PROOF by chenshu






                At Sydney on 22 August 2001


               The Committee met at 10.15 a.m.



                  Mrs Diane Beamer (Chair)

                      Mr M. J. Brown
                     Mr A. Humpherson
                       Mr A. Piccoli
BRYAN JOSEPH JOHNSON, Senior Policy Officer, Department of Public Works
and Services, McKell Building, 2-24 Rawson Place, Sydney,

ANTHONY JAMES COLLINS, General Manager, Project Management Group,
Department of Public Works and Services, McKell Building, 2-24 Rawson Place,
Sydney, and

CHRISTINE WONG, Manager, Asset Management Planning Services, Department
of Public Works and Services, McKell Building, 2-24 Rawson Place, Sydney, sworn
and examined.

      CHAIR: Thank you for appearing before the Standing Committee on Public
Works. Did you each receive a summons issued under my hand to attend before the

          Mr JOHNSON: I did.

          Mr COLLINS: Yes.

          Ms WONG: Yes.

        CHAIR: We have received a submission from your department. Do you wish
this submission to be included as part of your sworn evidence?

        Mr COLLINS: That is a draft submission. The Minister will subsequently
issue the final version, which I ask be taken as evidence.

      CHAIR: As the key agency involved in government asset management,
would you like to make an opening statement about the whole-of-government
maintenance arrangements and the rationale behind those arrangements?

        Mr COLLINS: I will make a brief statement. As you will be aware, in the
past government agencies focused on the delivery of capital works and the
refurbishment of assets. Because of the significant up-front costs involved,
maintenance was not viewed as a high priority in managing an asset portfolio and
basically was undertaken by government agencies on an incremental basis. However,
with the growth of agencies' asset portfolios there has been a much greater
recognition that maintenance is a significant cost. Over the life of the asset that cost
may be more significant than the capital cost, and new arrangements are being
introduced by various agencies across government to improve the effectiveness and
efficiency of maintenance delivery.

       TAMM 2000, which is an update of the Total Asset Management Manual of
1993, provides government agencies with a framework to achieve those
improvements in the context of their asset management and service delivery needs.
In doing so, government agencies are required to focus on the maintenance that is
needed to deliver the services they are undertaking rather than doing maintenance for
its own sake or in the way it has been done in the past. They are also encouraged to
consider delivery options that will ensure that resources are optimised, which may

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include developing cross-agency-type arrangements. In that context, I think it is
important to recognise that the whole conceptual framework is built around ensuring
that the fundamentals are in place—knowing what your assets are, knowing how
those assets relate to service needs and understanding the quality and the
environment that you want to create inside your assets. That is the springboard for
moving forward in terms of making sensible decisions about your priorities.

       The shift in focus has led to new approaches to maintenance, which have
emerged across a variety of agencies. One of those is clearly the school facilities
maintenance contracts, which are maintained across the entire State. The Junee
Correctional Centre, which has a different approach through Corrective Services, and
the new regional maintenance pilot that is being run in the Riverina are examples of
some of the different approaches being adopted that are much more focused on
outcomes and on ensuring that dollars are being spent where they are needed most in
terms of service delivery.

        CHAIR: The TAM document is your key policy document, along with other
directives and plans. Must agencies comply with that document?

       Mr COLLINS: I will ask Bryan Johnson from the policy division, who is
responsible for working with central government to review those plans, to answer
that question.

          CHAIR: What is the quality of agency compliance with these requirements?

       Mr JOHNSON: It is variable. Agencies are required to comply with the
Government's total asset management policy that is set out in the TAM 2000
document. A review was first conducted in 1997 of some 25 public sector agencies'
asset management plans—in most cases they were asset maintenance plans. It would
seem that agencies fell into three categories regarding the extent to which they were
implementing Total Asset Management. You must realise that TAM has been around
since 1993 and that this review was conducted in 1997. At that time, probably 70 per
cent of the agencies reviewed were at the lowest level: they focused on the
maintenance process as the main component of asset management. So the process
was being managed rather than there being any kind of higher consideration or asset-
providing service.

        A small number of agencies—15-odd per cent—fell into a second category.
They were looking at the output from the asset itself. The asset had to be at certain
levels of conditions to provide services. However, these agencies did not focus on the
service itself. We assessed that a final 15 per cent were looking at providing
resources to get service outcomes. All agencies probably found the most difficult part
of the process establishing and determining the service levels and determining what
services they were supposed to be providing in enough detail to then plan their
assets. There has been major focus on addressing that issue since then.

        In terms of the types of agencies that were doing better than others, we
discovered that the agencies that controlled infrastructure-type assets—road
infrastructure, water supply and so on—found it easier to establish a service level. It
was probably easier to define. They also found it easier to turn that service delivery

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standard into some kind of asset standard—a bumps per kilometre type of standard—
that they could then maintain. Overall, the social agencies had a harder time: they
had more difficulty providing that linkage.

       CHAIR: So you received more detail from some agencies and less detail
from others. How did you go about helping with compliance?

        Mr JOHNSON: The result of the review of agencies is reported back to each
agency. Remember that it reviews how the agency is implementing TAM. In all
cases it would be a matter of going back to those agencies and advising them of the
findings as well as advising Treasury of the outcome of our review and the
Government Asset Management Committee, under whose auspices the review was

          CHAIR: Could you perform that role for agencies if they paid you a fee?

      Mr JOHNSON: No. I represent the Policy Services Division and there is a
Chinese wall in between.

        Ms WONG: We are the commercial arm. We help agencies to develop a plan
on a fee-for-service basis. There is a demarcation.

          CHAIR: Were many agencies willing to take that up?

       Ms WONG: Yes. A number of agencies embraced TAM and developed a
maintenance plan or asset plan. It is a management tool for them: assets, after all, are
one of the resources that agencies use to deliver a service. You find that more and
more agencies are willing to look at it and to plan better.

          CHAIR: When did the review take place?

       Mr JOHNSON: The first review was conducted in 1997. There have been
reviews of individual agencies since then.

          CHAIR: Has compliance improved?

         Mr JOHNSON: Yes. Fewer agencies are now at the bottom level of focusing
on the process rather than the output. However, it must be said that the results are
still not starry. There is still a long way to go.

          Mr HUMPHERSON: What proportion of agencies are at the lowest level?

       Mr JOHNSON: I would say that some 50 per cent of agencies are still at the
lower level.

          Mr BROWN: Which agencies are in that category?

        Mr JOHNSON: Those figures may not be as bad as they sound in that the
larger agencies that run infrastructure are in the top category. You would probably

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find that the small agencies with relatively small asset holdings are still languishing.
They would all be non-infrastructure, and therefore social-type agencies.

        Mr COLLINS: It is also fair to say that many agencies—particularly the
larger ones—have taken a lot of time to map down from the top. They have some
very good service strategies in place. Some of them have used us and some certainly
have not. However, it is important that they have recognised the need to connect their
service strategy to their asset strategy. By and large, that part of the process is pretty
good in the bigger agencies. It is not perfect but it is a lot better than it was. Many
issues then come down to the next step: How do you convert the fundamentals of
having established your assets—what you need to do and what kinds of assets you
have—into getting the most value from the dollars that you have, or might need, to
maintain the standard that you decide you need? The process has two parts: One you
have established your needs. Then: how do you turn it into a delivery methodology
that gets you maximum value for your dollar? That is what some agencies are
grappling with.

       CHAIR: The Department of Housing, for example, seemed to face a quite
enormous task. It seemed as though it had a process in place with a longer time frame
because it needed to gather a lot of information regarding its 138,000 properties.
What about the specifics? How are the police going in this process? They are a big
asset manager.

          Mr COLLINS: I cannot answer that question.

       Mr JOHNSON: The police plan has not been reviewed since the original
review of 1997. I can best say that they were typical of the social agencies. Let it not
be thought that any agency, even those in the lowest category, did not understand the
need to link service and assets. The concept has been understood by all. The police
were typical of most social agencies of their size.

        Mr BROWN: We have interviewed a lot of agencies over the last two and a
bit years about this issue, and we agree with you that the concept is not radically
difficult to understand. But what this Committee often has a problem understanding
is why some agencies are so far behind other agencies. We want to identify those
agencies and try to work out how that can be improved. You are talking about social
agencies, and you put Police in that category. What other big agencies, like Police,
are in that 50 per cent?

        Mr JOHNSON: It would be reasonable to include Education and Health.
Health plans were not reviewed, but I put them into that same category. Maybe I
could illustrate it by saying that it is not contentious to determine service delivery
strategies when you are playing with the likes of a water supply. There are levels of
availability. There are other service delivery levels that you would set that are not
contentious and, therefore, the agency sets them and continues to plan. I would
suggest that it is contentious if, so that you can put asset planning in place, you have
to be very specific about the levels of service you will provide. If you consider what
that means, it is not just saying, "We will have the best police force or the best
education system." It is very specific because, remember, you have to be able to get
it specific enough that you can hang specific asset requirements onto it. You would

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then have to set standards for specific parts of that service. What does become
daunting is that when you specify the standards you will supply, de facto you are
saying what you will not supply.

         Mr COLLINS: I would like to make a couple of additional comments. If you
look at Education, a theoretical issue has been debated about how well its plans take
down the top linkage. However, there is no doubt at all that it has a very clear picture
of what it thinks it needs its asset to do. Mr Johnson's discussion is more about some
issues about how well you can manage some of that service strategy stuff. DET has
a very clear picture that links to its strategy in terms of what it wants its schools to be
like, and the department has implemented that. So far the discussion has been at a
fairly high level, which is sort of the top end. If you do not get some fundamentals
right about why you have your assets then the rest of it becomes a bit of a nonsense
in a sense. The reality is that from the point of view of a perfect plan you do not see
all the flowthrough, and that is what Mr Johnson is saying.

        There are some strong reasons for saying that until you have that you cannot
be absolutely confident that the linkages are right. You also have to make some
reasonable judgments on some of those things, so if we take Education, education
has a clear picture of what it wants, the kind of environments it wants its schools to
be. That is what is defined by the school facilities maintenance contract, which is
then trying to achieve that end. In fact, it has said, "This is the minimum sort of
standards we want our people to be inside of" and there are a whole series of
performance definitions trying to identify that. The procurement methodology then
goes ahead and it attempts to achieve that. There is no doubt on all the measures that
that has improved equity between schools and those sorts of things.

        If you take Health, it is, obviously, exceedingly complex. Decisions about
Health are obviously shifting in and around, and it is trying to come to grips with
whether it really needs this physical asset or whether it is going to do this through the
net and all those other sorts of issues that it is grappling with, and all the other sorts
of problems it has in managing an ideal asset base from "This is really what I would
like", which is, "We need these hospitals out here, but we have these hospitals that
are still running, they are expensive and we want to merge them." Then all the
community pressures come in. Education has the same problem. There are a whole
lot of practical issues that seem to come into play that seem to take you beyond the
structure of the asset planning itself to fit it into that wider frame.

        If you look at Health, and I cannot make a comment because I have not seen
the detailed plans, but, clearly, one of the reasons that some of these organisations
are in different places is the sheer size of the task, the complexity, the shifting nature
of the issues, where the priorities lie and how they try to deal with those issues.
Where you have a small agency it might be a different issue entirely. It might be that
it is not on their horizon because it does not seem a big enough issue for them
compared to their service outcomes, and that is a different kind of problem. But
bigger agencies certainly seem to be attempting to attack the issue, and some of them
have some very big issues to deal with.

      Once you start getting into the realities of this outcome-based approach,
which is going to give you the best outcome if you get it right, you have a lot of

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issues to deal with. Different environments create different issues. Mr Schipp is
behind me and he will talk later, but, obviously, all the issues around gaols will be
very different kinds of issues to a school, a complex hospital or a very large TAFE
that has a lot of heavily serviced equipment, equipment which, if it breaks down, is
life threatening. The risk assessments attached to all those sorts of things start to
create a different environment about where you should spend your money. The
challenge, then, is to change from what is happening now to a system that would get
you better outcomes because you are more focused, but, at the same time, not losing
focus on those issues that have made you set it up that way in the first place, like
what is the risk of the systems in the hospital breaking down during an operation?

        They are the sorts of things they have to come to grips with. They are going
to drive different responses because they have different needs. You start off with a
set of principles, but then you have to work through the risk assessment, you have to
work through the functional needs and through all those things and then convert it
into a procurement-type system or systems that will get you what you want when a
large focus has been on other things. That is a big task at times.

          Mr BROWN: Who are your main competitors?

          Ms WONG: In asset planning?

          Mr BROWN: Yes.

          Ms WONG: We have GHD.

          Mr BROWN: Lend Lease?

       Ms WONG: They do not do asset planning as such. We look at asset
planning. We look at the whole gamut of asset planning. Some of the big
accountancy firms do corporate real estate planning and asset planning.

          Mr BROWN: Such as KPMG, and Coopers and Lybrand?

       Ms WONG: Yes. Coopers and Lybrand do asset planning as well. We have
smaller consultancies competing with us as well.

        Mr COLLINS: And people like Transfield. A lot of people are moving up
the tree, if you like, so when you talk competitors there is a lot of overlap. At times
they are our contractors or our consultants. In fact, we may even work for them on
some issues at times and other times they will move into an area where we might
compete. That is just the way things are generally, but it is certainly true here.

        Ms WONG: In a lot of cases now people are offering the total solution, not
just one little bit, but they are looking at the big picture. They are looking at how we
deliver service and what is the best fit for you. That is really the trend now.

       CHAIR: In talking to one person about what was occurring with their
maintenance, the person said it was the easiest bit to fudge if you need more money
somewhere else.

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          Mr COLLINS: That is exactly right.

      CHAIR: I have $20,000 in maintenance for this building or $80,000 and if
something else comes up we can grab $10,000 from maintenance.

       Ms WONG: It always looked like left-over money. If I have done all this and
I have something left over then we will do this. More and more agencies are finding
they cannot afford to do it because it will, at the end of the day, affect the way that
they do business, deliver service.

        Mr COLLINS: It would be fair to say that I have not seen many large
agencies that would any longer fit into that category. It would be more likely to be
some of those smaller agencies that do not have any assets anyway, or maybe they do
not make such a major contribution, or they just have not got to the point of
recognising what Ms Wong is talking about. But you made the comment earlier that
compared to 10 years ago, or even six years ago it would be very different in terms
of awareness, not necessarily in terms of outcome at this stage. But I would have
thought that senior management's awareness of these sorts of issues is much higher
than it was.

       CHAIR: How are we going to get an outcome for the Department of Housing
when it recognises that it has a $750 million backlog?

        Mr COLLINS: I suppose the first question I would ask is how is the backlog

           CHAIR: It has been established by neglect, I would imagine.

        Mr COLLINS: No, putting the dollar figure on it is a challenge. This is one
of the first problems you face. The backlog relates to what you actually need to
spend to have the asset that you need at the standard you need, so that it does what it
needs to do. I am not saying the figure is wrong. I do not have any understanding of
it. But we have been through a lot of backlog issues over a long time, and the first
question is: Is it $250 million? Is it $750 million? Or whatever the figure might be.
Unless you have standards you are measuring against that other people can see, and
understand why that standard is there (because if you do not have that standard then
you are not going to get the outcome you want from the asset) then you really do not
have an opportunity of saying, "Is it $750 million, is it $1 billion or is it $500
million?" That obviously makes a big difference as to how you go forward.

        If you have that kind of thinking then you also have a way of going forward,
because once you have defined in some objective way what it is you think you need
you then simply look at the options for how you go forward. The first issue is making
sure that the money goes as far as it can, which is going through this process of, first
of all, focusing in on the right kinds of assets. You have do have some kind of
condition assessment that connects the two things and says: Where are the priorities?
That is a big task if you have the sort of assets Housing has. They have done, at least,
some of that work. Once you have that set up you have to have a process that says:
How am I going to get maximum value for the dollar? There is a whole process here.
If you move through the TAM process it actually defines all the elements and the

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question is who is going to do this. Is it better for the client? Is it better to engage a
facilities manager? Is it better to go up the process tree with a contractor?

        Every time you go out and you get three or four people going out to bid, or
you get five people to look at the asset one way or another you are paying for that.
The more times you have to do it the more times you pay, and that is not actually
contributing to the dollars that are going into the asset. The whole concept of what
we are doing and some others are doing is to say: How do you eliminate duplication
or minimise it, and in doing that who should do the work and where is the risk
allocated? How can you get people to do just one thing once? The facilities
maintenance contract is built on the concept that you actually get the condition
assessments done by the contractor who is then responsible for doing the work to
meet the standard, and because he has looked at the work in the first place get you
can expect him to take the risk. If you go in blind and you do not have all these
things established the risk issue goes up.

        The bid they put in is much higher and you are not getting the gain, so there is
this whole business of matching up the balance between who should do what, where
should the risk be, which are the things that are core issues the client agency has to
have, which information does it need on an ongoing basis to manage its assets? You
have to make sure that you do not give away too much, which has happened, so that
over time you suddenly lose your information-based manager asset on an ongoing
basis. You really have to look at what you need for your situation. If you are going
into housing, you obviously have issues about how you manage housing in such a
way that you get into the client in such a way that you do not disrupt them. You need
equity, one assumes. The fundamental issue here goes to equity. How do you obtain
equity, which is the same sort of standard across a whole series of housing so that
people do not feel that they have a better deal than others have? The process has to
take account of all those sorts of factors.

        Mr BROWN: Do you think that the Department of Housing has not taken
into account those factors when it came up with its figure?

          Mr COLLINS: No, I am not saying that for one minute.

          Mr BROWN: You seem to be disputing the figure.

        Mr COLLINS: No, I was picking up on the backlog. Let us assume that it
has done all that, because I know it has done a lot of it. Let us assume it has done all
of it and it knows the figure. My simple point is that we need to understand the real
backlog, the real extent of the issue. Is it this big or that big? That is not because I
have 100 assets and if I maintain them at X standard it will cost me that much and,
therefore, that is the backlog. The issue is: Which assets do I need to continue within
my business? What standard within those assets do I need? Not all of them have to
be at the same standard. The storeroom may not need to be at the same standard as
the up-front area or the classroom. Having established that, you then say, "This is the
real dollar need." Let us assume that it is $750 million. Then you have to go through
those other steps. You really have to move ahead and say, taking account of those
factors, what is the best system to get as much value as I can out of the system?

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        If it turns out, of course, that the reality is that you have to spend more money
then you have the whole-of-Government issues that arise. What are the priorities?
Unless you have some standards and service strategies to measure against and say,
"If I fall short of the standard what does this mean?" that is when the Government
has to make decisions on priorities, when there are all these conflicting priorities.
There is no easy answer, but it is that kind of process that has to be gone through. I
am sure Housing is going through that process. I was not, for one moment,
questioning the $750 million other than to say that backlogs over a lot of years have
been quoted with a whole lot of figures without, in the past, information behind them
to say that this is really what we need to spend to get the best outcome.

          Mr BROWN: What is your relationship with the Department of Housing?

        Ms WONG: We are talking with the department. If you look at the
Department of Housing issue, whether it is a 750 backlog or whatever backlog, it
must start with the fundamentals. It must look at the mix of whether its assets are
suitable to deliver a service: Are its assets the right mix? I think it is going through
the exercise now to look at the mix of assets. How many does it keep, and what is the
right mix for the department? Once you have got that you can then deal with what
sort of standard your housing needs to be and then maintain that and work out how
you prioritise.

          CHAIR: I think the department is up to standard setting at the moment.

        Ms WONG: I think it has done that. It has gone through the condition
assessment. It is looking at the standard it needs to maintain. I think it is now going
through the right mix of housing stock for it. It might have housing that may not be

       Mr COLLINS: Which means that it may actually get rid of a fair bit or it
might refurbish. It is not just maintenance obviously. It is whether the department
moves to get rid of this much, build new stuff, refurbish.

        CHAIR: They are politically hot questions. They are loaded in a very
different way.

        Mr JOHNSON: Thus, my previous comments that the social agencies find it
very difficult to define. To extend just on the issue of standards, the more detailed
your definition is, for example in terms of Housing, the more detailed you are as to
what sort of housing you provide for what people and what aspects of it are
significant, the more you curtail the budget. However, the down side of that is that
you must know your business a lot better than when you can have a looser all-
encompassing standard.

       Mr COLLINS: And you certainly need to get down to that level, depending
on the nature of the client. Once we did it for one set of schools; they agreed they
wanted a particular standard, and we can move with that. There are some other
agencies around where that is pretty well applicable. In fact, all you need to do is line
them up against it and say "yes", "no", "yes", "no" or "I want to go one level down"
or whatever. It is a fairly simple process once you have done it but with other types

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of assets you have to do a lot more work. If you have more mechanical, electrical
type equipment, for example, all those sorts of things move you into a different
place, although a lot of that is about the simple process of saying, "I want a room to
be 22 degrees, no matter what." Then you have to ask the question, "How long can it
break down for?" If it is an agricultural laboratory with experiments it has a very
different requirement, for example, to comfort airconditioning.

        It is just those sorts of issues. It is not that hard to go through them at that
level but for many clients in many circumstances some of them will get more
complex and that is when you have to look at your methods of management. In some
cases you may just build in more flexibility. You say, "At some point it is mad to try
to define this any more; I will set up a process where someone can manage this for
me. I need more flexibility." So it is always this balancing thing. It is important to go
through the assessment of the procurement methodology, rather than just start at the
front and needlessly go through to the end. You have to think it through and say,
"What is the right balance between what I am doing here, and how will this relate to
what I will get on the ground?" You only spend that effort if it will produce an
outcome for you.

        CHAIR: Can I just talk specifically about the regional procurement contract
in the Riverina that you mentioned? How many agencies are involved in that?

          Ms WONG: Six.

       CHAIR: How did you get them all talking to each other about doing this

       Ms WONG: By talking to them, by having workshops with them, by talking
to them one on one. We work for the benefit with them and say, "What are the issues,
and what are the benefits you will get from working together?"

       Mr BROWN: I think you did a great job getting six together. How many did
you start talking with?

          Ms WONG: I think we started about 18 months ago.

       Mr BROWN: Sorry, you have six in the contract. I am sure that you spoke to
a number of other agencies besides those six. How many other agencies did you talk
to and which agencies were they?

          Ms WONG: I talked to about 10.

          Mr BROWN: Why did those four not sign up?

       Ms WONG: I think they did not have a big asset base to join at that time.
Also, their circumstances might be different. They might have contracts in place and
they say, "I will see how you go and then we might join in later." I mean, like
teachers housing. They have contracts in place and it is a bit hard to ask them to
break those contracts and then join the scheme. This is a pilot so we need their co-
operation to see whether it will work.

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        Mr COLLINS: It is true to say that some agencies may well have been
interested in being involved but because of their existing commitments it will take
some time, even if they are prepared to go in, because it is certainly not cost effective
to break existing contracts. You have to take account of all those sorts of things, and
that is why you have to think a fairly long way out to get the whole thing rolling
through an original procurement process.

       CHAIR: You have a couple of agencies that are not as happy with the
process as other agencies. The Department of Community Service [DOCS] and the
RTA are not as happy and feel that they could be cross-subsidising some of the other
maintenance issues. Have you had that feedback? They feel that they are not getting
the benefits. We went there and spoke to a lot of principals who are very happy. The
Department of Education and Training seemed to give it a very good rap.

        Ms WONG: Can I talk about DOCS in this instance? I think DOCS believes
that we are piloting in the wrong area, that we piloted in the area where it has very
few assets. It says, "If you pilot in other areas we might see bigger benefits." It is
actually using the system. It is using the urgent repair now which is in place, and I
think it is still planning ahead on what I call the program work. It believes that the
size, because of the Riverina, it has not got the assets. Its major stocks are in Sydney
and Wollongong so it is too small for the department to see what is the benefit for it.

         Mr COLLINS: It is also important to note that we are not necessarily
moving down exactly the same path as the schools facilities maintenance contracts
for regional procurement. The principles we are trying to adopt—the starting point is
the same but the nature of the assets, the size, the number of things that will drive the
exact way this sort of turns out, so there are some things you will use again. You will
use the standard and a lot of other things, but you will structure the contracts in the
end to suit the circumstance. We are not trying to move them into the formula, if you
like; it is trying to apply the same principles and adapt them to the circumstance.
When you get a bigger critical mass, clearly you are able to do a number of things.
But given that there are different agencies involved and one of the benefits of this
process is the ability of the local people to manage at a local level—that is one of the
key issues—hopefully, over time when they get to use the system they might modify
their views a bit. I think you have to wait and see.

        Clearly, there are some understandable concerns. One thing is: Do I lose
some control over my assets? That would be a fundamental and totally legitimate
concern for any agency. One thing the pilot is about is trying to demonstrate is how
in effect you can do these things so they can get all the things they want out of the
system. Better value for money, more surety and things like occupational health and
safety are reasons that this whole system is being driven, for example, the statutory
requirements, to make sure that in fact maintenance is carried out with the same sorts
of standards as any other kind of work under the Construction Safety Act. If anything
goes wrong—and unfortunately there has been a recent example—on a very small
job you can have a very large issue for a client agency. There are a number of
benefits that go in this package and some of them relate to consistency, quality,
making sure that statutory requirements are required and, therefore, they are able to
meet their own obligations as a client, as an owner of an asset, and those sorts of
things, as well as things like value for money and some trust that if something goes

Inquiry into Infrastructure Delivery & Maintenance -   11           Wednesday, 22 August 2001
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wrong it will get fixed and it will get fixed the way they would expect. So there is a
bundle of benefits we are trying to deliver out of this, as well as the value for money

       CHAIR: Different agencies put different emphasis on maintenance. Judges
who sit in courthouses love them to look more pretty and they are very well
maintained buildings. Then you have people who must put up with whatever they
have. To get those people together with the different levels of maintenance already
done and the different emphasis on what needs to be done or not done, how do you
come up with a formula of how they pay the contract, particularly when throughout
the State a government agency might have a lower focus on maintenance than it
should have and you are now telling that agency that its building should be at level

          Mr COLLINS: They are making that decision.

       CHAIR: They talk to the contractors about the type of requirement for that
building. For example, if paint is peeling off that is fine, but if the wall falls down or

        Ms WONG: In the original maintenance pilot the decision is still with the
agencies. We are trying to help them with ways to purchase it. Virtually, the first part
is really testing the buying power if you bundle it together. They still make the final
decision as to which wall and area to paint and they are still within the agency.

        Mr COLLINS: You are exactly right in that that is one of the fundamental
issues you have to face, and bundling starts to highlight some of those issues. Some
of the decisions have to be made before you let the contract because you are asking:
What is the basis upon which the thing will go forward? The client must have enough
scope to be able to identify and get their requirements within the way the contract is
structured but also have the money to pay for what is involved. The concept is to
move—I guess it is a continuum from the very basic—go out and buy a breakdown
service—at one end to the very sophisticated version at the other end. It is a
continuum along the way. This is about trying to move people down at that
continuum. The first stage of the pilot is not to go to a fully outcome-based system,
although we would see that once you got to the point where there was more
consistency. The first step is to get some of that consistency and the next step is to
use that as a springboard to go to a further step.

        Agencies that are well down the track are able to launch straight into an
outcome-based approach because they have the fundamentals. As I said at the
beginning, know what your assets are and know enough about what they are to know
what standards you want. If you can do those things you have a basis for moving
forward. If you have not got there you must get there to get to the next step. One
thing is to try to bring them up through some packaging.

       CHAIR: This is a project. You manage the project. You manage talking to
them all together. Did they pay you management fees to cover such things as
overheads, or was it purely part of your commercial aim to do this?

Inquiry into Infrastructure Delivery & Maintenance -   12            Wednesday, 22 August 2001
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          Ms WONG: Yes.

        CHAIR: There is some feedback that they felt that they were overcharged for
that service and they are not getting the benefit.

        Mr COLLINS: One issue with this is that there is a fair bit of investment up
front. That is always a hard issue to sell without the benefits. The way we did it with
Education, because we started from absolute scratch and invented everything, in a
sense, we worked in total partnership with Education and basically shared the cost
because we saw some of those things as being something that down the track we
would utilise in a commercial way so we were inputting. The other part was
particularising it for DET and doing a whole lot of things that are involved in that. It
still remains an issue that there is an up-front investment and whether we do it or
whether they do it or they get someone else to do it, that investment must be there. If
they do it themselves, which they can do, they will not necessarily measure all the
costs because they are using their people's time but it is still a cost, or they can
engage someone else and find out whether that is cheaper.

        The issue is that the investment must be made. The point you just made is the
key one. Some of the agencies that are still trying to develop some of those key
elements must one way or another get those done and invest the money in getting
them done if they are to move forward, however they do it and whoever they use. If
there is an issue about the incremental cost, the biggest issue is recognising the need
to invest the money at all.

        I think that is, to some extent at least, what you are facing, with those sorts of
statements. I do not know who they were and it depends on the circumstances, but
they may reflect to some extent the non-recognition that one way or another
investment has to be made if you are going to get the best asset outcomes down the
track. That would be my view.

        CHAIR: This is just a comment from me: Government departments see this
as a way of saving money and in fact, at the end of the day, it is about getting more
money into your maintenance that you have neglected, so it does not end up having
the bottom line of being able to employ another person to go out and help. They are
looking to find ways to save money.

        Mr COLLINS: Certainly I am sure that is true of a number of them, but
probably not all. Some of them probably better recognise the latter point, that is, it is
about getting the infrastructure up to scratch. In a sense you are saving money at the
very beginning because you may actually pay less to get the same outcome but,
clearly, you need to know what were the outcomes. Therefore you will actually have
to spend more.

       CHAIR: The contractor expressed to us that they were not making a profit
for two and half years, or something like that. Was it that long, can you remember?

          Mr BROWN: Two years.

Inquiry into Infrastructure Delivery & Maintenance -   13            Wednesday, 22 August 2001
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        CHAIR: Because they invested so much in getting the asset whereas this
aspect relates to the end of the process, so the school has the benefit of that, if you

       Mr COLLINS: That is one of the features of that process: It is their call as to
how they produce the outcome. One of the key issues about the whole process of
maintenance—and one of the things that drove the way we went—was: how do you
make a decision about the balance between breakdown maintenance or preventive
maintenance and major replacement maintenance or cyclical maintenance and all the
ways that you might go about that, bearing in mind that you can take different
approaches? How do you optimise all that?

        Part of the fundamental concept of the school contracts is that we put in
enough as a lump sum and enough is packaged up in there so that the contractor can
make the decision about whether they will paint every building up-front and in the
end whether that is the best way to do it, or whether they will do it with certain
minimum standards and certain minimum requirements, although piecemeal. The
market then drives the optimal way of going about it and, over time, we should get
the benefits of that because if the contractor can think of a better way of doing it,
then, over time, particularly the next time around for the contracts, they will be more
competitive because they have got to bid again. The concept was really trying to get
a balance between those issues, and that is the core of it. We always knew that they
would spend more money up-front but it could be more or less. But at the end, they
are seeing the profit at the outcome stage and they are looking at the best way of
doing it.

        Mr BROWN: That is right. One of the benefits I found was that, as you
mentioned, it allows the market to drive performance. We saw evidence of that are
we also saw evidence of workers who work for the company taking pride in forming
a relationship with the agency and, by forming a relationship with the agency, trying
to ensure that their building was properly looked after. In doing that, they were also
saving the boss some money, so the boss was happy with the worker and that worker
had an overview of the infrastructure of that agency as opposed to just a contractor
coming in to fix a particular item. That worker could look at a long-term solution,
could negotiate one and was actually a good point of contact. Yes, there are market
efficiencies but, as I have seen in my short years of life, no matter what system you
put in place, if you do not choose the right people to work it, it is not going to work

          Mr COLLINS: Absolutely.

       Mr BROWN: This particular company seemed to be working quite well as
opposed to some other performance-based contracts that I have seen around the State
whose relationships with the agencies are not the best; therefore, their performance-
based contract is not working as well, no matter what market forces seem to be

        Mr COLLINS: Can I say that I made the point earlier that the benefits we
are trying to get out of it amount to more than just value for money. They were about
improving the relationship at the school level which, in the good contracts, is

Inquiry into Infrastructure Delivery & Maintenance -   14          Wednesday, 22 August 2001
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certainly happening. It was about a number of things. It was about trying to marry
those things together and I guess that all the forces pushed you in the same
direction—that is, if you have a long-term relationship that you need to encourage
and you can actually win or lose, there is obviously an encouragement to have good
relationship and for it to work effectively. It was also important to make sure that
there was enough critical mass so that the people who were involved—and at the end
it is the subcontractors who are doing this and they are still local—they need a
volume of work to invest in what they need to do and think about what they are
doing. They actually have to change the sorts of ways they do things—the way you
have described them—to actually justify their making an investment.

        The critical mass of these things becomes important. With schools, it is fairly
easy because there is a critical mass and in the end, it is the subbies at the local level
and the managers who are forging those relationships. That was actually one of the
key objectives of the way that it was put together. The objective was to actually
achieve those things, and the cash flow issue comes into that too, by the way.
Because there is a consistent cash flow coming in as opposed to the normal system in
construction, which is comparatively short term even for some of the larger
contractors, again the encouragement is there to make the investment because you
have got to guarantee that something is coming back. If you do that right, you can
end up with a profit. But the partnering component of the contract was fundamental
and still is. That was an objective and, by and large, it has been achieved. I think that
whatever you do, that is what you are trying to get. If you have a hospital or
something, it becomes, in a sense, at least as important as a school when you have
got a complex hospital as opposed to a small country hospital.

        CHAIR: I guess just in conclusion—unless there are other questions, because
we are out of time—would you just like to flag whether there are any innovations
that you can foresee?

         Mr COLLINS: There are a couple. Certainly one is the whole e-business or
e-commerce issue. One of the reasons why we were actually able to set up the school
contracts at all was because we used hand-held computers. They now look fairly
crude but they were fairly spic and span at the time. They hold a whole lot of
information so that condition-based data and asset information can be gathered,
stored and moved. In fact, we would not really have been able to set the contract up
without it. Ten years ago we will really would not have been able to do what we
were doing because we did not have the tools. There was too much information to
manage. It was too hard to manage. We have now moved to a whole other phase and
one of the issues is that we can see some real gains in is moving information on a
web-based system which will move us another technology dimension forward.
Again, if you are going to set up for a longer period of time, the investment is
justified and a lot of information can be used out of a common database or it can be
moved to where the client needs it. We could save a significant amount in
administration and costs, both for the contractor and for us and for the agencies such
as, in this case, the Department of School Education [DSE].

       Ms WONG: That is right. I think the web-based solution for the transfer of
information now makes it possible to have the information faster and to have

Inquiry into Infrastructure Delivery & Maintenance -   15            Wednesday, 22 August 2001
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information on your hand much easier. I think that that will be the way we move in
the future.

        Mr COLLINS: Another thing certainly would be the acceleration in the
move to facilities management in the broader context—that is, maintenance—and not
on its own but certainly in a number of contexts such as: What about security? What
about cleaning? What about other services that relate to that?

           CHAIR: What about vandalism?

       Mr BROWN: Who owns the information on that database? When your
department contracts out a performance-based contract, that contractor then retains a
software company to develop its specific database that some of the contractors have.

       Ms WONG: Software is actually developed jointly between the Department
of Public Works and Services [DPWS] and the Department of Education and
Training [DET] so we jointly own the software, and the data or the information is
owned by DET. The contractor is merely using the information to make the decision
of what work needs to be done.

       Mr COLLINS: And the additional information they generate gets passed
back to DET to update its assets registers, so all the information that they want
comes back to the agency.

        Mr BROWN: The agency we looked at told us that they actually invested in
that software themselves, independent of the department, but I was unsure.

        Mr COLLINS: I am sorry: there is another level to that. Some of the
contractors have certainly said, "We will invest in a certain type of software because
we think that that will help us do our business better", and then they have interfaced
it back to what we require.

       Mr BROWN: But there are specific contracts between the department and
the contractors so that the department always has the information, no matter what
software is used?

      Mr COLLINS: We have defined information we want and there will be
some information that is commercial stuff that is their information, but anything we
have wanted, we have defined, and that gets fed back.

        CHAIR: We are running a bit behind time. Thank you very much for
appearing before the Committee. If we have any further questions we would like to
raise from other evidence we hear, I am sure that we will be able to contact you.

          Mr COLLINS: Yes.

           CHAIR: We look forward to getting the non-draft version.

                                          (The witnesses withdrew)

Inquiry into Infrastructure Delivery & Maintenance -   16            Wednesday, 22 August 2001
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CAROL MILLS, Acting Deputy Director-General—Corporate Strategy,
Department of Housing, 23-31 Moore Street, Liverpool, affirmed and examined:

BRIAN DONNELLY, Executive Director—Strategic Asset Management,
Department of Housing, 23-31 Moore Street, Liverpool, sworn and examined:

       CHAIR: I have to go up to my office, so Mr Brown will continue the
questioning during my temporary absence.

     Mr BROWN: Did you receive a summons issued under the hand of the
Committee's Chair, Diane Beamer, to attend before this Committee?

          Ms MILLS: Yes, I did.

          Mr DONNELLY: Yes, I did.

       Mr BROWN: The Committee has received a submission from you, for
which I thank you. Is it your wish that the submission be included as part of your
sworn evidence?

          Ms MILLS: Yes.

          Mr BROWN: Has either of you an opening statement that you would like to

        Ms MILLS: We only wish to comment that we have presented some material
to the Committee previously which we assume has been read. We hosted two
members of the Committee to our office to see the call centre and some of our
workings. A presentation was done there and we likewise assume that that has been
circulated among the Committee. We are very happy today to take the opportunity to
answer your questions around the directions that we see as important within the
maintenance aspect. I suppose we wanted to make one comment about the nature of
the business, that is, being a residential property manager provides us with some
unique challenges and different approaches from being a large-scale facilities
manager. We deal with rural and remote areas, individual properties and people's
homes and, bearing in mind the particular client base which we have and the needs of
those people, this means that our business is quite distinct in a number of ways.

          Mr BROWN: Mr Donnelly, do you have anything to add to that?

          Mr DONNELLY: No, I have nothing to add to that.

       Mr BROWN: The Committee's focus in this inquiry is opportunities for
improved efficiencies in building maintenance across all agencies. In particular, the
Committee is looking at best practice maintenance management techniques. Could
you briefly outline to the Committee the current reform process for maintenance as
noted in the table 5.2 in your submission and the rationale behind it?

Inquiry into Infrastructure Delivery & Maintenance -   17        Wednesday, 22 August 2001
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        Ms MILLS: I might begin, and then ask Brian to fill in some of the details. I
suppose like all agencies, we are taking advantage of a number of improvements in
the way government does contracting and the way in which we provide a more
commercial and, at the same time, more client-focused approach to our business. We
have grappled with the challenge of trying to balance being able to deal with the
needs of our clients on an urgent basis. Our call centre takes over half a million calls
a year for work, and that obviously is a key focus of our business, being able to deal
with urgent inquiries.

       At the same time as being good asset managers, increasingly we want to
move our maintenance towards pre-planning and a more strategic approach to how
we do that business, providing clients with service before there is a problem rather
than after, and providing the government with surety that the properties are well-
managed and the assets are being maintained. We have been progressing over a
number of years in doing that. We have significantly increased the budget for
maintenance, we have made a number of quite significant internal and structural
decisions about the way in which we manage contracts, the type of contracts that we
have, and we have moved progressively from a very localised, small subcontractor
approach to our current objective, which is to move to larger players taking a more
co-ordinating role on our behalf, rather than us having to take that role.

        Mr BROWN: How did you increase the maintenance budget? Did you take
that out of another area, or were you allocated further funds?

       Ms MILLS: We have done it through a number of means. We have sustained
a number of efficiency improvements inside the organisation, and we have targeted
maintenance as the main beneficiary of the efficiencies, the money being released
through the efficiencies.

       Through our program planning, we have been able to use Commonwealth-
State housing assistance money for some of the larger-scale improvements. That is
one of the benefits of changes in the conditions of the CSHA over the last decade.
Previously, it had to be focused on adding to stock. Increasingly, the last two
Commonwealth-State housing agreements have been designed to allow each of the
State housing authorities to target their most important need rather than just adding to
stock, and in each State, including New South Wales, we have used increasing
amounts of that money to maintain existing stock.

        Thirdly, approximately 18 months ago we changed our rental rebate policy so
that tenants will progressively pay up to 25 per cent of their income in rent, and the
additional revenue raised through that rent increase has been dedicated to

        Mr DONNELLY: If I could add to the original question, in terms of having
the platform to progress some of the maintenance reforms. There has been a need to
put in place maintenance standards, if you like, standards that people would expect
properties to be maintained at, and have those clearly defined. There has also been a
move to progressively inspect properties on a regular basis so that we can measure
the property condition of those properties against the maintained standard. That is

Inquiry into Infrastructure Delivery & Maintenance -   18          Wednesday, 22 August 2001
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helping us to inform the process and turn it from a responsive maintenance regime
into a more planned maintenance approach.

       Mr BROWN: Having visited your call centre, I was quite impressed with the
booklet you give your tenants so that they can easily identify sections of their homes
that require maintenance. I am sure that that information would assist you in
managing repairs to homes, as well as reducing staff times. Some tenants might try to
explain, for example, the type of tap they have that needs repairing, but the booklet
would provide the correct description.

        The Committee is aware of the significant backlog maintenance of $750
million that has been identified by the Auditor-General. Can you explain how the
new reforms intend to address this issue? Are current funding allocations, including
those anticipated from the Commonwealth, expected to meet the department's

        Ms MILLS: Again, we might split the answer to that. Broadly, our reforms
are of the nature of not only increasing the funding, which is something we have
been progressively doing, but also by understanding our properties better by
understanding our asset management strategies over a longer period, enabling us to
make more informed decisions about where we need to invest and where we need to

        The estimates that the Audit Office has developed are our best current
estimates, based on the knowledge of the properties we have been building up over
the last year in particular. We are now just over three-quarters of the way through our
first-ever census of all properties, and we are using that information in a new
computer system to allow us to analyse and forecast the liabilities much more
accurately than we are presently able to do, although we feel that the data we gave
the Audit Office was based on a fairly good sample and therefore is a good estimate
based on our current knowledge.

       Mr HUMPHERSON: Is that estimate of $750 million your best current

        Ms MILLS: Yes, $750 million is our best current estimate. We are chipping
away at that, it would probably be the appropriate thing to say, rather than making a
radical shift in it. Our target when we started the maintenance reform two years ago
was that it would be an eight- to 10-year plan to bring our properties to what we saw
as an appropriate standard. As Brian said earlier, we have developed those standards
and we are now implementing them progressively. We have brought around 12,000
of our properties to that standard based on the current accelerated improvement
program, which is a CSHA-funded program at the moment, and we are spending
between $80 million and $90 million a year on that program, on top of our regular
day-to-day maintenance.

       We think we are making a difference, but it is not an overnight change. We
are very conscious that not only do we have to make the best with our internal
resources but we have to be aware of directions in Commonwealth-State housing
funding and be very clear about the way in which those funds can be used. We have

Inquiry into Infrastructure Delivery & Maintenance -   19          Wednesday, 22 August 2001
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just begun the very first stages of renegotiations around the CSHA, because the
current one ends in 2003. We share with all of the States the desire that perhaps this
is the greatest single issue in State housing authorities, that is, the ability to maintain
properties that are now often 50 years old that are still servicing an important need
but perhaps in the past did not have sufficient resources dedicated to them. So it is a
slow process.

        We have also, for the first time, been working with our own State Treasury in
seeking assistance in addition to CSHA. In this year's budget, for the first time, we
received additional assistance from Treasury which has alleviated a significant part
of our budget process by giving us roughly an extra $26 million this year to spend on
maintenance and upgrading, and we are continuing the discussions with Treasury.

        I suppose in the longer term we are all conscious that the GST and the
possible changes in roles and relationships between States and the Commonwealth
will have a longer-term impact, but in the meantime we are making a significant dent
in the amount of money, but it is a long-term project.

         Mr PICCOLI: I understand that with the new maintenance system of head
contractors there have been some difficulties particularly in the country, and it has
also been reflected in what it costs. It costs significantly more than was anticipated,
is that correct?

        Ms MILLS: I might deal with those separately, if I may. Regarding the cost
of the program, we did spend more last year on maintenance than we had anticipated.
I think that was a combination of factors. There has been some transitioning from the
previous model to the new one, and that has meant that we certainly were not
working at maximum efficiencies—

        Mr PICCOLI: Can you tell us what was budgeted for and what was actually
spent last financial year?

       Ms MILLS: Our original estimate was around $115 million, and we spent
about $125 million; that is on responsive maintenance with a multi trade. But there is
a combination of things in there. GST in fact was greater than we had anticipated.
We do receive a compensatory factor from Treasury for GST, but we used the
calculations produced by the Commonwealth prior to GST introduction, and they
proved to be slightly less than the actual costs.

       In addition, we had not been to the market for three years, so again our budget
estimates were done 12 months before going to the market, and we did find that
market had moved more in those three years than our estimates had been. They were
the main factors why the budget was higher.

        We did also have a slight increase in demand for services, but it does
fluctuate from year to year and our budget often fluctuates in response to that. I think
one of the challenges for us is that, while we are endeavouring in our maintenance
reform to move to a more planned focus so that we can better predict the budgets, we
will always remain responsible to our occupational health and safety and our

Inquiry into Infrastructure Delivery & Maintenance -   20             Wednesday, 22 August 2001
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Residential Tenancies Act commitments, and that means we have to respond to
clients as needed. So we will always have some variations in our budgets.

        Mr DONNELLY: I think there is one other factor. In commencing the
regular inspection regime, that was actually picking up particularly more urgent
health and safety type work which obviously needed to be done as we were there on
site and inspecting properties.

        Mr HUMPHERSON: I have noticed that many properties are 50 years old
or older. In assessing those properties—and you have done 82,000—obviously a
number of them must be on the borderline of needing to be either demolished or sold
or refurbished and upgraded. Do you make a decision at the time you assess them as
to which way you go?

         Ms MILLS: If it is health and safety, we are taking the decision on the spot
because we have a legislative commitment. In terms of the bigger picture, we have a
number of ways in which we decide upon whether to upgrade or retain or dispose of
a property. There is a combination of things, including the current inspections and
local area plans that have been done for the last three to four years by each of the
public housing regions of their asset base within a certain geographic area. That
varies between quite small, if we have a heavy concentration like an estate, and quite
large, if it is a rural area where it is dispersed.

       We take a number of factors into account in trying to decide whether to
upgrade a property or not, and that includes the demand for that property, the capital
value of the property, and whether it would change if we invested in it. It takes into
account the social dimensions of whether we have other objectives in that area. For
example, if it is a property that required a large amount of upgrading and was in an
area where we had a high concentration of properties and a fairly low demand, we
probably would not upgrade it, we would sell it.

        We take a range of factors into account. And we will get more sophisticated
in that when we have our new performance IT system fully up and running. We are
also increasingly getting more sophisticated about our social planning. One of the
challenges for our department is that we do not make purely commercial decisions all
of the time, although we want to make commercially based decisions and we have to
balance the ability to retain enough stock to assist people, as opposed to assisting
them in an appropriate way by having decent housing where they need it.

        We take all of those things into account when we choose. Increasingly, we try
not to do that on a responsive basis, such as not because the house has become vacant
or because we are aware of a problem, but actually be able to pre-plan much more
effectively, to enable us to say, "Our 10-year strategy for this location is going to be
we want to hold this many properties, they should be at this standard, and we are
going to get there by this means."

        Mr HUMPHERSON: Where you have identified properties for sale area by
area, I assume the revenue that is recovered from the sale of those properties goes
back into that same general area. What proportion of the 82,000 properties which

Inquiry into Infrastructure Delivery & Maintenance -   21          Wednesday, 22 August 2001
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have been assessed in the survey to date are tagged for sale, and will the revenue go
back into that same area?

        Ms MILLS: We certainly have not yet got to the point of tagging individual
properties. That is something that they have done in New Zealand, and it is
something that we are looking at in our system: about how far you would go,
whether you take individual properties or whether you take a street. It depends on the
objective for that particular location. When I say we are more strategic, we certainly
are, but we have not yet got a property in a 10-year cycle that says, "Right, we are
going to dispose of it at this point in time."

        Those that we have sold to date have been sold because they are very clearly
at a disposal level. They are properties that, unequivocally, are either in low demand
or such poor condition that there is no sensible reinvestment to be made in that
property. In those circumstances redevelopment is also considered. If it is an
appropriate site where we want to remain in the business of providing a service in
that location, we look at redevelopment. If you look at our current program, a very
significant number of the additions to our stock now come from redevelopment. So
we go through a set of processes.

       We also obviously sell to clients from time to time. Last year we sold
probably about 250 properties to existing public housing tenants. Again, I suppose
one might describe it as a mutual benefit. Tenants can ask to buy their own home.
They pay a market price; it has to be in a location where we do not want to own that
property. Clearly, if we own six in a row and they are tagged for redevelopment in 12
months time, we are not going to sell the one in the middle. We make those kinds of
decisions on a daily basis.

        Mr DONNELLY: In terms of the broader asset management approach, many
of these things are happening and continue to be advanced. In terms of the 82,000,
we are capturing information about the condition of the properties. As well is that, as
Carol was saying, we are getting information about the demand. We are also
developing tools to better analyse the overall financial and economic performance at
a property level and a portfolio level. We really need to advance and have the
systems to support making decisions about all those things across the portfolio and
ultimately be able to determine what our future use will be for each property. But
that is an evolving thing and we are still working on putting that sort of mechanisms
in place.

          Mr HUMPHERSON: What about the recoveries from the sale of properties?

        Ms MILLS: All of the funds from the sale of a property are required under
the CSHA to be reinvested in housing. In the main, they are reinvested in the same
local area. In the Far West, for example, we do not have demand for our services and
reinvestment is not a sensible decision. We use some of those funds elsewhere. We
might shift some of those funds into the inner-city, where we have very high demand
and an inability, without using some of those funds, to supply the demand.

      Mr BROWN: Earlier this year the Committee went to New Zealand and
became familiar with aspects of Housing New Zealand. Can you explain some

Inquiry into Infrastructure Delivery & Maintenance -   22          Wednesday, 22 August 2001
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similarities and differences between New South Wales Housing and Housing New
Zealand touching on things such as call centres? For instance, New Zealand will
contract out its call centre whereas your department has clearly stated that the call
centre will remain owned and operated by the department.

       Ms MILLS: I might ask Brian to start on that because he is obviously very
deeply familiar with the New Zealand system. Then I might talk about some of the
overview things.

        Mr DONNELLY: I guess I am pretty well positioned to comment on the
New Zealand system, having been a sponsor of a lot of the maintenance contract
reforms within Housing New Zealand over the last few years. Specifically relating to
the call centre, a mix of methods is used within Housing New Zealand. One of the
contracts that I think the Committee was able to consider was a new trial method
relating to a performance-based annuity contract, which is about sharing the risk
between the owner and in this case the contractor. It is built of platforms that we
were talking about earlier—a good set of maintenance standards, a condition
assessment process, a very clear definition between maintenance and damage, a good
history in terms of that contractor and the contractee over a period of time giving a
really good appreciation and knowledge of the portfolio they are looking after and
the history of that portfolio. So they actually start to change their attitude towards
maintaining that property when the contract term is over a longer period, over a life-
cycle sort of approach. They start to take much greater ownership in terms of the
maintenance works that they undertake to that property, and also looking after things
that can start to be measured by customer satisfaction levels and, in terms of their
contract, the overall property condition. In those instances the contractor is also in
effect taking the initial request from the customer through a call centre approach. In
many of the other contracts in New Zealand the customer still makes the first request
to the local area office or the neighbourhood unit office. There is a mix of
approaches. Perhaps Carol could talk about where the department is at relative to the
approach in New Zealand.

        Ms MILLS: On why the department believes that currently it is important to
maintain the call centre in house, we see it as the front line of our client service. We
have tried very hard to instil in the call centre operators more than just being a
telephone answerer; they are actually the front line representing the department.
They have a training program. We have traineeships for our client service staff—all
of our frontline staff, whether out in the field or in the call centre. It is tailored for
working in the call centre. We have found that to be very important. When we look
at our client satisfaction and people satisfaction with the call centre the fact that they
actually understand the business, not only the business of maintenance but the
business that we are in of assisting people who are disadvantaged and who often are
not perhaps as articulate or perhaps are not is used to being able to require a level of
service that is appropriate, we have found it very useful to have people who know
about our clients and our business and have those people in house.

        The other advantage we have found in the call centre is that we are
increasingly, having got the infrastructure in place and having got some expertise
there, looking at opportunities for taking on contracts for others. For example, we
have recently taken on a contract for Public Works and Services to do some of their

Inquiry into Infrastructure Delivery & Maintenance -   23            Wednesday, 22 August 2001
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out-of-hours work. As the Chair would know, during the Olympics last year we ran a
program of out-of-hours assistance for our temporary accommodation through the
call centres. In other words, we used the infrastructure to gear up. That has been
useful and we will continue that approach in a number of areas. Fundamentally, our
position at the moment is that client service is something that is core business and the
call centre is a key area of client service and therefore is seen as a core business
within the department.

       Mr BROWN: I visited your call centre and I was very impressed with how it
was set up and the level of happiness and professionalism of the staff there.

       CHAIR: On the contracting, it is good to see a process moving towards an
end point. Currently you have 1,400 sponsored contracts. How many do you think
you will end up with?

          Ms MILLS: Less than 1,400.

        Mr DONNELLY: It is very difficult to put an estimate on that. The key is to,
at the next opportunity, which is next calendar year, put in place new contracts that
will enable the contractor to look after the property in total. At the moment we have a
mix of what you might call head contractors, multi-trade contractors, and single-trade
contractors all doing various bits of program work, sometimes to the same property.
As we move forward it is important to have a range of contractors both small and
large, depending on the market and the response from the market, to ensure that we
create a level of competition in the market so that prices are competitive. In my
experience some of the smaller contractors are some of the best to provide the level
of customer service we require in this sort of business. We are dealing with
contractors having to go into people's homes. In some instances where we have large
multi-storey blocks it is obviously more appropriate to have larger, more facilities
management type of contractors involved. Without putting a specific number on the
number of contractors, I think we need to move to that regime first. The market will
ultimately determine for us in a way the range of contractors and the numbers that we
need by zone. But it will obviously be less than we have now in terms of the ones
that we directly contract with.

       CHAIR: You would be aware of the contract in the Riverina. Would you
ever envisage joining that kind of thing, particularly in regional areas?

        Ms MILLS: We are actually talking about it. Our regional director in western
region, which covers that area, has been actively involved in considering the options
around it. My understanding at the moment is that the situation is one of wait and
see. We have existing contracts so we cannot move ahead at the moment regardless,
but we have indicated an openness to considering that option and want to stay part of
the loop and stay monitoring its outcomes to see whether it would be appropriate
when our contract comes up to pilot that approach. Brian has just referred to property
types. This applies to us in terms of location. We want to get the right thing for the
right place. That means that we have to always maintain some flexibility about the
approach. You asked earlier about the transition issue. One of lessons we learned is
that our current transition model probably works more effectively in metro areas than
in non-metro. We need to be able to adapt to the type of contractors that are available

Inquiry into Infrastructure Delivery & Maintenance -   24          Wednesday, 22 August 2001
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and the logistics of having small numbers of properties in sometimes quite isolated
areas. We need to consider the right method for that situation. We have learned a lot
in the last 12 months about how to improve our current arrangements. We are open
to those sorts of models but we still fundamentally have the issue that we are
maintaining residential properties that are basically people's homes and we will
mainly be doing small amounts of work on those properties at any one time. That is
somewhat different from the other contracts the Government operates around
facilities management or property management.

        Mr PICCOLI: Being from a country electorate, I wanted to ask you how that
operates differently in metro and country areas. When the changes were made I
received a number of inquiries. People said that it was not working properly. I
understand that changes have been made. I am pleased to hear that the department
acknowledges the differences with those isolated places. The complaints were along
the lines that people had to drive half a day to fix a doorknob or something. It just
was not practical.

        Ms MILLS: It is something that we will absolutely be dealing with in the
next round. We are always at the disposal of the market to a degree. I suppose we are
learning more about the market. Brian talked a moment ago about having more of a
property ownership sense from the contractors as well as ourselves. In the country
that is particularly important. In a local community we need to gain the benefits in
the local community as opposed to trying to apply for a large-scale approach there.
But we also have to balance that with the consistency across our standards,
consistency for client service across the board. We are moving progressively with a
client point of view from only coming around when there is a crisis to being much
more about planning and knowing when something needs to be done in a property
and going in early rather than after the event.

                                          (The witnesses withdrew)

Inquiry into Infrastructure Delivery & Maintenance -   25            Wednesday, 22 August 2001
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ROBERT JAMES HERMANN, Senior Executive Team Member, Department of
Juvenile Justice, Level 5, Roden Cutler House, 24 Campbell Street, Haymarket,
sworn and examined.

       CHAIR: Thank you for appearing before the Committee today. Did you
receive a summons issued under my hand to attend before the Committee?

          Mr HERMANN: Yes, I did.

        CHAIR: We have received a submission from the department. Is it your wish
that this submission be included as part of your sworn evidence?

          Mr HERMANN: Yes.

       CHAIR: Would you like to outline briefly the rationale of Juvenile Justice in
terms of asset management?

        Mr HERMANN: The department is a small agency whose legislative base is
to provide custodial and community services to divert young people from offending
behaviour. Those twin goals of custodial and community services flow through to
our assets, so the major focus of the department is on, and approximately 70 per cent
of our money is spent on, detention centres. We own only 18 pieces of property in
total, nine of which are detention centres. We have been actively reducing our asset
base over the past few years to take away the non-core assets, and in the current
financial year we will probably dispose of another three assets. However, our major
focus is on the detention centres.

        CHAIR: The Committee is aware that a number of departments have a
significant maintenance backlog. Is there a backlog in Juvenile Justice?

          Mr HERMANN: No, I do not believe so.

        CHAIR: You have just completed some new juvenile justice centres and
refurbished Mount Penang at a total cost of $23.3 million—give or take a cent or

       Mr HERMANN: The figure is $23.5 million. That was the cost of building
the new Frank Baxter juvenile justice centre at Mount Penang. The entire capital
works program totalled approximately $45 million.

          CHAIR: What maintenance arrangements do you have in place?

        Mr HERMANN: The maintenance arrangements for the whole department
include a cyclic maintenance approach. Frank Baxter at Kariong, Orana at Dubba
and Acmena at Grafton will next year go through our normal three-year cyclic
maintenance program. In addition, we have in place a series of maintenance contracts
for day-to-day maintenance for things such as security systems, fire hydrants, air-
conditioning and those sorts of items. Maintenance contracts in place for the new
centres and urgent minor works are handled at the local level. For example, if there is

Inquiry into Infrastructure Delivery & Maintenance -   26          Wednesday, 22 August 2001
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any urgent occupational health and safety or security matters involving the
expenditure of up to $3,000, the centre manager will get the work done immediately.
Any urgent occupational health and safety or security matters valued at more than
$3,000 come through to the central support office where we prioritise them and
generally do the work very quickly. The nature of our business is that we cannot
leave work undone.

        CHAIR: Your submission notes that the Department of Public Works and
Services has an ongoing role in your maintenance. How do you find that

        Mr HERMANN: Cyclic maintenance occurs at a number of centres across
the State. We have nine centres in places ranging from Wagga to Dubbo to Grafton.
Therefore, we deal with different parts of the Department of Public Works and
Services in those regions. We generally find we have a very good relationship with
each of the regions.

          CHAIR: Have they ever suggested to you different forms of contracting?

        Mr HERMANN: No, not the regions. Public Works central office has
suggested alternatives to us. The local people in the regions do not seem to have
strong views one way or the other. They take the view, "If that's what the client
wants, that's what the client gets". They identify the best procurement method, the
best technical specifications and so on. They are very supportive at the regional level.

       CHAIR: The Department of Education and Training has moved away from
cyclical maintenance to an outcomes-based approach. Have you explored that

       Mr HERMANN: Our cyclic maintenance is different from that of the
Department of Education. Ours is basically condition based. We do not walk into a
centre and say, "We haven't been here for three years so let's paint the walls". We
ask, "Do the walls need painting?" If they do, we will paint them. We looked at some
form of outsourcing similar to that of the Department of Education, however, it is not
easy in a secure gaol environment where the clients are constantly thinking of ways
to damage the place, to escape or to procure items or implements for whatever
purpose. It is a very difficult environment so our approach is different from that
adopted by Education. We think this is the most appropriate way of proceeding.

       A set of standards was put together by the Australian juvenile justice
administrators. Those standards are included in the document entitled "Standards For
Juvenile Justice Custodial Facilities", which contains a section on the built
environment and how that maintenance might be handled. They think it should be
done through cyclic maintenance simply because of the nature of the business that
we are in.

       CHAIR: So because of the nature of your buildings performance-based
contracts are not necessarily the future for Juvenile Justice?

Inquiry into Infrastructure Delivery & Maintenance -   27          Wednesday, 22 August 2001
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        Mr HERMANN: That is right. It would incur a very high cost because our
clients damage the facilities on a regular basis. For example, damage occurs even to
something as basic as a music system. An adult would usually think, "If I damage
that music system in my room, I won't hear any music tonight." That does not matter
to many of our clients: they will simply damage it. If we adopted a performance-
based approach we would have someone there all the time repairing the damage.
Damage is significant inside our centres.

          CHAIR: Is that your main form of maintenance?

       Mr HERMANN: I would not say that it is the main form but internal damage
forms a significant part of our maintenance. If it were like a school where internal
damage is not as bad, our costs would be less.

          Mr HUMPHERSON: What does that sort of damage cost each year?

        Mr HERMANN: I cannot put a figure on that. We spent a total of $2 million
on maintenance last year. However, I cannot say how much of that was spent on
internal and external damage. We claim a fair bit of damage expenditure back from
the government insurance office through our property insurance. I cannot put a figure
on that, but I expect it would be hundreds of thousands of dollars. The Kariong
disturbance in 1999 caused damage of about $150,000 to $200,000. That was an
unusual event.

           CHAIR: How often do you review the trade-based contract you have?

        Mr HERMANN: There are two different issues. There are the maintenance
contracts, which we have in place and which are currently being reviewed at the
moment. They are for things like airconditioning, fire safety, security systems and
the like. The trade-based package, which we gave in our response, was really a
different procurement method that we used for one of our centres at Kariong Juvenile
Justice Centre. We initially went to Public Works and said, "We are here to do cyclic
maintenance in the centre." It was estimated that it was going to cost us $2.5 million,
$2.3 million, somewhere in the mid $2 million and we said, "That is way too much
money to spend on one centre. Is there are different procurement method?" The
alternate procurement method agreed upon by my Property Officer and Public Works
was that we would use trade-based packages.

        That meant that instead of having a lump sum contract, where a contractor
comes in and says, "Okay. I will organise this whole project for you, I will bring in
the electricians, I will bring in the plumbers, I will bring in the carpenters, or
whatever."—of course, a financial risk element of a fairly significant margin is added
on top of that—we decided to go back to trade based. With Public Works and our
Property Officer we said, "Right, for that building there we will bring in an
electrician." We said to the electrician, "We want you to do the work in the centre.
We are going to do this building." We brought in the carpenter to that building and
we brought in the security person to that building. It took a lot of co-ordination from
our end, but each trade was taken into each of the buildings and fixed them up. That
way it was a lot more definable for each of the contractors as well because, as you
can appreciate, working in a maximum security environment where you cannot leave

Inquiry into Infrastructure Delivery & Maintenance -   28          Wednesday, 22 August 2001
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a hammer sitting down, you have to be checked in and checked out, is a hassle for a

        But if you can take away all those uncertainties for them and say, "On this
day you will come in and do this building", then that particular trade quote comes
back significantly lower because the level of risk they build into the quotes is
diminished. The trade-based package is not an ongoing contract at each of the
centres, it is a procurement method we have used and, because it has been successful,
we are currently using it at our Reiby Juvenile Justice Centre out at Campbelltown
and we will do the same down at Riverina Juvenile Justice Centre. That is the trade-
based approach. We think it is the best way to go, because when you are dealing with
secure environments there is so much uncertainty. If you are a plumber sometimes
you price the work to such an extent and say, "I will charge double and if I pick up
the job I will get double." We are taking away that level of financial risk and
uncertainty for them by using trade-based packages.

           CHAIR: It is quite a different way of dealing with it.

       Mr HUMPHERSON: When you have been building or rebuilding new
centres what have you been doing to try to minimise maintenance demands, to
minimise the frequency of maintenance work, leaving aside vandalism?

        Mr HERMANN: We make the buildings as strong as possible; fit for
purpose, essentially. The unit we deal with in the Department of Public Works and
Services is the same unit that deals with, as I understand it, the Department of
Corrective Services. Whatever learning there is in the construction or refurbishment
of the gaol system, that knowledge they have in Public Works also flows through to
the way they do specifications for our new facilities as well. The basic thing is to
build the facilities as tough as possible and then soften them, rather than build a
domestic-style facility and try to toughen it up once someone has gone through the
wall. It is using Public Works, which is the same group, as I said, that looks after
Corrective Services. The Project Manager who is managing our next three capital
works projects, Sue Brennan, has also managed some recent Corrective Services
projects. There is the learning by Public Works that we benefit from.

       CHAIR: You said it is very difficult to co-ordinate trade-based projects. Do
you cost your personnel into that?

        Mr HERMANN: No, I do not. The guy who does it is just one person. His
salary would be, say, $70,000 a year out of a budget of roughly $117 million. It
really is not a large proportion. Even if you compared his salary to the cost of
maintenance, $2 million or $3 million a year, it is still a very small amount. We are
lucky. We really have only nine facilities that take up most of our time. He is able to
spread his time fairly evenly across the nine.

       CHAIR: There are also costs of other personnel involved in managing
maintenance from your site.

          Mr HERMANN: Yes.

Inquiry into Infrastructure Delivery & Maintenance -   29           Wednesday, 22 August 2001
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        CHAIR: Is there anything you would like to outline or raise for maintenance
in the future?

         Mr HERMANN: We would certainly consider being involved in something
like the Riverina trial that Public Works is promoting. There are some uncertainties
for us. The major facility we have down in that area is the Riverina Juvenile Justice
Centre at Wagga Wagga. We think that facility is quite different from the other
facilities that are part of that regional procurement strategy. We would certainly like
to look at it, because it makes a lot of sense. We can see that there is a relationship
building at the local level. It makes a whole a lot of sense. Rather than some
contractor coming in once every three years and doing the place from top to bottom,
relationships are important, especially in regional areas to generate regional
employment. We would certainly explore that option not only for Wagga Wagga but
also for places like Dubbo and Grafton, regional areas where we are confident that
local relationships could be built. I would suggest that would be a main area of future

           CHAIR: You are exploring that at the local level?

        Mr HERMANN: We have some papers from Public Works to look through
for the original procurement strategy. We are trying to work out what costs are, the
different layers of fees, where the savings are, whether it is in dollars, whether it is in
better service or whether it is better outcomes. We do not know what they are at this
point in time.

                                                 (The witness withdrew.)

Inquiry into Infrastructure Delivery & Maintenance -   30                  Wednesday, 22 August 2001
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GERARD KENNETH SCHIPP, Executive Director, Finance and Asset
Management, Department of Corrective Services, Level 9, 24 Campbell Street,
Sydney, and

JOHN DESBOROUGH, Property Manager, Department of Corrective Services,
Level 9, 24 Campbell Street, Sydney, sworn and examined:

          CHAIR: In what capacity are you appearing before the Committee?

       Mr SCHIPP: As the senior member of the executive of the Department of
Corrective Services and the executive responsible for asset maintenance services.

          Mr DESBOROUGH: Part of my portfolio is strategic maintenance planning.

      CHAIR: Did you receive a summons issued under my hand to attend before
the Committee?

          Mr SCHIPP: Yes, we did.

          Mr DESBOROUGH: Yes.

       CHAIR: We have received a submission from your department. Is it your
wish that this submission be included as part of your sworn evidence?

          Mr SCHIPP: Yes, it is.

          CHAIR: Would you like to start by giving a brief overview?

        Mr SCHIPP: We have received a copy of the questions and probably a lot
more detail will be covered in those questions. But just in terms of an overview, and
more particularly in regard to maintenance planning, the department is currently in
the process of implementing a five-year rolling plan for maintenance following a
condition audit of all the facilities in the early part of this calendar year. The plan is
linked to the department's financial and asset acquisition strategy in terms of the
department's total asset management policies and strategies, which in turn are driven
by the service delivery strategies of the corporate plan.

          CHAIR: What method do you use to procure asset management?

       Mr SCHIPP: A variety of methods. The sort of business we are in and the
types of facilities we manage require us to look at each facility on its merits.
Typically, maintenance within the department is divided into preventative
maintenance, corrective maintenance, extended periodic maintenance and the arrears
of maintenance program, which I will talk about later. With preventative
maintenance, we have a series of statewide contracts, with the exception of two
whole-of-site contracts. Preventative maintenance is essentially procured through
three-year contracts that are tendered in the marketplace and then let to the supplier
who offers best value and then delivered across the State.

Inquiry into Infrastructure Delivery & Maintenance -   31            Wednesday, 22 August 2001
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        In terms of the corrective maintenance component, allocations are made to
individual correctional centres and they manage those locally using a combination of
staff. The staff are usually referred to as overseers so if I use that term it relates to a
position within the organisation which is custodially based but with trade skills and
training. They assist not only in the delivery of maintenance but also in the delivery
of our industries to inmates. Certainly, the use of inmates labour as part of our
maintenance program is encouraged and pursued in virtually all areas so as not only
to enhance the value that is being added to the department in terms of the cost of
using inmate labour relative to commercial costs but also in terms of the therapeutic
and rehabilitative nature of using inmates and upskilling them as part of the
rehabilitation process and correctional endeavour.

        The arrears of maintenance and extended periodic maintenance programs are
a scope of works that are planned on an annual basis in consultation with local asset
managers based on a series of priorities of work which range from works required for
occupational health and safety purposes through to works that are required to sustain
the life of the asset. The various delivery mechanisms of those individual projects,
once again, are determined on their merits. If it is a large refurbishment of a wing of
a facility, repainting or whatever else it may be, the budget allocation goes towards
material costs and inmate labour is used, or it could be replacing the roof on a facility
which may then require contractors to be engaged on a competitive tender basis.

       CHAIR: So you would holistically look at the building and see what is
required at various time frames?

         Mr SCHIPP: Yes. The maintenance program is an integral part of our asset
management program. It is centrally managed by John and his unit within the
facilities management branch within my division. The planning is co-ordinated by
that unit and the delivery is then divided into those areas that I mentioned, and there
are either statewide contracts for delivering components or job-specific contracts or
local management.

          Mr BROWN: Is there a backlog?

       Mr SCHIPP: Yes, there is a backlog. The condition audit survey that was
done at the beginning of this year estimated a backlog of about $8 million.

          Mr BROWN: Is that significant?

        Mr SCHIPP: We spend about $15 million to $16 million a year on
maintenance. The total asset base is around $1 billion. This year the arrears of
maintenance program and the extended periodic maintenance program are in the
order of $2.5 million out of our current year's allocation for arrears and extended
periodic maintenance. As I said, in terms of managing our asset maintenance
program, in conjunction with our total asset program, we are always doing work of a
refurbishment nature within various facilities. For example, we have a $37 million
refurbishment taking place at Long Bay over the past few years and over the next
few years. Various components of that arrears of maintenance will be picked up with
the refurbishment outside the normal maintenance program so there needs to be a lot
of co-ordination between the money that we spend in maintenance and the money

Inquiry into Infrastructure Delivery & Maintenance -   32             Wednesday, 22 August 2001
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that we spend on minor works or major works projects. So I do not consider $8
million to be a significant amount. Once again, it varies from issues that are risks to
safety, whether it is security of the community or the inmates or the staff
themselves—obviously those things get high priority—all the way through to the
preservation of the assets. If the asset is not to be used beyond a certain period of
time we would not be investing the money on the arrears program for it.

         Mr BROWN: Is there a time frame for fixing that backlog? Is there a plan or
will it require on funding?

      Mr SCHIPP: The maintenance plan we currently have, which is a five-year
maintenance plan from 2001-02 to 2005-06, delivers the recovery of that backlog.

        CHAIR: In talking to various groups outside here, we have heard that money
is allocated for maintenance and if something untoward comes up money is taken
from the maintenance budget. Given that you actually hand the maintenance money
over as a bucket to some centres, how is that administered so that it does not occur?

         Mr SCHIPP: When the money is provided to the correctional centres for
corrective maintenance it is quarantined; it is protected funding. We do annual
audits. As I mentioned, earlier this calendar year we did a condition survey of all the
facilities, and we will do that in future years. We will audit the correctional centres
and the regional asset managers against that condition survey. In fact, the
maintenance plan is being put together. When we provide a maintenance plan, apart
from the corrective maintenance which we allocate on a per capita basis because it is
for things that might emerge and not necessarily that we know about, we also provide
specifically approved projects for the extended periodic maintenance and specific
funding for preventative maintenance. As I said, the various centres and regions that
have responsibility for those centres are audited against that plan at the end of the

        Mr HUMPHERSON: Was all the maintenance funding that was quarantined
for the last two years expended?

        Mr SCHIPP: Yes. The area that is more likely not to be spent is the
corrective maintenance area because the preventative maintenance is driven by
contracts that have been let statewide. Extended periodic maintenance and arrears of
maintenance are driven by specific projects that have been agreed to between
ourselves and the regions and the correctional centres, and then we go out to
contracts on them. So anything that is not spent from that corrective area can then be
used for escalating or enhancing the arrears of maintenance program.

        Mr BROWN: Recently I was in Kempsey and saw the plans for the new
correctional facility being built there. Are new facilities being built around the State,
and what are the maintenance arrangements for those new centres?

         Mr SCHIPP: The three major facilities that are currently on the drawing
board or in the pipeline are Kempsey, South Windsor and an extension to the Parklea

Inquiry into Infrastructure Delivery & Maintenance -   33           Wednesday, 22 August 2001
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Corrected Transcript
          Mr HUMPHERSON: Not Wellington?

          Mr SCHIPP: No, unless you know something I do not.

      Mr HUMPHERSON: I thought the Hon. Tony Kelly announced one at

       Mr SCHIPP: Maybe he knows something I do not. I assume you are talking
about New South Wales and not New Zealand. In terms of Kempsey, the
procurement arrangements that we are using, hopefully, we are looking at an
innovative arrangement there and that is building the maintenance component into a
12-year contract and attaching it to the construction tender. One issue that we have
looked at in the past is that when you deal with construction separately to ongoing
maintenance often times the constructing authority or company will endeavour to cut
corners, shave costs so that they can increase their margins and then leave it over to
the maintenance.

          CHAIR: Is it a builder maintained contract—

          Mr SCHIPP: It is a builder maintained contract.

          CHAIR: —that you own and operate?

         Mr SCHIPP: Yes. Current government policy is that the State will own and
operate new correctional facilities but as part of the construction contract we will be
looking at maintenance. As I said, that locks in accountability and responsibility back
to the constructing authority. In terms of South Windsor, which is our women's
facility known as Dilwinia, that site, the South Windsor correctional complex or the
John Maroney correctional complex, which currently has two other gaols on the site,
is one of the two sites we have that is covered by a whole-of-site outsourced
arrangement and the current provider on that site will pick up the new facility once it
is completed and commissioned. In respect of Parklea, because it is an extension of
an existing facility there are existing maintenance arrangements at that facility and
unless the extension of those beds dramatically changes the nature of the needs of the
maintenance will more than likely just continue the existing arrangements at that

       CHAIR: Do you have much contact with the Department of Public Works
and Services over contracting?

       Mr SCHIPP: We do. We have a very close relationship with Public Works.
We have an alliance agreement with the department from a total asset management
perspective, and clearly maintenance is an integral part of that. The sort of contact
we have with them varies. In fact, Public Works is the contract manager and contract
superintendent for the outsourced maintenance contracts at Silverwater and John
Maroney so there is very close contact in that respect. Public Works attends monthly
meetings with the contractors and, as I said, has responsibility on our behalf for
managing that contract and keeping the contractors compliant.

Inquiry into Infrastructure Delivery & Maintenance -   34          Wednesday, 22 August 2001
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       The other sort of contact we have with public works is that we will seek its
advice in relation to tendering processes for contracts with a value over $100,000
which are required to go through the State Contracts Control Board—New South
Wales Supply, and public works will assist in the provision of specifications. We
have learned from experience, and have discussed with public works, different
models of delivery that it may have experienced elsewhere. We have had some
discussions with public works over the Riverina models but we do not have a larger
presence there from a correctional facilities perspective. We have supervisory
responsibilities in the Wagga police cells, the Albury police cells and soon transport
responsibilities at Griffith.

           CHAIR: We visited that. Do not take over that. Those things are terrible.

        Mr SCHIPP: We are doing transport at the moment. Essentially, the issue
there—whether it is Police and police cells, or Attorney-General's and court cells—
they are the owners of the buildings. We are simply there, providing a management
service, and it is typically an owner-tenant arrangement where the owner has the
responsibility for the fabric and structure and, as tenants, we have responsibility for
the internal fit-out, security cameras and things like that, or all the information
technology or infrastructure that we require beyond what is provided by the core
organisation. We did not delve into the Riverina maintenance program. As Robert
Hermann said earlier, the sort of business that we work in really requires us to look at
each facility—and, in the cases of those outsourced contracts, clusters of facilities—
to see what the needs are.

        Our issue, as with Juvenile Justice is security. Possibly we have an increased
dimension to that because while there are some maximum security juvenile
offenders, when you get into the maximum security for adult offenders, there is a
totally different regime of risks that needs to be accommodated in terms of
contractors or people coming into the facilities. It is a horses-for-courses situation.
As we found in the outsourced contracts, there are costs and overheads associated
with external providers coming into facilities. We have to assign overseers to
supervise the contractors to make sure that their personal safety is not at risk as well
as the safety of the facility. We cannot have contractors leaving ladders around and
things like that inside gaols, so the overheads are the provision of the supervising
overseer as well as the overheads to the contractors in getting through the gate and
through the security processes.

        One of the pilots that we are endeavouring to establish to get around those
sorts of issues is at Long Bay where we are looking at a new in-sourced arrangement.
It is more of a traditional arrangement with staff providing the maintenance and
using inmates to provide the maintenance. The difference is that at Long Bay, where
we actually have the equivalent of six gaols, there is an economy of scale that will
allow us to accommodate the maintenance overseers into a group and actually
structure them on a semi or quasi commercial basis. We will actually be able to have
the benefits, we believe, of both worlds, namely, having a single unit that we can
bench mark and compare against private providers in terms of performance, in terms
of the condition of the facility and so on and so forth, but is to a certain extent
without the added overhead of having to have each person escorted into a facility
because they themselves are custodial officers with a trade base. As with Silverwater

Inquiry into Infrastructure Delivery & Maintenance -   35            Wednesday, 22 August 2001
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and John Morony, part of the process will be the use of inmate labour for facilitating
maintenance delivery.

      CHAIR: Would you get those overseers contracting or putting in a

        Mr SCHIPP: We have had thoughts of having them compete, for example,
on the Windsor and Silverwater sites. At the time of going out to tender of those
contracts, we did not put in an internal bid mainly because internally we did not have
the private sector know-how and the structures and organisational culture associated
with submitting a competitive tender. What we are doing at Long Bay is positioning
ourselves to do that and we have actually engaged, as part of that project, consultants
whose role it is to sort of form that team, to train the team up and to be able to reflect
commercial practices in the main arena. We would hope that when the contracts for
Silverwater and John Morony are due for renewal that we will in fact have at least a
semi-commercial culture and that we would be able to pull our overseers in, for them
to submit a competitive tender.

       Mr BROWN: You seem to be leading a fairly experienced property team.
You have the property manager here today. Are public works and services required
in your industry, or can your team organise contracting out of building gaols and
maintenance without public works?

       Mr SCHIPP: There are a couple of aspects there. While we regard ourselves
as being pretty proficient and expert in corrective industries or correctional centres,
building gaols happens every once in a little while. Apart from recent days, it does
not happen every year whereas public works are involved not only in terms of
building gaol facilities but also in building juvenile justice facilities. Public works
has a network of contacts in other States who are also building gaols. Obviously the
contacts with the construction industry and so on we do not necessarily have, so I
suppose that the advantage we get out of having the Department of Public Works and
Services doing what it does in terms of construction and project management of the
construction of facilities is that it has far broader and far more regular contact with
the industry and any innovative design.

       Mr BROWN: Leighton's Construction and Transport has similar contacts
and experience.

        Mr SCHIPP: It might get a contract only once every third gaol or something
like that and Holland's might get another lot or Thiess might get another lot and so on
and so forth but, generally, the common denominator is public works or the people
with whom they liaise and keep in contact with in the other States for the
construction of gaols in those States and so on.

      Mr BROWN: Does public works charge you for its consultancy services
when you talk to the department about building a new gaol?

       Mr SCHIPP: When we access its commercial services, the department
obviously charges us, but when we access its core services that is part of the
consolidated funding allocation. For example, the other aspect of using public works

Inquiry into Infrastructure Delivery & Maintenance -   36            Wednesday, 22 August 2001
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is the tendering process and we actually are required to use the State Contracts
Control Board—New South Wales Supply if the tenders are over $100,000. It is a
different part of public works but that is the other benefit of using public works,
namely, it has multiple services under that portfolio and obviously co-ordinates its
communication and networks internally. We get access to that as well.

        Mr HUMPHERSON: Are there any design initiatives you have taken in
more recent gaols with a view to reducing maintenance in the long term which came
out of the experience of Junee?

        Mr DESBOROUGH: The comprehensive maintenance contracts we have at
Silverwater in particular require the keeping of data on record of vandalism and other
faults that occur and we have fed that into the design process so that, in the early
stages of design, the architects and engineers have known what the recurring faults
were at Silverwater, for instance, and they have taken advantage of the information.

        Mr SCHIPP: I suppose that, just following on from that, where you have an
in-house provider, essentially when a tap leaks, they go and fix it and if a light globe
blows, they go and replace it. When you are using an external provider—and the
management company that we engage at Junee subcontracts out its maintenance to a
specialist provider of maintenance—that is the core business. They have got the
computer systems and they have the processes of collecting data and subsequently
feeding that back into the planning process. So probably the biggest learning
experience out of that Junee process was in fact that. Now that we have actually got
in place the other two contractors at John Morony and Silverwater, the requirement
of the contract is for that performance reporting—benchmarking in terms of the costs
of doing work and things like that—and we are in fact now implementing a
maintenance module within our integrated management system that will do that
across all our facilities.

        Every preventive maintenance job that is done will be booked, scheduled and
monitored against what is in the system. Every corrective maintenance job that is
done once again will be captured, and so we will have a lot more information and a
lot more data that will tell us where our hot spots are, where are problems are, what
sorts of categories of vandalism might be causing us the most cost, whether that is
throwing toilet rolls down the pan or knocking out cell call systems so that the cell
has to be taken out of action, or whatever else there is. I suppose that if I had to put
my finger on one lesson from the Junee experience it has been the fact that the
maintenance providers or people who specialise in the provision of maintenance have
their own set of tools and processes as well as what their expertise brings, and that
can then be translated into facilities that we manage ourselves.

      Mr HUMPHERSON: Is the cost of vandalism very high in the prisons

        Mr SCHIPP: At the moment, we do not measure it. We do not differentiate
that a certain event is vandalism as opposed to something that happened by accident,
and then there is the extreme vandalism type of situation where you might have an
incident of a disturbance or something like that and multiple cells are taken out of
action by fire. There is also the issue of whether or not an attempt at self-harm

Inquiry into Infrastructure Delivery & Maintenance -   37          Wednesday, 22 August 2001
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through setting a mattress alight that destroys a cell is vandalism or not. We have not
sort of got to the degree of classifying the events to that extent but that is certainly
one of the processes that we are hoping to go through and are planning to go through
with the implementation of the new system. The actual definition of what is
vandalism creates somewhat of a problem.

           CHAIR: Do you feel like it is a large part of the program?

      Mr DESBOROUGH: It is a daily occurrence, yes. It is a daily occurrence.
What can I say?

        Mr SCHIPP: In terms of the, say, $15 million that we spend a year on
average on maintenance, corrective maintenance is probably around the $4 million
mark and a percentage of that would be related to vandalism. I could not say whether
it is 50 per cent or 10 per cent because, as I say, to a certain extent it is difficult to
define what vandalism is or something that deliberately is impacting on the fabric of
the facility as opposed to an event that was a consequence of something else.

       Mr HUMPHERSON: A lot of those are relatively small events and are a
daily occurrence, but individual cost is relatively small. The costs, however, just

          Mr DESBOROUGH: It depends.

          Mr HUMPHERSON: Unless you have a big disturbance.

        Mr SCHIPP: Yes. If you have a disturbance that takes out 20 or 30 cells,
then that would be $300,000 or $400,000, and that is an insurance claim. The classic
cases of vandalism are things where someone is leaving a cell so he or she shoves a
toilet roll of paper down the toilet, and that costs $150 or something to get it out if
you actually called in a plumber to get it because it is lodged so far down. But if you
have got an overseer and an inmate who is capable of doing it, the actual cost, as
opposed to the opportunity cost, is a bit more.

          Mr HUMPHERSON: What was the cost of the Goulburn disturbance?

          Mr SCHIPP: I think it was about $350,000.

          Mr HUMPHERSON: Most of that was insurance?

          Mr SCHIPP: It was all insurance.

        CHAIR: When you are looking at these contracts which are to build and
maintain, would the operator who looks at the maintenance as well want to know
whether it is vandalism or not? We have experiences in schools whereby if it is an
act of vandalism, the school has to look after it, but if it is a maintenance issue, it is a
different pot of money that is it comes from.

       Mr SCHIPP: It is similar to what we have at Silverwater and John Moroney.
Typically, it is through contractual arrangements and the payment for the service.

Inquiry into Infrastructure Delivery & Maintenance -   38             Wednesday, 22 August 2001
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Whilst the contract deals with the legal issues, the engagement issues and the
performance issues, the actual payment depends upon the event. Generally we use a
bank of events and we say there are 6,000 events that are covered within this contract
and these are the sorts of things that are covered. It defines them more by detail,
rather than by grouping them and saying that vandalism and these sorts of things are
covered under the contract. Or, if in fact the contract covers it, it is just that it gets
paid for on top of the base level retainer amount.

                                          (The witnesses withdrew)

Inquiry into Infrastructure Delivery & Maintenance -   39            Wednesday, 22 August 2001
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IVAN HIBBLE, Property Manager, Department of Community Services, 164
Liverpool Road, Ashfield, affirmed and examined:

      CHAIR: Did you receive a summons issued under my hand to appear before
the Committee?

          Mr HIBBLE: Yes.

       CHAIR: You have made a submission to the Committee from your
department. Is it your wish that the submission be included as part of your sworn

          Mr HIBBLE: Yes.

      CHAIR: Would you like to briefly outline the directions being taken by the
Department of Community Services regarding asset management?

        Mr HIBBLE: Firstly, everyone will soon be familiar with the current change
to the organisational structure that has taken place with the operational component of
disability services moving to the new Department of Ageing, Disability and Home
Care. That will have a significant impact on what DOCS' asset base looks like, as
basically most of the assets have now moved to Ageing and Disability. But at this
point in time my unit still has responsibility for them and is supporting their assets,
even though they come under another department.

        What we are doing at the moment, and will be doing into the future, will
obviously change given the new structures. The practices we have taken to date have,
in part, been a reflection of the uncertainty around the major assets that were within
the asset base, which are the large disability centres.

         In short, we use various strategies depending upon the scale of the work, the
nature of the asset and what we are trying to deliver. There is a multitude of minor
routine repairs which recur a lot within our group homes, which are used for
disability clients; they are very frequent. We do not have a direct involvement in
those minor housekeeping repairs. That is done at a local level; we fund it locally. If
it is a broken window or door, that is, a relatively minor matter that needs to be
corrected very quickly because of the duty of care issues with the clients, we leave
that to the local management.

      The next level up from that is refurbishment routine program maintenance,
which we manage centrally in the form of packages of works geographically based.
The portfolio is spread across the State. Obviously, there are large clusters of it in
metropolitan locations, but there are also a large number of rural locations as well.
We roll the works up into programs, and we then use selected contractor project
managers to do the contract specification, tendering and project supervision.

         Above that is the major work components, which are largely at the large
centres. At the moment it is really just a refurbishment program and addressing of
critical infrastructure and issues at those centres. They go out through head contracts

Inquiry into Infrastructure Delivery & Maintenance -   40          Wednesday, 22 August 2001
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Corrected Transcript
on a lump-sum basis, again through a panel of project managers that we have

      CHAIR: With the devolution that has taken place within the larger centres, I
suppose you do not want to say, if we were staying here for another 20 years, we
would have to start looking at major—

        Mr HIBBLE: It is a difficult balance to meet. We have been getting good
funding from Treasury over the last few years to address some of the critical issues,
particularly fire safety compliance and critical infrastructure issues, such as fire
mains. Whether it is going to be running for six months or another five years, the
centre cannot run without those elements and we cannot have people in buildings that
do not have adequate fire detection systems.

        CHAIR: You own more than 300 properties throughout the State, is that

          Mr HIBBLE: We have about 500 sites that are owned.

       CHAIR: Are you aware of everything that is involved with a property
regarding its maintenance? Do you have a program that looks at every individual
property and how it fits into the system?

        Mr HIBBLE: We have a property management system that contains
condition-based information, and that is one of the elements we use to plan our
forward program. That identifies what elements need to be done over a five-year
forward program, and it identifies them by type, nominal value and level of
disruption. We use that, plus annual inspection information from our own visits, and
we then use that to balance off against the budget resources that we have available.
We then sit down with the local area management. They have a list of priorities,
obviously, based on client-related issues. We have priorities based on condition
issues, and we reach an agreement on which of those items will proceed in that
program for that year. That is done on a cyclic basis.

         We have a forward program, we know what is coming at us within reason,
and then we consult with our area management to determine what elements of that
work we will do. There will be critical issues where we say, "We must do that", if it
is a critical occupational health and safety issue, and then we agree on what will be
done in the balance of the program as it relates to the group homes.

       CHAIR: You were involved in the Riverina trial program. How are you
finding that?

        Mr HIBBLE: It is early days yet. To a large extent, we are still in the data
collection process at Public Works because our capacity to provide them with a
reliable scope of works is dependent on our budget. We now know that, and we can
scope our scale of works for them. It will be interesting to see how it goes. I think the
idea is good. Because the area is so diverse and there is a relatively small pool of

Inquiry into Infrastructure Delivery & Maintenance -   41           Wednesday, 22 August 2001
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           CHAIR: How many assets do you have there?

       Mr HIBBLE: I think we only have about 30. Of the agencies involved, the
pool of assets and the investment that is being made is not large. So I am not sure
whether that will be a good enough driver to determine whether those benefits that
were mooted for a more streamlined management will be achieved. I think it is just a
physical and dollar-value issue. If you are only spending $2 million, at the end of the
day there is not a lot of margin for a builder to then drive any employment growth.

        There are other issues. It might even have a detrimental effect on some
regional employment. There is only a single head contractor. He is not driven by
altruism; he is driven by his bottom line. There is potential for them to use their core
assets of people, perhaps to the detriment of local providers that we might be using
directly. That would be my only question mark. Again, you will not be able to
quantify that until we are further into the program. There are other issues about fee
structures which we are still in the process of resolving.

      CHAIR: With regard to the reactive maintenance of those buildings, for
example, a broken door or broken window, are they quick on those?

         Mr HIBBLE: To date, it has been working well. That will be one of the
benefits. If it does work well, then we can build up a relationship with a reliable
contract that the staff have confidence in, and that will be one of the benefits out of
it. As I said, it is very early days, but to date it has been okay.

           CHAIR: You are still reviewing it?

       Mr HIBBLE: It is only a trial that we have been monitoring to see how it
works. In that area we were largely using Public Works regional staff to run our
program anyway, so it will be interesting to see how it pans out.

           CHAIR: You are aware of a backlog of maintenance?

         Mr HIBBLE: Yes. We have a backlog of the system of about $26 million or
$27 million, but that includes everything from cleaning gutters to replacing high-
temperature steam systems. Probably we have addressed most of it over the last three
to four years; we have probably addressed all the critical requirements at the large
centres and have brought the group homes up to a good standard. When DOCS
inherited the group home portfolio from Health, they were just residential properties,
and over the years we have been retrofitting or building out the problems. The
buildings were built with domestic-scale finishes and fixtures, and they just do not
stand up—it is not abuse; it is just the nature of the users. That stuff breaks easily and
is damaged easily. Where we have identified that we have a recurring fault, we build
those problems out through the portfolio. We know that standard Gyprock walls are a
problem, so we build those out where we can. There is a backlog, but again mainly at
the large centres, and it is not critical items as such. There is always a risk that a
critical infrastructure item will fail; that can happen anywhere at any time.

      CHAIR: You have some very different types of maintenance contracts. Do
you compare them with each other and see where you are getting value from them? I

Inquiry into Infrastructure Delivery & Maintenance -   42            Wednesday, 22 August 2001
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Corrected Transcript
know that there are horses for courses; you have a good residential area or you have
your main office block, for example.

      Mr HIBBLE: We do not have much call through our office for routine
maintenance. Most of our maintenance of the larger centres is done through those
packages of works. That is the system we have been using across the State.

           CHAIR: Do they vary?

        Mr HIBBLE: Contractor performance varies, yes, and it is a matter of
weeding out the good and bad contractors or project managers. It is a learning curve.
You get that volume that attracts a contractor to it. Doing very big works is always
easy; doing the smaller $100,000 jobs is more difficult, particularly for residential
work at the moment because there is so much demand for residential construction
skills around the city. It is often more difficult to get builders interested in doing a
kitchen and a bathroom in a house; it is not an attractive option. But if you put six
houses together and you are doing four kitchens, three bathrooms, an extension and a
major paint-out throughout, it is a much more attractive item to sell and it is much
easier to administer the one contract through the one project manager.

       CHAIR: In your day-to-day maintenance, do you have a look at various

          Mr HIBBLE: We do not have a lot of call for—

       CHAIR: The reason I raise this is that when officers of the Department of
Housing got together, they would look at maintenance at the regional level and
administer the maintenance of various properties. They found that there was an
amazing cost disparity amongst plumbers, for example.

       Mr HIBBLE: You have a cost driver in western New South Wales and your
service level is down a bit, because if you have to get something fixed in

           CHAIR: You have to allow for the three hours drive and add that to his cost?

        Mr HIBBLE: Even with the current service strategies that we use through
Public Works areas, we find that unless it is a critically urgent item the contractors
will wait until they have enough volume of work to justify going to, for example,
Wilcannia or Walgett for the day to do a range of works for a range of agencies. That
is where we will get some synergies out of the Riverina-Murray contract, because it
is consolidating the interests of those agencies. It has been happening informally
because, again, a lot of the others have used Public Works regional offices. Now it
has just really formalised it and made it a bit cleaner.

       CHAIR: Would you be involved again in a Riverina-type contract if you saw
another one, particularly in the regional areas?

       Mr HIBBLE: I think we would like to have a bit more input into our
requirements. It came up fairly quickly and we have had to respond fairly quickly to

Inquiry into Infrastructure Delivery & Maintenance -   43           Wednesday, 22 August 2001
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Corrected Transcript
it. We will get issues out of this smaller project. It is better to have an exercise on a
relatively small program of works than roll up several thousand properties in Sydney
and find out it is a complete disaster. Given that Colin Joss is an established
contractor anyway and has that payment infrastructure, they are also benefits. If you
have a new contractor on a newer scheme there will be those learning curves that a
newer contractor will go through. If you were to go to a new contract you could not
assume that an established contractor will get it and they would have to put all those
systems in place.

       CHAIR: If they were looking for a contractor in the Wollongong area, where
you have significant holdings, you would like a lot greater lead time?

        Mr HIBBLE: And a bit more input into structuring the contracts. It is very
difficult to structure a period contract on the value of works when agencies on an
annual basis do not have control of their budgetary process and to say that in three
years time we will have $500,000 available for maintenance. The reality is that I will
know at the end of July how much money I will have available for maintenance. We
have a handle on the statewide priorities for the department and how much then can
go to a particular regions. It is then what drives your volume of work. You cannot
predict with any reliability three years out what you will need to be doing. You will
know what you might have to do but you do not know the resources available to do
that scope of works.

       CHAIR: Do you have any initiatives for change, ways in which you think
you could progress in some areas?

        Mr HIBBLE: I suppose we have been a holding pattern. The changes in the
organisation will give us more capacity to plan our requirements better. We know we
will have a change in portfolio mix as devolution gathers pace. The larger centres
will wind down and the smaller assets will become more numerous. We will then
need to look at different ways of supporting those. Whether that means that the
agencies themselves still have to remain in it as the owner of that resource is one of
the fundamental questions from my point of view. We might end up with 1,000
houses total stock. That in itself is not a vast addition to something like housing stock
but the maintenance needs are different and the requirements of the residents are
different. The buildings themselves are different. I would think that there could be
possibly another owner of those assets rather than the agencies themselves. That gets
them out of the provision of the housing and running a service.

           CHAIR: Because you are looking at NGOs as part of group homes.

        Mr HIBBLE: That will be a fairly steep learning curve. It is happening. The
capital cost of the house is fairly insignificant compared with the long-term operating
cost. If we are the funder for the NGO and we are providing the asset it will be very
difficult for some of these community-based centres to have the resources to
maintain that asset. You are leading yourself into a position where you are on paper
divested of the maintenance risk but in reality if the house becomes substandard it
will fall back to the head agency to do something about that.

Inquiry into Infrastructure Delivery & Maintenance -   44           Wednesday, 22 August 2001
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        They need to consider that closely. Outsourcing the operators is a good move
perhaps but divesting of the asset and closing your eyes to the potential OH&S risk I
do not think will be achievable and will probably the very difficult under the new
requirements that are coming out. It will be hard for them to separate themselves
very clearly even though they are a contract provider. The new Act will mean that
the agency is the sourcer of that service or has a liability for that activity. That will
certainly be a question to address. Because there is a substantial investment in the
houses because of the needs of the clients, I do not think there is a large scope for
renting them long term. There is for some low-needs clients but most of the clients
have specialised requirements. The investments you need to make into a dwelling,
whether it be leased or owned, to make it work for a disability facility—you could
not only support the rent. You would be almost in a commercial make-good
arrangement with a long-term lease because you can easily spend anywhere between
$15,000 and $60,000 to meet their needs. At the end of the day you do not see a lot
because a lot of it is in building fabric construction.

                                            (The witness withdrew)

                     (The Committee adjourned this inquiry at 1.07 p.m.)

Inquiry into Infrastructure Delivery & Maintenance -   45            Wednesday, 22 August 2001
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