In general terms, whilst certain procedural and other requirements have been imposed by statutes or statutory instruments⁵⁹, the common law authority of the Crown to contract for the purposes of government has not been abrogated by statute in South Australia. As already mentioned⁶⁰, what has changed is the fact that some government service contracts are now of a duration, materiality, and type, that reflect a new pattern of public administrative arrangements for the delivery of those government services. The indications from the 1998-99 Budget papers are that this trend in administrative arrangements will continue.⁶¹

Under the existing legislative framework in this State, this new pattern of administrative arrangements in its practical application, has, in my opinion, the consequence of circumventing Parliamentary 'appropriation control' of Executive Government spending when the latter enters into major contractual obligations for the delivery of government services outside of the legislative processes of the Parliament.

The legality of these arrangements is not in question. It is settled law that the validity of a government contract does not depend on there being an appropriation for that contract⁶⁴. Apart from the matter of legality, for the reasons discussed in this section of the Report, there are certain matters related to contractual arrangements and Parliamentary appropriations that, in my opinion, are important to draw to the attention of the Government and the Parliament in accordance with subsection36(1)(b) of the Public Finance and Audit Act1987.

The process of Parliamentary appropriation is an important control associated with the expenditure of public monies. Where this process does not operate in accordance with the established estimates and legislative supply/appropriation processes, there is a consequence for the discharge of the audit mandate under the Public Finance and Audit Act1987. This consequence, simply stated, is that in the absence of such processes, there is an increased audit risk and additional compensating substantive audit procedures must be planned and executed. There may also, as discussed in another section of this Report⁶⁵ be a practical fetter on the Executive flexibility of the current and successor governments.

The authority to issue or apply money from the Consolidated Account in South Australia is controlled by the Public Finance and Audit Act 1987. Section 6 of that Act provides as follows:

The reference in paragraph (d) of subsection 6 (1) includes a reference to the Crown Proceedings Act 1992 the relevance of which is discussed hereunder.

The provisions of section 6 of the Public Finance and Audit Act 1987 reflect the long standing constitutional principle of Parliamentary control of the authority of the Executive Government to spend public monies. This principle was stated by the House of Lords in Auckland Harbour Board v The King (1924) AC 318 at 326 as follows:

The High Court in Brown v West (1990) 64 ALJR 204 at 208 stated as follows⁶⁶:

The Crown Proceedings Act 1992 enacts a standing appropriation authority to pay monies in the case of a judgment against the Crown including a judgment under a contract.

A 'commitment' to future expenditure to meet a contractual obligation is not inconsistent with the requirements of the Public Finance and Audit Act 1987. A 'commitment' to pay money in the future does not amount to the 'issue' or 'application' of money out of the Consolidated Account. It does, however, give rise to a commitment to be met by the Crown in the future. As such, the liability must be disclosed in the Notes to the Financial Statements⁶⁷.

In the normal course of government contracting, as it has been undertaken in the past, Parliamentary appropriation control would not raise the issues being presented by present day contractual relationships. In my opinion, these relationships become a matter of importance for the Government and the Parliament in circumstances where the financial commitments are material in monetary terms and the obligations under long term service contracts relate to government functional responsibilities that have 'public interest elements' that go beyond the rights and obligations of the contracting parties⁶⁸.

In my opinion, the circumvention of traditional Parliamentary appropriation processes arises as an issue of importance from the combination of the following:

• the capacity of the Crown to contract for the purpose of government;
• the fact that the validity of a government contract is not dependent on an appropriation by Parliament for the purposes of that contract;
• the non-involvement of the Parliament in the contracting process, notwithstanding the public interest elements involved in major service delivery contracts;
• the right of a party to a contract with the Crown to obtain payment through a judgment, notwithstanding the fact that Parliament has not been party to the appropriation of the necessary monies to meet that judgment⁶⁹.

The extended use of service contracts for the purpose of discharging governmental responsibilities, when combined with claims for confidentiality, in my opinion, marginalises the role of Parliament and Parliamentary control of Executive spending of public money⁷⁰.

In South Australia, the Crown Proceedings Act 1992 specifically provides that where the Crown fails to meet its contractual obligations, it is open to the counterparty to the contract to obtain a judgment from the court with respect to that matter.

Section 10 of the Crown Proceedings Act 1992 provides as follows:

It can be seen from the abovementioned provision in the Crown Proceedings Act 1992 that the direction of the Governor for the satisfaction of the judgment 'is sufficient authority for the appropriation of the money from the general revenue of the State ·'.

The substantive affect of section 10 of the Crown Proceedings Act 1992, in light of the statutory and constitutional principles stated above, is that government contracts can be enforced and monies paid in relation to that contract, independently of the appropriation of funds by Parliament for the purpose of that contract.

AUDIT COMMENT

The extensive use of contract for the delivery of government services, when combined with claims for confidentiality, apart from significantly increasing the audit risk and the fetter consequence for present and successor governments, can also, for the reasons discussed herein, diminish the effectiveness of one of the foundations of responsible government, ie Parliamentary control of government spending.

As Professor T Daintith observed with respect to the British House of Commons regarding the use of contracts by the Executive Government to implement programs:

It is recommended that the notes to the accounts of public authorities separately disclose amounts payable under material long term contractual arrangements where those contracts involve the delivery of services to either the community on behalf of the Government or to the government itself.

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