately, the result of the procurement would have been the same, which McDougall outright rejected.

“I do not accept, let alone agree, that the result would necessarily have been the same had the market been properly able to respond,” he said.

"After all, the whole purpose of a properly conducted tender process is to assess the market: to compare products, prices and other relevant criteria.

“Overall, the procurement process adopted for the... tender, and the attitude expressed by former senior leaders of icare, demonstrate an issue that recurs through this report: that the outcome was of primary important, and that process was at best secondary.

“Indeed, it is open to conclude that, in this case, process was seen as an impediment to achieving a predetermined outcome. Mr Bhatia denied that was the case. However, in my view the totality of the evidence is sufficient to support that conclusion.”

icare has accepted McDougall’s finding around the tender in part, noting that while the “tender period was very short”, there had been “substantial market engagement before the call for tenders” in 2015.