Contestability in the Public Sector


1. Contestability Framework overview

The Australian Government recognises that the efficiency and performance of the public sector must continue to improve if it is to meet longer term challenges such as tighter budgets and demand for better-quality services for the Australian community.

The Contestability Framework (Framework) has been established to promote competition in the provision of Government functions and determine the most efficient way of designing and delivering government policies, programs and services.

Through the Framework Commonwealth entities are encouraged to apply contestability by adopting a more commercial mindset and continually seeking ways of improving the performance of existing or proposed government functions.

The Framework defines contestability in the public sector context, outlines the spectrum of contestability options and provides mechanisms and tools to assess contestability at a portfolio, departmental or functional level.

2. What is Contestability?

For the purpose of the Contestability Framework, contestability refers to:

The prospect of competition in public sector functions to improve both the efficiency and effectiveness of contributing to achieving government's outcomes.

The Framework encourages entities to ask three questions to assess what functions should be exposed to contestability, in whole or in part, and if appropriate, the best means for doing so:

  1. Should the Government continue this function?
  2. Could its efficiency be improved?
  3. Are there alternative means for providing the function? 

3. How does Contestability encourage efficiency?

Applying contestability to achieve an objective efficiently requires consideration of the costs and benefits available from the spectrum of alternative arrangements. Options for consideration should include systemic improvements, engagement models and market mechanisms (see the Spectrum of Contestability Options diagram at Figure 1).

Applying contestability could result in a government entity ceasing the performance of a function and making arrangements for the function to be performed by another, better positioned organisation. The function could be provided under commercial arrangements (with the government providing funding) by a private organisation, not-for-profit provider, another tier of government, or through other means.

Alternative arrangements could also include allowing other more efficient providers within government to perform the function or modifying governance or organisational structures within the current entity to allow the function to be undertaken more efficiently.

The Framework encourages entities to closely consider the structures underpinning different functions of government. This ensures that future structures maximise value from government resources with a better focus on delivering outcomes and refining the role of government.

Figure 1 - Spectrum of Contestability Options

Systems Improvement

Engagement Improvement

Market Improvement

  • Improve structures
  • Improve processes
  • Improve requirements
  • Improve products or services
  • Improve government relations
  • Improve contractual practices
  • Innovative public investment strategies
  • Develop behavioural and policy incentives to promote better compliance with or take-up of government initiatives
  • Build a market
  • Partner with others
  • Form a Government Business Enterprise
  • Privatise
  • Outsource
  • Mutualise

4. Efficiency through Contestability Program Outcomes

In the 2014-15 Budget, the Government introduced a Commonwealth-wide Contestability Framework implemented through the Efficiency through Contestability Program.

Between 2014 and 2017, the Program reviewed the efficiency and effectiveness of the majority of portfolios and departments, and several major entities through: 22 Functional and Efficiency Reviews; 11 Contestability Reviews; and seven Portfolio Stocktakes.

Across the reviews there were 966 recommendations.

Most recommendations focused on internal system improvements such as structural change, streamlining processes, and adopting improved products and services. A smaller number of recommendations were made to cease functions or identify opportunities for alternative providers of the functions, and market based improvements almost exclusively focused on outsourcing.

The Program helped transform the way the public sector delivers services, and informed how entities can contribute to the Government's vision to create a more efficient, productive and sustainable public sector.

In the 2017-18 Budget, the Government announced in Budget Paper No.4 that the program has resulted in savings of around $5.0 billion from 2014–15 to 2020–21, with further savings of around $14.0 billion estimated into the future.

An Australian National Audit Office (ANAO) performance audit of the Contestability Program was tabled on 21 May 2018. The performance audit found that the Program was effective in supporting entities to review the efficient and effective delivery of government functions.

Program findings and recommendations will continue to inform the Government’s decisions on key policy initiatives. Although the program ceased on 30 June 2017, the Contestability Framework and

Program materials (See Related Resources) can still be used by the public sector to apply contestability.

Contestability Framework Elements

The Contestability Framework includes the following elements which may be applied by entities to review the efficiency and effectiveness of their functions.

1. Portfolio Stocktakes

Portfolio Stocktakes assess functions across a portfolio at a high level and identify the functions with the greatest potential to be delivered more efficiently or through alternative means. Portfolio Stocktakes typically:

  • identify and list all of the functions undertaken by entities within the portfolio;
  • consider how to improve the efficiency of achieving the function, including whether there are any other organisations (within or outside of government) that could provide each function (in whole or in part);
  • consider whether there are any reasons why other organisations could not deliver functions more efficiently, or if there were any other impediments (such as cultural or security considerations); and
  • Proposed functions that may benefit from a Contestability Review.

2. Functional and Efficiency Reviews

Functional and Efficiency Reviews consider the alignment of entity functions to government priorities, and identify operational improvements and efficiencies.

They typically consider:

  • the role of the entity and whether its functions align with the government's forward priorities and policy commitments;
  • barriers affecting the entity from achieving its intended outcomes and, where relevant, proposed solutions to address these concerns;
  • the feasibility and efficiency of alternative approaches to address the government's forward priorities including identifying the benefits, costs, risks and any other relevant considerations (including legal, regulatory and cultural considerations); and
  • the proposed transition path to implement preferred alternatives, including how performance could be managed, staffing, capability considerations and potential governance arrangements.

3. Contestability Reviews

Contestability Reviews provide detailed consideration of how identified functions could be delivered through alternative means. They aim to identify and recommend the most efficient approach to providing a function, and include an implementation plan for any proposed alternative arrangements.

They typically consider:

  • the objective of the function, how it is provided and the associated costs;
  • alternative delivery options (including provision by other organisations and options to improve efficiency with the current provider); and
  • the costs, benefits, risks and any other considerations for each alternative delivery arrangement.

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