Contestability in the public sector

Background

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 9 Portfolio Stocktakes.

Across the reviews, there were, 960 and 74 recommendations respectively.

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 (Useful Resources) can still be used by the public sector to apply contestability.

For more information: please contact the Department of Finance by emailing publicsectorreform@finance.gov.au.

Last updated: 06 June 2019