Senator PARER --In the estimates hearings last year I pursued the question of Jaymel. The officers at the table will recall that Jaymel was an air conditioning business in South Australia which went bankrupt or went into the hands of the liquidator and was purchased by Asset Services. I pursued the questioning. I asked, `How much did it cost?' and so on. A Mr Colombo answered my question. I said to him that there was a view in the private sector that Jaymel was competing unfairly with them in the air conditioning business. Mr Colombo said to me:

We are not seeking private sector work, as we have replied to a previous question.

In other words, `I told you that before; why didn't you listen?', or words to that effect. Is that still the same? Is it still the case that Jaymel is not pursuing private work?

Mr Woonton --You are right. Last year we bought some assets from the liquidator from Jaymel. At that time Jaymel was carrying out private work as well as some work for government clients. It is still carrying out work for its private clients that it had at that time.

Senator PARER --I pursued that too, and the answer that came back to me was:

I do not have the figures but, from memory, there was a significant amount of work being done for hospitals.

Then I was given the answer:

We are not seeking private sector work, as we have replied to a previous question.

Is that still the case?

Mr Woonton --Only in so much as Jaymel is still servicing those private sector clients it had at the time we bought the assets.

Senator PARER --I would like you to explain to me why this advertisement appeared in the Adelaide Advertiser in about November or December, which was a couple of months after I asked that question. The advertisement states, `Jaymel airconditioning. We have the know how, care, performance and Emailair. Control your home environment by installing a fully ducted cooling and heating system. Buy Australian, buy Emailair. For obligation-free quote call us. Jaymel, established 1965'. That is at odds with what Mr Colombo told me and with what you have just told me.

Mr Woonton --I do not suggest that it is at odds. Any company that is in business has to continue to market itself to retain its client base.

Senator PARER --I asked you whether you were seeking private business. You said, `No, we are continuing to do the business we have'. Yet there was a paid ad in the Adelaide Advertiser for obligation free quotes to install fully ducted cooling and heating systems within the home environment. That is surely seeking private business.

Senator MURPHY --Do we know who paid for the ad?

Senator PARER --Us. Who paid for the ad?

Mr Woonton --I imagine it was paid as part of the Jaymel operation. I do not know the particular ad, I must admit; I have not seen it. The whole issue is that Jaymel is continuing to do work in the private sector. It has to continue to market itself in order to retain that client base, as we all do.

Senator PARER --I know what you are telling me now. I am quoting to you what Mr Colombo told me and what you also repeated about five minutes ago--that you were not really seeking private work, you were just continuing the work that was there when you took over the assets of Jaymel. Obviously you are going further than that by advertising for work in such a way that the general public, seeing this, would not equate you with the government operation.

Mr Woonton --I do not believe that our work in the private sector with Jaymel has increased in the last 12 months, but our sales have increased.

Senator PARER --You have only had it for a short time, have you not?

Mr Woonton --Since about August last year.

Senator PARER --Another comment made last year was, `The two core reasons we bought Jaymel were the stock, materials and plant and the rights for lease of the property. It's not about exploding into the private sector'. I ask you to explain this to me, having said what you said and what Mr Colombo told me last year, which was clearly wrong--it was only September last year and within two months that ad appeared in the Adelaide Advertiser.

Mr Woonton --As I said, I am unaware of the details of the ad. What we purchased last year from the liquidator--I think it was Ernst and Young at the time--was the plant and equipment; the vehicles that the liquidator offered on the market; the stock and spares holdings that were held by Jaymel at that time; and the ongoing maintenance contracts that it had at that time, including contracts in the private sector. I think there was an ongoing lease of some premises. Part of that package also included a trading name that the liquidator had registered.

Senator PARER --I am aware of the purchase because we went through it in some detail last year. The point I am making is that I believe I was misled in September last year--whether intentionally or otherwise, I am not prepared to comment. It is probably quite proper to say that you yourself were unaware. Having been given that assurance, within two months an ad appeared in the paper which is completely at odds with the information given to me by Mr Colombo and your own impression 10 or 15 minutes ago.

Mr Woonton --I think we are coming at it from a different point of view.

Senator PARER --A different point of view?

Mr Woonton --What I am saying is that in order to even retain its existing private clients, Jaymel is having to market.

Senator PARER --I understand that. I understand that you bought it so you could get your hands on some assets that were useful and you could continue the work that you had done in the past. Some of the work that it was doing was to do with either government clients or hospitals, which is legitimate, but not within the private sector against the private sector.

As I said, Mr Colombo got a bit short with me. He did not say this, but the implication was that he was saying, `I've told you this before, I will tell you again.' Basically, you gave me the same answer. The point I am getting to--I have been trying to get to it for a long time--is, are you competing in the private sector and giving the impression that you are in the private sector or are you not? It is not a matter of increasing your clients. The point was made last year that you were not going into the private sector.

Mr Woonton --If I can broaden it to Assets as a whole, our target markets are GBEs and other government clients. Where we see opportunities or where clients approach us, we do some work in the private sector. It is a very small part of our total operation. Most of the work we do in the private sector is Jaymel with its ongoing clients.

Senator PARER --Surely an ad is not a client approaching you; it is you trying to approach a whole bunch of clients, is it not?

Mr Woonton --I understand that. Again, it depends on the perspective we are coming from. I imagine that at that time Jaymel was trying to hold its client base. Having gone through a rather traumatic experience and having been liquidated, the ongoing operation was trying to retain its customers and demonstrate that it was still in business.

Senator PARER --Perhaps I should go back and ask the question again. Was Mr Colombo correct in saying, `We are not seeking private sector work'?

Mr Woonton --Sorry?

Senator PARER --I am directly quoting from Hansard of 10 September 1992 where Mr Colombo said:

Yes. We are not seeking private sector work, as we have replied to a previous question.

Mr Woonton --Let us be quite clear. In the broad scene in Asset Services we are seeking private sector work where we have the existing capacity to do that.

Senator PARER --So when Mr Colombo told me last year that this was wrong--

Mr Woonton --I do not know what the set of circumstances were last year; I was not here.

Senator PARER --There are no circumstances about it. He said, `We are not seeking private sector work'.

Mr Woonton --I am not sure I understand the full context and flavour of the discussion that preceded that.

Mr CAMPBELL --The minister would have been here last year. Maybe he could tell us what happened.

Senator McMullan --Actually, I was not. The minister was, but not this one. It took a little longer than that for them to recognise my obvious talent. I do not know the detail of the particular ad and I would be concerned if it did not fit in with our overall policy and the parameters within which DAAS as a whole and Assets in particular work, which is, as you know, Senator Parer, that only capacity which is surplus to Commonwealth requirements can be used for non-Commonwealth work.

I have advised the department that where someone is legally entitled to do the work--that is, where that capacity, that surplus, exists and you know that it is surplus for a specified period; an obvious example might be a warehouse that you normally need but it may be empty for two months and therefore you are constitutionally entitled to use it for private sector work--you are entitled to advertise. If you are entitled to do something legally, you are entitled to advertise it. That seems to me to be a perfectly rational thing. I know nothing about the particular ad and I cannot say that that fits in but I and, I am sure, the general manager would be concerned if there was an action taken that was not consistent with our policy, but that is our policy position.

Senator GIBSON --Minister, I am pleased to see the profit and loss account and balance sheet for 30 June, even though they are preliminary unaudited accounts. I am looking forward to the day when we see similar accounts for the departments. Unfortunately, even though they are preliminary accounts, there are no notes accompanying them so it is very difficult for an outsider to understand what a lot of the items really are about. My first query is, is it current procedure that you hold an asset register for all your assets?

Mr Woonton --Yes.

Senator GIBSON --How often is that updated? How often are valuations carried out of major assets of property and plant?

Mr Woonton --I think we had one valuation when we commenced on the trust account. From memory, we have not had one since.

Senator GIBSON --When was that?

Mr Woonton --It would have been when we separated out Assets, as at June 1991. I may be a year late in that; I would have to check.

Senator GIBSON --I am just concerned as to whether the values in there for property assets are really appropriate.

Mr Woonton --Sure. The point is that we in Assets do not hold any property. We lease our properties either from Australian Estate Management or, in a few cases, from the private sector.

Senator GIBSON --So the figure of $22 million for property, plant and equipment in the balance sheet at 30 June is largely what?

Mr Woonton --It is largely for some plant, equipment and I think our information technology system.

Senator GIBSON --When would we expect to see notes to these accounts?

Mr Woonton --This is one of the difficulties that we have. We are three weeks into the audit process with about another six weeks to run. We would not expect to see our final audit with the Australian National Audit Office until sometime in October.

Mr Michael Clarke --Senator, can I help with that. There will be notes available to those accounts within about a week.

Senator GIBSON --Thank you.

Senator PARER --I thank you for that advice about the notes coming forward in a week. I am sure you understand our problem; we also understand yours, by the way. I would like to refer you to the profit and loss account as we have it. I notice that sitting there after the operating profit is an abnormal item of $10.4 million. The problem we have when going through estimates at this stage without complete accounts is that we do not really know what that is. What is that $10.44 million abnormal item?

Mr Woonton --It relates to surplus staff.

Senator PARER --The actual staffing for Asset services in 1991-92 was 3,655. The forecast for 1992-93 was 2,968 and the actual number for 1992-93 in these figures is 3,228. So there was surplus staff there. I know this is a more general question but there was also staff that ended up somewhere else--I have forgotten where it was. There were 600 or 700 of them sitting in part of DAAS itself.

Senator McMullan --You mean the staff adjustment program?

Senator PARER --Yes. Presumably, those staff were not charged against the various commercial operations of DAAS but were parked somewhere over here.

Senator McMullan --Correct.

Senator PARER --I presume that a number of those came from here; is that right?

Mr Woonton --They were originally. At the start of the year when we were looking at our sales projections we estimated that we had 550 surplus staff. Through the year they progressively took redundancy packages and towards the end of the year those remaining were transferred to that staff adjustment program. The abnormal item was the costs of carrying those staff for varying periods. A good number of them left very early in the year; others stayed right through--

Senator PARER --So the cost of redundancy went against you; is that right?

Mr Woonton --That does not include the cost of redundancy; that is the cost of their salaries and supporting them while they stayed on the books of the business.

Senator PARER --So they did stay on the books?

Mr Woonton --They were progressively moving off the books through the year.

Senator PARER --To where?

Mr Woonton --Three hundred of them took redundancy packages and another 100-odd transferred to the staff adjustment program.

Senator PARER --What you have indicated is that you had a profit in 1992-93 of $1.2 million or thereabouts. Again I have problems reconciling the two figures. Perhaps it might be worth while if either you or Mr Barrell explained to the committee, because there are new members here, why the operating profit on the accrual type accounting profit and loss statement is different from the profit that shows up in the program performance statement.

Mr Woonton --Which page in the PPS?

Senator PARER --Page 219.

Mr Woonton --Looking at page 219, the net profit reported for 1992-93 was $1.23 million.

Senator PARER --Now look at the profit and loss statement. If we ignore the abnormal item you will see a figure of $11.9 million or a net operating profit of $1.46 million. There is no correlation.

Mr Barrell --If I could put the matter in a general perspective, the program performance statements and the data in them come from financial information available several weeks before the more recent profit and loss and balance sheet statements, which were tabled for the committee on Tuesday night or yesterday morning. The differential is a matter of detail in accounting as various decisions taken during the year in accounting are tested against the conventions for adequacy in terms of what will be accepted by the Australian audit office as we go through to the audit certification of the 41D statements for the financial year. There is purely a refinement process going on.

Some other discrepancies or changes occur which are generated by some degree of internal transfers within the trust account; that is, by using some of the better performing businesses to support the lesser performing businesses. While they are shown as separate businesses in the program performance statements, as a financial entity they operate on a single trust account to permit that degree of flexibility and financial support.

Senator PARER --So when we compare these figures on the P and L account, we should be looking at the net operating profit?

Mr Woonton --That is correct.

Senator PARER --And that is pretty close in most cases.

Mr Woonton --Yes.

Senator PARER --When I look at the profit and loss statement, if there is any cross-subsidy going on--and I am sure when we get down the track we will find a couple--where would it appear?

Mr Woonton --Cross-subsidy between what exactly?

Senator PARER --Does it appear under the revenue statement as an amount?

Mr Woonton --There is no cross-subsidy to Asset Services from anywhere else.

Senator PARER --Thank you. On the strategies and performance information, Asset Services identified a loss of sales as a result of untying clients. I think we saw this last year as well. What clients have been lost in 1992-93, if any, and why?

Mr Woonton --I do not think any specific client has been lost, but we have not necessarily achieved the same level of sales.

Senator PARER --Because of the downturn?

Mr Woonton --Because of the downturn I think clients have less money to spend on maintenance. It is just hard times. They also have delegations that they can use. Perhaps they are giving work to some of our competitors.

Senator PARER --In view of the times--this does not apply so much to Asset Services but it does to some of the others--just how confident are you of your forecasts? You are talking about going from a profit of $1.23 million to a profit of $8.9 million in 1993-94. In other words, how much have you allowed under `abnormal items' for the reduction in staff from 3,200 to 2,900 for 1993-94?

Mr Woonton --We have a sales projection for next year of around the $320 million mark.

Senator PARER --Which is lower.

Mr Woonton --It is lower than what we will finish up reporting for this year. Looking at the figures for this year, I think we will still report sales of about $350 million when we complete the audit. This year, `abnormal items' will account for a very small amount--about $1 million.

Senator PARER --Why is that the case if you are looking at an actual staffing level of 3,228 and you have a forecast figure of 2,900?

Mr Woonton --That is an average staffing level throughout the year. Our actual numbers are down to just over 3,000. So we are looking at going from over 3,000 to about 2,900. We will be able to place those surplus staff fairly early on in the staff adjustment program. So we will not be wearing the cost of those staff on our books for a great period, as distinct from this year, or the past year.

Senator PARER --With lower sales projected for 1993-94 on a sales per employee basis, you show a total cost of $107,000, down from $110,000. Why the reduction in cost per employee?

Mr Woonton --We are working very hard at containing our costs--reducing our rents and reducing our support costs in managing the business. I think the sales per head, after we deduct the gross payments that we make for subcontractors and supplier materials, will actually increase. It has increased each year in the last two years and we are projecting that it will increase again this year.

Senator PARER --You are forecasting a tenfold increase in profit per employee, or close enough to ten.

Mr Woonton --Yes. If you go from one million to nine million, that is what you get. That is just a straight numerical answer.

Senator CAMPBELL --The main question was in relation to Auditor-General's report No. 38 and information technology acquisitions, where it actually referred to key financial functions, that is, invoices that could not be completed, thereby adversely affecting the commercial operation of Asset Services. Could you inform the committee as to how badly that crisis affected Asset Services?

Mr Woonton --That report was done, as I recall, late in 1991, when the investigation--

Senator CAMPBELL --It is dated 1992-93.

Mr Woonton --The actual study was carried out late in 1991, from memory.

Senator CAMPBELL --So it has probably been referred to previously.

Mr Woonton --We actually installed that system in June 1991. We had a 12-month period cutting our teeth on it, to the point where, when we did our section 41D financials for last financial year, the second year of operating on it, we had a clean bill of health from the ANAO. So it is working well.

Senator CAMPBELL --The next question related to some correspondence between the minister and a director of Albright Constructions Pty Ltd. The gentleman concerned was from Berrimah in the Northern Territory. I think you are aware of the correspondence, minister. The correspondent clearly had a concern about whether Asset Services acted on a commercial basis and whether there was some subsidisation, which is a concern that many businesses around Australia would have. Your response to his letter, dated 11 May 1993, raised some interesting points. One such point was that you expected Asset Services to compete on a level playing field--of course, subject to government guidelines.

The first point you made was that Asset Services leases all its motor vehicles from DASFLEET and that the lease rate charge is comparable to any commercial vehicle hire company in Australia, as DASFLEET works under similar commercial principles. I was interested to know if indeed that is the case--if DASFLEET does charge commercial rates and how that is tested. It is obviously a question that I will bring up later under the DASFLEET subprogram. Has that been tested by anybody?

Senator McMullan --It has been tested to the extent that there was an initial proposal that the car rental might be untied. If I recall correctly, and this is really a fleet item so I have not got the advice here, one department, I think it was Defence, conducted a review--I would not use the word `tender' formally, but of that nature--to assess whose services it would use should the untying process continue. It found that DASFLEET was the cheapest. But it was a pretty competitive tender. I could not tell you the margin, of course, because I did not see the tender and it is not for me to get that sort of detail, but I understand that there was not a circumstance where one was out of the ballpark. It was a tight competitive tender that it would narrowly have won.

Senator CAMPBELL --Does that suggest that DASFLEET is really efficient and well run?

Senator McMullan --That as well, yes.

Senator CAMPBELL --Is that what it suggests to you and the managers of Asset Services and DASFLEET, or does it suggest that maybe DASFLEET is subsidised?

Senator McMullan --No, it is not subsidised. But it does have benefits of scale. It is big and can therefore buy very competitively. That is the advantage it particularly has. But that is for the DASFLEET people to say, when they come. They may have other much more sophisticated arguments about it which they may wish to put to you.

Senator CAMPBELL --I am sure they will. We look forward to hearing them. You then go to the fact that Asset Services leases all property and buildings and so on and so forth, government owned properties vested in AEM. You say that all of the leases are on a commercial basis. You are basically saying that everything that it does, as far as possible, is on a commercial basis. I am aware that there are certain outgoings that government tenants do not pay either in a private building or, I guess, leasing from AEM. One of those is insurance, which is quite a large outgoing. It is the one that comes straight to mind. There may be other outgoings that government tenants do not pay. Does Asset Services pay insurance when it leases a property, either from a private sector landlord or from AEM?

Mr Woonton --We have insurance cover, certainly, on a whole range of aspects of our business.

Senator CAMPBELL --I will be more specific; I thought I was. Do you pay building insurance on properties that you rent?

Mr Woonton --We do not own the building; there is no reason for us to.

Senator CAMPBELL --Private sector tenants pay building insurance as part of their outgoings.

Mr Woonton --I do not see why we would not if we were leasing a private sector building. It would be in the rental, if that is the case.

Senator CAMPBELL --It is not. When government tenants go to lease a private building, they have an exclusion because the government assumes the risk.

Senator McMullan --We can pursue that level of detail. I am happy to provide it to you. I cannot remember the detail of the letter, but I understand the thrust of the issue. I remember that the correspondence took place and I remember the broad issues involved, but not all the dots and commas.

The broad issue is: when you look at the ons and offs between the advantages which Assets or any of the other organisations within DAAS have by operating within the department of state environment, and the disadvantages they have--superannuation costs, et cetera--is it a reasonably fair level of competition?

My advice is that a review conducted by Ernst and Young, before I was minister, concluded that broadly it was a fair basis of competition and that the balance of disadvantage net fell on the businesses trying to operate within the departmental environment, not vice versa. That is my understanding of that report. It is not a report which I commissioned, but my advice is that that was its conclusion.

Senator CAMPBELL --I do not agree with that, but I take on board the points you are making.

Senator McMullan --You do not agree that that is what the report said?

Senator CAMPBELL --No. I do not agree with what the report said. I am sure the report did say that.

Senator McMullan --That is because you have not seen it. I am sure it would persuade you.

Senator CAMPBELL --No. I have heard you say that a couple of times and I know the points that you are trying to make. You virtually run that line in the letter. You say in point five of your letter that, of course, you do not pay state payroll taxes. You go through in quite explicit detail the benefits that Asset Services derive by being in the government. Then you balance that by saying that there are certain disadvantages, which is the point you have just made.

I am saying that there are some specific identifiable other advantages which are glossed over, and one of those is building insurance. I am quite sure that government enterprises do not actually pay the insurance. Perhaps you could take that on notice, because I am interested to see whether that has changed.

Senator McMullan --I am happy to take that on notice. But I am trying to say to you that I think you should assume, although I will check this matter and others, that Ernst and Young would be aware of the fact that it may have come out with a conclusion with which you are uncomfortable. But nevertheless it is, on the best objective evidence available, the net position. I am happy to provide information about any particular item you wish, Senator.

Senator CAMPBELL --I am not actually uncomfortable with the conclusions. Is that Ernst and Young report available to the public now?

Senator McMullan --I will have a look at it, but it may well be. It would suit me if it was, but I want to have a look at all the things that are in it because I am not familiar with all the parts of it. If it is possible, I would like to make it available because it seems to be a useful part of the debate. Subsequent to the estimates, I will make arrangements to view it and see whether I can release it because it would obviously enhance the debate if I can. There may be reasons for this but I do not want to commit myself now.

Senator CAMPBELL --I would appreciate that. We do get a constant stream of letters and phone calls in our offices, which I am sure you would get too, of private sector contractors who are up against government services and business enterprises that the taxpayers perceive as subsidised. If the Ernst and Young report is able to tell us that that does not happen and they are not subsidised, I would be very happy to send that to my constituents.

CHAIRMAN --Before we move to the next subprogram, Senator Campbell has asked our indulgence to take on notice five questions about the Hotel Kurrajong under subprogram 2.3, Australian Estate Management. Is it the wish of the committee that the questions be incorporated in Hansard? There being no objection, it is so ordered.

[The questions appear at the conclusion of today's proceedings.]

Senator McMullan --I have a question which is semi-flippant but there is a serious element to it. A lot of people complain about the acoustics in this building and I never have previously. But, when we meet again, can we either not meet here or could somebody do something about it? There have always been complaints. I have thought in the past that they were unwarranted because I have never before suffered the problem, but tonight it has been hopeless.

CHAIRMAN --I was going to speak personally to SAVO to see what on earth we can do about it.

Senator McMullan --I leave it in your hands.