CHAIR —I welcome the minister, Senator Richard Alston, and officers from the Communications, Information Technology and the Arts portfolio. Departmental officers will not be asked to comment on the reasons for policy decisions or the advice they may have tendered in the formulation of policy or to express a personal opinion on matters of policy. The program is set out in the agenda. The committee will begin with arts and culture, then proceed to broadcasting and film, followed by information technology. Minister, do you have any opening comments you would like to make?

Senator Alston —No, Mr Chairman.

Senator LUNDY —Can I just clarify which day has been allocated for the flow[hyphen]over for today's estimates?

CHAIR —Hopefully, we will be finishing within time, but Friday could be a flow[hyphen]over day.

Senator LUNDY —Could I just confirm the minister's availability?

Senator Alston —If there is any spill[hyphen]over, it is tomorrow, not Friday.

CHAIR —Thank you.

Senator LUNDY —My understanding is that tomorrow's program is already full.

Senator Alston —As I understood it, that was the spill[hyphen]over day, so if it has been filled for other reasons, there is no capacity to go beyond that.

Senator LUNDY —So it will extend beyond 3 o'clock tomorrow if necessary?

CHAIR —We are scheduled to finish at 3 p.m. tomorrow.

Senator Alston —No, I am on a 4.45 p.m. flight. I have a commitment tomorrow, and I am certainly not here Friday.

Senator LUNDY —I would still like my question answered as to when the flow[hyphen]over day is, if required.

Senator Alston —I think the Chairman is saying it is premature to talk about it at the moment, but it was originally intended to be the Thursday.

Senator LUNDY —I would like to clarify it, because I have been in the position before where time has been running short and at the eleventh hour, Minister, you declare yourself unavailable.

Senator Alston —I am telling you right up front now what my position is.

Senator LUNDY —I am sorry, that is just not good enough. I would like to be advised of what opportunity there will be for a flow[hyphen]over day in case we extend beyond time either in today's or in tomorrow's program.

Senator Alston —We do not have an open[hyphen]ended approach to estimates. We had this discussion last time, and I seem to recall—

Senator LUNDY —You might not, but we have a series of questions that we will proceed through over the next two days.

Senator Alston —I spelt out in some detail last time the extent to which estimates have blown out. It is quite clear that, rather than us trying to take points of order or somehow suggesting which particular lines of questioning ought to be pursued, there is a global amount of time made available and you can use it as you see fit. But to think that you can simply take whatever program is set and then meander through that and say that you still need more time is not consistent with past practice. I think it is certainly unnecessary, given the fact that you have virtually two days for these estimates. It is only a matter of a few weeks since we were here last time.

CHAIR —Thank you, Minister. I think we will proceed.

Senator LUNDY —I still do not have my answer.

CHAIR —I think the Minister has laid down the parameters within which he is prepared to accommodate you.

Senator LUNDY —With all due respect, that is making the presumption that the asking of questions is the sole determinant of how long the hearings take.

Senator Alston —Are you saying that at this point in time you do not think you can complete the program in two days?

Senator LUNDY —No, not at all.

Senator Alston —Why are we having this discussion?

Senator LUNDY —I am asking the question, because I do not want to be put in the position where there is an hour of time left and you declare yourself unavailable for future questioning. If I know that there is a flow[hyphen]over time, can I suggest that I am more likely to make sure it fits in within the two days.

Senator Alston —We had this discussion last time around.

Senator LUNDY —No, we did not. You left.

Senator Alston —You chose to take the bulk of the evening off to go and do Good News Week . You cannot have it both ways. You have got to fit in with the convenience of the committee and the department.

Senator LUNDY —Minister, that has nothing to do with it, and I still would like an answer from the Chair as to what flow[hyphen]over day has been allocated if we go over time.

CHAIR —The Chair's reply is that we will see how these estimates proceed. The Minister has laid down the parameters of the time he is available, and if a flow[hyphen]over time is necessary at the end then we will consider that later. I think we should proceed now.

Senator LUNDY —Can I put on the record my dissatisfaction with the procedure. I am getting pretty tired of the Minister determining the time frames of these committees, given that the asking of questions is not the sole determinant of how long it takes. Quite often it is
the responses and the quality of the responses, in fact, that determine how long the hearings take.

CHAIR —We note that, Senator, but we should proceed now. The first section is general questions.

Senator LUNDY —I have a series of general questions relating to the nature of the portfolio budget statements.

Senator MARK BISHOP —Before you do that, Senator Lundy, could I just ask a couple of questions of guidance on when I may raise matters. I will then withdraw and leave it to you for the time being. Where are questions on broadcasting and IT policy—going to CDMA, the RTIF, Cox Peninsula, international broadcasting, digital data, USOs and those sorts of issues—best raised, Mr Stevens?

Mr Stevens —Actually in two spots. The telecommunications questions you refer to would be under communications policy, which is tomorrow morning. The broadcasting matters would be under broadcasting film policy, which is this afternoon. So Cox Peninsula would be this afternoon, for example, but your CDMA and USO questions would be tomorrow morning. I understand the IT industry policy items were to be asked under communications tomorrow morning.

Senator MARK BISHOP —And the digital data as well will be tomorrow morning?

Mr Stevens —Digital data will be tomorrow morning too, yes.

Senator MARK BISHOP —So the only thing today is Cox Peninsula on broadcasting?

Mr Stevens —Cox Peninsula would be this afternoon.

Senator MARK BISHOP —Fine. I have a series of questions on notice following up some matters concerning the radio communications bill. Where will they be?

Mr Stevens —Again, they will be on tomorrow morning in communications policy.

Senator MARK BISHOP —That is all I needed, thank you.

Senator LUNDY —I have a suggestion. If there are IT policy matters that are not scheduled until tomorrow, for the purpose of this evening those officers could be available concurrently with the National Office for the Information Economy.

CHAIR —I suppose if we conclude a program, we conclude a program, and IT and NOIE are scheduled for tonight.

Senator LUNDY —Yes, but what Mr Stevens is saying is that there is an IT policy component of communications policy that will be on tomorrow.

CHAIR —All right then.

Mr Stevens —I am happy to have the officers available tonight to handle those questions.

Senator LUNDY —From experience, Mr Stevens, I know that some of those questions cross over.

Mr Stevens —We were reacting to advice we had received, but I am happy to change that. I am not sure the officers will be, but we will make sure that they are available.

Senator LUNDY —As I said, I have a series of questions relating to the accrual accounting process within each department. For each administered item listed in resource summaries contained in the portfolio budget statement, can the agency provide an estimate of expenses for 1999[hyphen]2000, 2000[hyphen]01, 2001[hyphen]02 and 2002[hyphen]03? Can estimates be provided for any
administered items that are expected within the period of the forward estimates that do not take effect until after 1999[hyphen]2000?

Mr Stevens —We will take that on notice.

Senator LUNDY —For departmental output groups and suboutputs listed in the resource summaries contained in the portfolio budget papers, can the agency provide an estimate of the expenses for 1999[hyphen]2000, 2000[hyphen]01, 2001[hyphen]02 and 2002[hyphen]03, and can estimates be provided for any outputs that are expected within the period of the forward estimates that do not take effect until after 1999[hyphen]2000?

Mr Stevens —We will do what we can on that, but that is not as easy as the earlier question. Many of those outputs go to departmental operations and how we allocate our resources and we do not produce forward estimates in regard to those types of running cost items because we do not know what issues we will be working on. We tend to change from year to year. Therefore, I do not believe, for all the issues in those outputs, that we would have the information you are seeking. We would for some, and where we have it we will give it to you.

Senator LUNDY —Thank you, and could you perhaps extrapolate on your reasons why you would not be providing that in your response?

Mr Stevens —We can certainly add a few more words to that. Essentially, we do not do those types of forward estimates.

Senator LUNDY —I understand that, but any detail you may have would be appreciated. Can the agency provide an estimate of the total cost of the move to accrual accounting?

Mr Stevens —That is going to be very hard because the great bulk of our costs is staff costs. For people who do the budget, it is their regular job. They obviously did it on an accrual basis this year. There is no additional cost involved.What we can identify, if any, are additional costs that may have been occurred for consultancies, for example, which we let.

Senator LUNDY —You are anticipating the next part of my question very well, Mr Stevens, which is: can you provide details—for instance, cost specification, recipient—and whether or not a competitive process for a tender was held of any consultancy contracts awarded in relation to accrual accounting?

Mr Stevens —Certainly.

Senator LUNDY —Were there any?

Mr Stevens —I am told there may be a minor one or two, but we will certainly get that information.

Senator LUNDY —Out of interest, what support was received by you, for example, from the taxation department? Were there any secondments or transfers during the period?

Mr Stevens —From the taxation department?

Senator LUNDY —Sorry, from another department for any advice on accrual accounting.

Mr Stevens — Obviously we sought and received a great deal of advice from the Department of Finance and Administration during that period. There was an ongoing dialogue.

Senator LUNDY —Did that involve any secondments?

Mr Stevens —No.

Senator LUNDY —Have any issues been raised by community or industry groups in relation to understanding the new budget reporting arrangements?

Mr Stevens —Not that we are aware of. Again, I can check for any representations that we may have received.

Senator LUNDY —If you have, could you please provide correspondence to the committee or any details of complaints or concerns received?

Mr Stevens —Certainly.

Senator LUNDY —When did the agency first start using accrual accounting?

Mr Marsden —We have been using accrual accounting in whole of government financial statements for about four years now. As you know, this is the first time we have presented it in the portfolio budget statements.

Senator LUNDY —And what information is available on the programs on an accrual basis, like historical information? Do you have, for example, documentation showing your accrual accounting dating back four years that you could provide to the committee?

Mr Marsden —It would be a little bit patchy because the financial statement guidelines vary from year to year. One year, for instance, I think it was broken down to program level. Those programs do not map across now to the new programs, and prior to that there was just a whole thing for the department without a split to program level. So it would be difficult to provide that sort of information, Senator.

Senator LUNDY —Could you take that on notice and provide anything that is available, along with any corresponding cash based information, that is, records of expenditure and so forth.

Mr Stevens —That is a fairly broad question. Is there some specific issue that we can perhaps concentrate on?

Senator LUNDY —No. It was designed to be a very broad question.

Mr Stevens —It is just that we provide cash information year after year to the parliament in our program statements.

Senator LUNDY —Could we be provided with information that corresponds with any historical information on an accrual basis.

Mr Stevens —I guess my difficulty is going to be that because we have changed to outputs from programs, we haven't gone back over the years to work through what those programs would have been under an output framework. So we do not have that sort of information. We will have a look at what we have and see what we can give you.

Senator LUNDY —Thank you. Are you able to provide an itemised list of any liabilities you are recording as accounts payable and any cash flow profile of those liabilities?

Mr Stevens —Yes, we can provide that.

Senator LUNDY —What do they apply to?

Mr Stevens —We do not have the itemised figures in the budget papers. We will have to provide those to you separately in the detail you want.

Senator LUNDY —Thank you. And a cash flow profile of those liabilities, on an itemised basis?

Mr Stevens —Certainly.

Senator LUNDY —Concerning the performance indicators contained in the budget statements, can you provide an explanation of how you have managed the transfer from the
previous format and your efforts to define the new outcomes in the PBS? I just want some overview of how you have been able to transfer the—

Mr Stevens —Do you mean how we have mapped the previous performance indicators to these current performance indicators?

Senator LUNDY —That is right, yes, some explanation. Can you provide it now?

Mr Stevens —I would like to take that on notice and give you a full explanation.

Senator LUNDY —What general principles did you apply to that process?

Mr Stevens —What we have tried to do with the outputs is to identify individual outputs and, against those, measure performance indicators which we believe are relevant, measurable and give an indication about the effects of those programs and outputs. That was the guiding principle behind the determination of the performance indicators.

Senator LUNDY —Do you use those same indicators that are published in the PBS for internal management purposes?

Mr Stevens —We will be, yes.

Senator LUNDY —You will be, or are they already in place?

Mr Stevens —These are indicators that in some cases we have now established for the purposes of these estimates and we will as a result be now using them, but we have not always used them in the past.

Senator LUNDY —Have you used them at all?

Mr Stevens —Not these current indicators, no.

Senator LUNDY —How do you apply that in terms of your management structure? Does everyone get sent a copy of their particular outcome?

Mr Stevens —The outcomes tend to be the result of a range of different people working on them. In terms of performance management, we have individual agreements with officers which go to more specific issues. They may be related to that, but they may also be more specific.

Senator LUNDY —In terms of overall management of the department, I wanted to ask some questions about your expenditure on the department's IT outsourcing. Is this the appropriate place?

Mr Stevens —We will certainly try to answer them.

Senator LUNDY —The whole of the department has entered into a contract with Advantra for the provision of IT services. What is the value of that contract?

Mr Stevens —Can we take that on notice? There is a question of commerciality here and we need to check with OASITO about these issues as to what we can and cannot make public.

Senator LUNDY —An approximate figure has been fairly widely reported. Perhaps you could take that on notice and, if you choose not to provide the information to the committee, state specifically on what basis you are claiming commercial[hyphen]in[hyphen]confidence.

Mr Stevens —I am very happy to do that.

Senator LUNDY —As part of the IT outsourcing program, the Minister for Finance and Administration has been very overt in his claim for savings. What savings has the Department of Finance and Administration nominated from the signing of the contract between the department and Advantra?

Mr Stevens —My understanding is that the only public figures which have been made available are savings which flow from the cluster, not from individual agencies within that cluster. I believe that the press release of 26 March talks about savings of close to $10 million. That is a public figure which is available in that press release.

Senator LUNDY —What proportion of that is your department?

Mr Stevens —Again, I would have to take that on notice because of commercial[hyphen]in[hyphen]confidence issues.

Senator LUNDY —I do not accept that because the minister has made a public statement about the extent of savings.

Mr Marsden —The difficulty with providing that is that Advantra, the contractor, is still in various tender processes within the outsourcing process across the government.

Senator LUNDY —Who is?

Mr Marsden —Advantra is tendering for other contracts within the government. If we gave you the individual information on ourselves and then other information came out on other departments in group 5, a smart operator could almost work out backwards what the bidding process was and what the costings were that Advantra put up in that process. It might affect their commercial competitiveness at this point. If we can provide that, we certainly will. I would like to check with Advantra and OASITO.

Senator LUNDY —The fundamental question, of course, is: what commercial[hyphen]in[hyphen]confidence commitments is the government signing within these contracts that extend beyond the current situation in terms of protection of commercial[hyphen]in[hyphen]confidence information? Are you aware of whether the contract actually contains any clauses that extend confidentiality beyond the normal parameters?

Mr Marsden —No, not beyond the normal parameters.

Senator LUNDY —So with respect to any savings nominated by the Minister for Finance and Administration, I would expect your department would have been notified of your proportion of those savings.

Mr Marsden —Yes, I am aware of our proportion.

Senator LUNDY —You have been given a figure by the Department of Finance and Administration?

Mr Marsden —Yes, I have a figure, but for commercial reasons I would like to check with Advantra and OASITO before I release that information.

Senator LUNDY —Can you get someone to make the call?

Mr Stevens —It might take some time.

Senator LUNDY —I am sure it might, Mr Stevens, but I am particularly interested in the answer. What is the process with respect to those savings being delivered to the Department of Finance and Administration?

Mr Stevens —My understanding is that there is no specific change in our allocation as a result of this outsourcing agreement.

Senator LUNDY —There is no change?

Mr Stevens —The savings have in fact been—

Mr Marsden —In previous budgets the Department of Finance and Administration estimated savings across various departments in the outsourcing process. Those savings, you are probably
aware, have been taken from our allocations, but with respect to any future savings, if we achieve those, we are allowed to keep those savings.

Senator LUNDY —With respect to the proportion of the $10 million that the minister has nominated, how have you paid for that? How is that being delivered?

Mr Marsden —The billing process in this contract is monthly and is based on a usage basis so—

Senator LUNDY —No, I am not talking about the arrangements between you and Advantra; I am talking about the arrangements between the cluster and the Department of Finance and Administration in the delivery of that $10 million. What I am concerned about is that the minister has claimed $10 million in savings but they have not been realised.

Mr Marsden —They will not be realised immediately. They are savings over five years and are based on our usage patterns at the point in time when we did the cost models for this tender process. It is up to us now to manage our usage patterns to achieve those savings or do better if we can.

Senator LUNDY —What is your arrangement with the Department of Finance and Administration in delivering those savings?

Mr Marsden —The billing goes directly to the group 5 agencies so, as I said before, we pay for what we use. If we can manage our usage patterns, control our behaviour patterns, then we will achieve even more savings than that—or less if we cannot control those behaviours.

Senator LUNDY —It is still very unclear. You will need to take me through this really slowly.

CHAIR —Would it be possible for Senator Lundy to be given a briefing privately?

Senator LUNDY —No, it is not possible for a briefing. I would like to know the answers now.

CHAIR —If there are commercial[hyphen]in[hyphen]confidence issues, perhaps it is best done outside the forum of the estimates, which is public.

Mr Marsden —I am happy to answer this question because—

CHAIR —If you are happy to do so with the minister's agreement, then please proceed.

Senator LUNDY —Thank you for that intervention, Chair; I do not think it was necessary. Please proceed.

Mr Stevens —I think we can answer that question about the savings issue.

Senator LUNDY —Thank you.

Mr Marsden —It is just a normal contractual arrangement, except in this one it is five agencies to the one contractor. As I said, we all get billed based on our usage. Our cost model calculated our costs at that point in time, extrapolated out for five years. On that basis, we assumed, based on our current costs, that we would achieve savings of about $10 million over the five years. As I said before, if we do not control our usage behaviour or some other thing goes beyond our control, then maybe we will not achieve as much as that or maybe we will achieve more. It is a one[hyphen]to[hyphen]one relationship with the contractor. Finance does not step into the equation anymore.

Senator LUNDY —On a monthly basis, you will assess whether or not you have achieved your identified benchmark in savings?

Mr Marsden —We will certainly be monitoring it on a month by month basis. We are putting in place a charge[hyphen]back mechanism with our own department to help modify behaviour. We have our own contract management team in[hyphen]house to monitor those sorts of things. We deal directly with Advantra on a regular basis in setting up the various models, how we want those accounts to be broken up by cost centres to report back to us, and the level of detail required to allow us to do that.

Senator LUNDY —At what point do the Department of Finance and Administration see their savings? Do they save $10 million in their allocation to the department over five years?

Mr Marsden —The Department of Finance and Administration do not see those savings; we do. We see our portion of those savings.

Senator LUNDY —You see those savings?

Mr Marsden —Yes.

Senator LUNDY —So when the Office of Asset Sales and IT Outsourcing assisted you in the development of that contract, there was no requirement for a saving to be realised up front either in forgone revenue to the department or in an arrangement that would require you to return, perhaps, a dividend over time as the $10 million was realised back to the Department of Finance and Administration.

Mr Marsden —As I said before, there were savings taken several budgets ago. They have gone from our base. But in addition to—

Senator LUNDY —Sorry, say that again?

Mr Marsden —When the outsourcing process was first announced, there were estimates of whole of government savings. They were apportioned across all departments. Those savings were taken from us, but once we then stepped into this group 5 outsourcing process, started to tender and so on, there were no further savings taken from us.

Senator LUNDY —So with respect to the $10 million, if you realised those savings, you get to keep them.

Mr Marsden —That is correct.

Senator LUNDY —That is different from cluster 3.

Mr Stevens —We are not familiar with cluster 3 arrangements.

Senator LUNDY —No, I am sure cluster 3 will be very interested in your arrangements, though.

Mr Stevens —I think there was a whole of government approach. My recollection was that there was a whole of government approach going back a couple of years, but I can only help you with our own department.

Senator LUNDY —That is fine. I am just exploring what terms and conditions are imposed upon your agency as part of cluster 5 with respect to these contracts.

Mr Marsden —I am surprised by that comment about cluster 3. I am happy to pass that question on to OASITO to answer that in a whole of government sense, if you like.

Senator LUNDY —Yes, that would be useful. In the realisation of $10 million over five years, you are the largest agency in the cluster?

Mr Marsden —No, we are one of the smallest ones.

Senator LUNDY —What sort of proportion of the cluster in terms of value do you represent?

Mr Marsden —The Minister for Finance and Administration announced this $100 million contract, as you are aware. Our portion of that is about 13 per cent.

Senator LUNDY —So the savings you are required to achieve would be approximately 13 per cent of $10 million over five years?

Mr Marsden —That we would hope to achieve, or better.

Mr Stevens —Can I make one point on savings which is very important from our perspective. It is not just a dollars and cents issue; it is also a question of service levels and functionality. We are very interested in ensuring that we have higher service levels for our IT. So when we look at the total contract, we look at both the monetary savings that might accrue and the levels of service which the department will get. Particularly in this department, there have been changes following last year which tended to make the IT environment far more complex than we had in the past. So we are certainly looking forward to a very high level of service from Advantra in this quite complex environment.

Senator LUNDY —Thank you, Mr Stevens. You once again anticipated my next question, which in fact went to service level agreements. A final point on the overarching cluster 5 contract: my understanding is that those contracts are managed through a steering committee which includes representatives of the five agencies that are part of group 5. Is that the case, and who is your representative?

Mr Marsden —I am the representative. The steering committee was the committee that recommended the decision up to the options committee in the outsourcing process. The steering committee, now that it has gone to the contract management stage, has called itself the management committee, and I am this department's representative on that.

Senator LUNDY —What is the process if the contract is required to be varied?

Mr Marsden —There is an MOU between all five agencies on the management committee. If the variance is going to affect other members of the management committee, we need to clear it with each other before we actually approach the service provider, Advantra. Then, of course, as in any normal contract arrangement, you negotiate that sort of amendment.

Senator LUNDY —How does that affect the savings pool, if you like, and the calculations in terms of the delivery of the proportion of savings across the contract?

Mr Marsden —Again, that would be a negotiation between the various agencies. It is hard to say. I would be crystal ball gazing as to what sort of amendments we are going to require to this contract. Certainly, if it adversely affected those savings and I wanted to do something for our portfolio, I am sure the other agencies would have something to say to me about that, and we would have to look at that at the time that it arises.

Senator LUNDY —You mentioned before that the IT complexity has been enhanced over the last year. Can you explain what changes have taken place?

Mr Stevens —With the changes in the administrative arrangements of last October, where OGO and the IT group from the industry department, for example, came into the portfolio, different systems were brought in. That has created great pressure on our existing IT systems which were not well geared to cope with a larger group of people.

Senator LUNDY —What was your pre[hyphen]existing platform and what platforms were introduced into your network?

Mr Marsden —Banyan Vines was the sole platform we ran prior to the changes and then NT came in. Unfortunately, as the secretary said, we were not geared to it because we did not have the skill sets in NT. That sort of plugged those gaps with the user contractors.

Senator LUNDY —Have you moved to a homogenous platform under the Advantra contract?

Mr Marsden —Not yet. We are trying to do it in a structured fashion. We are looking at the price of doing an IT strategic plan at the moment to see what position the whole organisation is in and then we will start to move ahead. As you know, under the IT outsourcing arrangements, they do tend to stand on the IC platforms, therefore we are conscious of that as well and how we can run with that existing platform under the contract which is, in our case, with Novell.

Senator LUNDY —Does the department have a position on a preferred platform in the context of the cluster?

Mr Marsden —Do you mean are we happy with what is in the contract?

Senator LUNDY —What is in the contract? Does that define a platform?

Mr Marsden —It does not necessarily have to, but the costing of the contract was based on Novell. We can negotiate to change our own platform, but clearly there would be overheads in doing that if we move too far away from the rest of the group. At this point in time we are comfortable with what is in the contract, otherwise we would have voiced our concerns earlier. We are still working through strategically where we think we could best position ourselves for the future.

Senator LUNDY —Is there any view within the department that you should move away from the Novell platform?

Mr Marsden —There is no strong view emerging to that effect to date.

Senator LUNDY —Are you in a position to advise me of what the dominant platforms are within the other four agencies?

Mr Marsden —I may have an officer here who can. I do not know myself. I assume, Senator, that you know which agencies are in our group.

Senator LUNDY —I would really appreciate it if you would remind me.

Mr Marsden —There is ACCC; the Department of the Prime Minister and Cabinet; the Department of Transport and Regional Services; and the Department of Industry, Science and Resources. Our understanding is that the Department of Industry, Science and Resources, the Department of the Prime Minister and Cabinet and the ACCC are substantially Novell already. Transport is a Banyan environment like ourselves, but I believe they have some NT as well.

Senator LUNDY —In terms of variations to the contract, can we go back to that question about how that impacts on savings? What formula is currently in place within the management committee to modify savings expectations, based on the requirement for individual agencies within the cluster to vary the contract?

Mr Marsden —I am not quite sure I understand that question. As I said earlier on, the whole billing and charging direct to agencies is based on a usage basis. There is no formula approach to splitting up those savings. That was simply an estimate done at the time we put the contract together and signed it, based on our cost models.

Senator LUNDY —If every agency within the cluster needs to modify their aspect with the contract for some reason that affects the savings call, or their demand increases and affects
their particular savings estimation for a given month, that has the effect of making that $10 million saving over five years completely flexible, does it not?

Mr Marsden —Yes, it does, but it comes back to the issue of the management committee. For instance, if one of your other agencies was doing something to the platform that was impacting adversely on this department, then I would be raising that before it even happens with the management committee. If they insisted that they needed to go in that direction for a certain reason, then I would be expecting them to cover my costs for that increase to myself. That sort of negotiation process would go on between ourselves.

Senator LUNDY —How would that occur in terms of a payment from one agency to another?

Mr Marsden —We can do it by a number of means. We can send each other cheques, we can do cash transfers through section 31 of the FMA Act to each other to cover that sort of arrangement, or we can slightly modify the billing process if need be, depending on the magnitude of the change.

Senator LUNDY —If it was a cash transfer and an arrangement interdepartmentally, you would not have to concern yourself with the contract, but anything that changed the billing arrangements would require full agreement and cooperation with the vendor.

Mr Marsden —With Advantra, that is correct.

Senator LUNDY —With the benchmarking process for the contract that established the pre[hyphen]existing costs that I presume, can you tell me whether the $10 million identified by the Minister for Finance and Administration represents the difference between the benchmark costs for IT across the five agencies involved in the cluster and the value of the contract?

Mr Marsden —I may have to refer that to OASITO. I do not have some of that detail myself.

Senator LUNDY —Were you involved in benchmarking your internal IT costs?

Mr Marsden —I was involved in settling my IT costs, yes.

Senator LUNDY —At the time of the benchmarking, was that before or after the machinery of government changes that introduced NOIE and OGO, in particular, into your department?

Mr Marsden —We virtually went through that process twice: once was when the original RFT went out and again after the machinery of government changes. The second process went from late November through to early January and we did a re[hyphen]bid exercise.

Senator LUNDY —That was the delay in the contract?

Mr Marsden —That is correct. We all wanted to see what the nature of our departments would be so we stopped the process until after the machinery of government changes.

Senator LUNDY —In establishing a benchmark, did it incorporate all the machinery of government changes?

Mr Marsden —As best we could, bearing in mind the comment the secretary made that we were not familiar with some of the IT environments we inherited, such as NT. We had to do estimations and we called in auditors to have a look at our estimations and we made the best effort we could to get that right. As the secretary said, over time we found that our costs were going to increase anyway.

Senator LUNDY —Could you provide the committee with details of what the benchmark costs were for IT across the department?

Mr Marsden —Yes, I can provide that, but I do not have that with me.

Mr Stevens —I make the point again that we really were struggling with the environment in the first part of the year. I am more of a user than an IT expert. The combination of platforms meant that we had some real issues. I have to be honest and say that I am not sure that the benchmarking was very satisfactory, even at those stages. It was hard to know what sorts of problems we were having to grapple with because of the need to integrate various systems. It was not a simple exercise.

Senator LUNDY —I certainly appreciate that, Mr Stevens, but the concept of the benchmark within the Department of Finance and Administration's model is absolutely critical to underpinning the credibility of any ministerial claim for savings. It is a difficult situation. Whilst I appreciate what would be considered quite reasonable difficulties in establishing those benchmarks in the first place, that is more a reflection on the challenges that this program presents as a whole, rather than any deficiency on your part.

Mr Stevens —I guess we probably had even greater challenges than may have been the case in some departments which are on a more stable environment and platform.

Senator LUNDY —Were you able to provide a definitive benchmark figure for the department to the steering committee for the purposes of establishing a baseline benchmark cost for the whole of cluster 5?

Mr Marsden —Yes, we were, Senator. As the secretary said, it was our best effort at that time and was subject to external audit to make sure we had gone as close as we could.

Senator LUNDY —Could you also provide the details of that and the outcomes of that external audit to the committee?

Mr Marsden —Yes.

Senator LUNDY —This is one area where the Office of Asset Sales and Information Technology Outsourcing continually refer me back to the departments. Unfortunately, I do not have the opportunity to question the management committees of clusters. Can you take on notice a question on the whole of the benchmark figure for the group 5 or cluster 5 management—it would have been the steering committee—with the answer to be provided to this committee. I am not really sure how else I am supposed to get that information. Minister, do you have any clues on that? Do you think that, because these contracts are arranged in clusters, it would be possible to have an estimates style process that brought together all partners in a given cluster under the IT outsourcing?

Senator Alston —Do you mean a mega estimates?

Senator LUNDY —No, really just the officers involved—for example, Mr Marsden—who are part of the management committee, and perhaps the appropriate officer leading up the department so that we could ask them questions about the management and application of those clustered contracts.

Senator Alston —In one, rather than in a series of different estimates committees?

Senator LUNDY —Yes, because at the moment the challenge—and I am being straight[hyphen]up about this—is that asking this series of questions to every department involved in a given cluster is an impossible task logistically, particularly with your laboured points about time, given that it is now nearly 10 o'clock and I probably have about another half hour to go.

Senator Alston —I am happy to discuss it, particularly with Finance.

Senator LUNDY —Perhaps we could look to that in the additional estimates or supplementary estimates or whatever the next phase is, to bring together a special estimates session that would allow me to question each cluster on their IT contracts. Can I leave that with you?

Senator Alston —We will have a look at that.

Senator LUNDY —What is the process I should follow to pursue that?

Senator Alston —We will take that as a question on notice and advise you.

Senator LUNDY —Thank you. Mr Stevens, going back to the point you raised earlier about the service level agreements and functionality, putting aside now the issue of savings, I presume you have a target of savings. Is that target established on a monthly, a six[hyphen]monthly or an annual basis over the next five years?

Mr Stevens —Our concern at this point is to ensure that we get the best possible value from a contract. So we do not look at it on a monthly basis. These contracts need to be managed very carefully, and that has to be where our priority now lies, in the sense that, depending on how we use the contract, it can affect our costs. In that sense we have to have an interplay between management of a contract and the savings that we can accrue from that contract. The two are related, and there is indeed a need to very carefully manage the contract. We are putting in place a group to do that.

Senator LUNDY —If it is $10 million over five years, it is $2 million per annum. So 13 per cent of $2 million is $260,000?

Mr Stevens —Except that, in doing that, you are assuming that all the savings right across the various agencies are going to be the same and shared proportionately.

Senator LUNDY —Yes, I am assuming that. Is that far too simplistic?

Mr Marsden —Yes it is.

Senator LUNDY —Do you have a formula to calculate your proportion of savings?

Mr Marsden —That was done in the tender process but, again, I just want to check that with OASITO, as to how we present that information.

Senator LUNDY —How will those savings, your proportion of the $10 million, show up in your budget papers as the years go by?

Mr Stevens —I think it is going to be very hard to show that up in any of the budget papers that you see, because it does depend on how we manage the contract, and the IT costs are simply a cost that tends to be reflected in the various outputs we established. It is no different from legal costs or anything else. We do not report separately on the IT costs as such in our budget papers, any more than we report separately on legal costs or other corporate overheads.

Senator LUNDY —So we will not be able to identify a savings dividend as we have in the past with respect to IT in the out years?

Mr Stevens —I do not think in the past we have identified IT as a separate item in our budget papers.

Senator LUNDY —The program was first initiated in 1996. Didn't you say earlier that you had already paid a dividend?

Mr Marsden —That was the whole of government savings based on estimations done at that point in time.

Senator LUNDY —Can you remind me what you have paid in terms of IT savings to the department of finance since 1996?

Mr Stevens —We can take that on notice, I think. Again, it would be complicated by the administrative changes that took place, because these savings were done prior to those administrative changes.

Senator LUNDY —I appreciate that, and it is a question relating to historical circumstance. But the point is that, whereas the previous methodology allowed the savings to be identified in your budget statements, the IT outsourcing program, as it is currently structured, and as you are currently involved in it, will not.

Mr Marsden —It is very hard to give that sort of information over years, because the department grows and changes, so the nature of our costs changes with that.

Senator LUNDY —That is a very interesting point. Given that the minister has announced $10 million savings, you have taken great pains so far to make the point that in fact your emphasis, Mr Stevens, will be on functionality and on service levels.

Mr Stevens —No, I am not suggesting costs are not important. I think costs are very important.

Senator LUNDY —I know, but it is appropriate I think to draw the balance, as everyone does.

Mr Stevens —I am saying that service levels are also important for a department.

Senator LUNDY —I think that the minister himself identified three issues: one was savings; one was service quality, I think; and the other one was industry development, but I will come to that as well. In the current contract as it stands, what provisions exist for you to move with technological progression within your agency in terms of equipment replacement, software development, applications development, systems upgrading, network expansion and all that stuff?

Mr Marsden —In relation to software, from recollection, the contractor needs to keep us within one version of what is current in the market place.

Senator LUNDY —Needs to keep you within one version?

Mr Marsden —Of current software, so that we cannot fall too far behind. For instance, if we are using—

Senator LUNDY —I thought you were going to say that it is so that you cannot leap too far ahead into beta versions.

Mr Marsden —No.

Senator LUNDY —I am so disappointed. So you can be only one version behind the marketplace. That is pretty shabby, isn't it?

Mr Stevens —It is better than we had.

Senator LUNDY —I cannot see the minister wanting to use the old version of anything. He would not be able to talk to anyone.

Mr Marsden —The contract allows us, in the software section, to try to keep as current as we can. In relation to PCs, I believe it is a refresh at least every three years, but it depends again how the marketplace moves. You mentioned applications development. We do not have that in scope. They certainly maintain our hardware but they do not develop our applications.

Senator LUNDY —I could go off on four different tangents on the basis of your answer. Firstly, who is doing your applications development?

Mr Marsden —We have a very small number of applications, and we do that in house at this point in time. Occasionally, if we do not have the skills, we may bring in a contractor.

Senator LUNDY —Have you any intention to outsource that, given that the minister for finance has indicated applications development is now in for the purposes of the IT outsourcing program?

Mr Marsden —Predominantly, applications are from the shared systems—personnel systems, finance systems and that sort of thing. So, no, we do not see a need to outsource that.

Senator LUNDY —On the refresh every three years: when was your hardware last refreshed, or your PCs? I presume you are talking about desktops?

Mr Marsden —That is correct. We just did a major refresh from the period of March through to the end of April.

Senator LUNDY —Of this year?

Mr Marsden —Yes.

Senator LUNDY —So that was done through the contractor?

Mr Marsden —No, it was done through a leasing contract prior to the outsourcing contract coming into place, but that was flagged with all the bidders in our original RFT and also in the rebid process, and the bidders were comfortable with that process.

Senator LUNDY —I am sure that they would be. Did they get to acquire all your hardware as part of the terms of the contract?

Mr Marsden —They are leased. They novate the leasing contract to the outsource provider.

Senator LUNDY —They do not acquire it?

Mr Marsden —We do not own the hardware; we lease the desktops.

Senator LUNDY —Where do you lease them from?

Mr Marsden —A company called Corporate Acceptance.

Senator LUNDY —Who has the contract with Corporate Acceptance?

Mr Marsden —Initially, it was us, and when that went out to tender, we flagged with whoever was going to pick up that contract that we would novate it under the outsourcing arrangements. Advantra and Corporate Acceptance, I understand, are just going through the process of novating that contract at this moment.

Senator LUNDY —Of doing what to the contract?

Mr Marsden —Novating it. Basically, we transfer the contract from ourselves to Advantra, and the contract then is between Advantra and Corporate Acceptance.

Senator LUNDY —What did you do with your old hardware?

Mr Marsden —I think as part of the leasing contract we actually traded those in to Corporate Acceptance.

Senator LUNDY —Could you take on notice to provide the committee with the value of that lease and the transfer arrangements, and some details about the hardware? I am looking for even just a half[hyphen]page brief on what you have told me.

Mr Marsden —I think you think it is a block contract. What we do under the contract is issue an order for each block of PCs we want at that point in time, so it can change over time, but I think your question relates to the handover point, and I can give you that information.

Senator LUNDY —Yes, thank you. In terms of software upgrades, network changes, et cetera, the contract provides for a certain degree of change. What happens if the department for some reason decides to strategically manage it in a different way, or change strategy—beef up your online presence, et cetera—that has a fundamental impact on the current terms and conditions of the contract with Advantra?

Mr Marsden —Like all contracts, Advantra is covered in that contract. For instance, if we were making a significant change we would negotiate with Advantra. If we feel and Advantra feel that they are not in a position to provide that service, I believe we have the option to look for someone else to make that substantial change. Indeed, if we are looking for some sort of substantial change, that is your outlining.

Senator LUNDY —Could you just clarify? You would have to clear through the management committee—

Mr Marsden —Then with Advantra, and then negotiate that process.

Senator LUNDY —What happens if the management committee says, `No, get lost.'

Mr Marsden —Then I guess I rely on my negotiating skills with my colleagues, if I believe it is important to the organisation, to try and get that through. But I may not win all situations.

Senator LUNDY —So the strategic control of information technology is effectively in the hands of the determination of the management committee, and then you carry the can in terms of whether or not the department's position lives or dies. It is a very powerful position.

Mr Marsden —In simple terms you can summarise it like that, but in practical terms the management committee is fully aware of whether the government has policy agendas with IT, and will obviously work with those agendas, so I don't think I would be pushing all issues uphill. We would have to negotiate certain situations.

Senator LUNDY —Then following that clearance process with the management committee, can you describe how your negotiations with Advantra would be initiated and how they would be conducted?

Mr Marsden —Yes, Senator. Obviously, after we go through the management committee stage, we also have a small contracts office for all of group 5, which consists of two officers. We would actually then channel those negotiations through that contract office. Obviously the point of doing that is to keep a single point of contact as far as possible with Advantra on those issues, and we would go through that route.

Senator LUNDY —How proscriptive is your contract with Advantra?

Mr Marsden —In relation to what?

Senator LUNDY —Service level agreements.

Mr Marsden —It is fairly tight on service level agreements, and obviously there are also penalties for failure to meet those service levels.

Senator LUNDY —And in the negotiation phase of the contract or the development of the RFT and the subsequent negotiations with the successful tenderer to tie off loose ends, who represented your department in those negotiations?

Mr Marsden —There were a number of officers involved towards the end of that process. At some meetings it was myself, at other meetings an officer from an IT area and at other
meetings it was Colin Roberts, who is on my right[hyphen]hand side, as well. Who we sent along to those meetings was dependent on what issues we thought were going to arise and, on other matters, occasionally, if it was a financial thing, I may have called in a consultant to help me on certain issues where I wasn't sure.

Senator LUNDY —Who was your legal representation at those negotiations with Advantra?

Mr Marsden —That legal representation was provided by the office of asset sales. We did not have our own representative there.

Senator LUNDY —Who from OASITO provided that representation?

Mr Marsden —From memory, it was Cheryl Pitman. There were at least two main people from that company there. I cannot remember the names of the officers, Senator, but I can direct that question to OASITO if you are interested.

Senator LUNDY —So what was their role at those meetings? They are providing legal advice for OASITO during those negotiations?

Mr Marsden —Cheryl Pitman, from memory, was certainly providing legal advice and contractual negotiation advice. OASITO also engaged another law firm to provide independent legal advice to that as well.

Senator LUNDY —Independent legal advice.

Mr Marsden —Yes, back to the group that OASITO was managing at the time.

Senator LUNDY —Okay. In terms of the nature of the contract, the prescriptive approach obviously means that any variations would have to be formalised.

Mr Marsden —Of course.

Senator LUNDY —What opportunity is there for the department to remedy any breaches of the contract, including substandard delivery of service level agreements?

Mr Marsden —With service levels, clearly that is covered by the service levels agreed in the contract. Where they fall below, we can impose penalties. I cannot imagine other things arising but, if they do arise, then clearly we rely on the law of contract to take that up with Advantra.

Senator LUNDY —Sorry. Say that again?

Mr Marsden —We would use contract law, Senator. If it falls outside service levels—

Senator LUNDY —So you would have to enter into litigation?

Mr Marsden —We would hope to avoid that. Like all contracts, you try to negotiate between parties to come to an acceptable outcome.

Senator LUNDY —Sure.

Mr Marsden —That would be very much a last resort.

Senator LUNDY —Yes, I would hope so. The point I am trying to get at, though, is that if you have a prescriptive contract in the IT field—and the minister would vouch for this 100 per cent, how dynamic and rapidly changing IT is—the potential for variations of the contract to be required I would expect are reasonably high. Now I know that is a big assumption, but I would think that it is a reasonable one. What position are you in to negotiate variations if Advantra say, `No. Get lost. We have got the contract. We don't want to vary it. We are happy with it. We are making lots of money'?

Mr Marsden —The main area of prescriptiveness in the contract is with the service levels. Those service levels are based on the environments that we have and are moving to, so that is prescriptive. If we move from that, then we move away from that prescription to some degree and we renegotiate the position. Like all contracts, if the contractor is not prepared to move with you and have those negotiation clauses in the contract, like you do in all contracts, then we would obviously look at some other arrangement. But, clearly, that sort of situation wouldn't arise.

Senator LUNDY —It is a little hypothetical, I realise that, but I do think it is important in the context. In terms of opportunities to remedy breaches, what formal sanctions are available to you with respect to the cluster 3 contract and what power do you have to impose them within the context of the management committee and the overall contract? That is, can you impose a sanction, or what would the process be to impose a sanction, and how would you do that within the broader cluster?

Mr Marsden —Yes, there are certain penalties, particularly for service levels, but I would like to take that on notice, mainly because I would like to check with the office of asset sales. Again, I don't want to upset any competitive position the Commonwealth may also have in the marketplace negotiating these contracts whilst the outsourcing process is still continuing.

Senator LUNDY —You talk about this outsourcing process still continuing. Does that mean there are some aspects of this cluster 5 contract that are still not tied up?

Mr Marsden —No, I am referring to other groups. I believe there are other groups still in the process.

Senator LUNDY —Sure. The minister has made sure it has dragged out well beyond his original timetable. I expect it will go on for some time if he is allowed to persist. Are you saying that you cannot talk about those things just because Advantra is tied up in negotiating other contracts?

Mr Marsden —For that reason—

Senator LUNDY —Sorry, I don't understand why that actually constitutes a reason why you can't talk about what is currently locked up, finalised—a contract in place that affects you. You shouldn't be worried about what Advantra are doing with anyone else.

Mr Marsden —Senator, the Commonwealth, like any other player in the marketplace, respects the suppliers. I do not want to do anything at this stage to upset their competitive advantage, nor do I want to do anything that would upset the Commonwealth's competitive advantage in this continuing process in other groups. I am, however, happy to take that on notice, and what I can provide, I will certainly provide.

Senator LUNDY —Thank you. Are Advantra insisting on any confidentiality clauses of the nature that you have been traversing?

Mr Marsden —No, just the normal commercial[hyphen]in[hyphen]confidence, that is all.

Senator LUNDY —The service level agreements and functionality within the contract would, I presume, define specific services like answering a phone call within a certain amount of time—that type of thing. What is your quality assurance process for the maintenance of those service level agreements?

Mr Marsden —We are still in the transition phase and we are still developing some of those with consultants. We are also—

Senator LUNDY —Who are the consultants?

Mr Marsden —We are using KPMG to assist us in developing models to monitor this. We are also insisting on certain levels of reporting from Advantra as well. Some of those are still being settled within the transition phase that is going on right now. I am not in a position to provide it to you yet.

Senator LUNDY —Presuming you put in place a quality assurance system for service level agreements, how will that information be documented? Will it be available for scrutiny by parliament through either this process or as part of the annual report?

Mr Marsden —Because it is just an internal working document, I assume it can become available. We will make it available when we have that ready and the contract is in place.

Senator LUNDY —Can you take that question on notice—when is it available?—and also provide details of your quality assurance scheme applying to service level agreements and any data arising from the collation of that material.

Mr Marsden —Certainly. Just so that you do not expect that in the next few weeks: we do not actually hand over until 1 July, and it would be some time after that point.

Senator LUNDY —I would hope to see it as soon as possible after that point. On a more general question, were you given an option as an agency to do your IT in house?

Mr Marsden —Basically—and some of this is before I took it over—my understanding is that all agencies were asked to do their cost models to see where they sat and then we tested the marketplace.

Senator LUNDY —After you set your benchmark?

Mr Marsden —Yes, then we tested the marketplace and, if there was a business case for the government as a whole or a group, then we moved ahead and outsourced.

Senator LUNDY —When you market tested, you did it on the benchmarks before the machinery of government changes, I presume? In terms of timing?

Mr Marsden —Yes, in the initial bidding process.

Senator LUNDY —What was your process for market testing? Or was that handled by OASITO?

Mr Marsden —It was essentially handled by OASITO.

Senator LUNDY —In terms of your previous IT management, could you tell me how that was managed? Was it, for example, a combination of some contractors and in house or predominantly in house?

Mr Marsden —Predominantly in house, with some user contractors—such as, our voice was already outsourced.

Senator LUNDY —How many direct employees involved in IT management that were with you are now not—that is, how many jobs were lost to the department? I will ask the next question, about transfers, in a minute.

Mr Marsden —On 30 June this year, seven employees will finish as a—

Senator LUNDY —All seven?

Mr Marsden —No, seven employees will finish. We actually have an area of about 15 at this time.

Senator LUNDY —You lost approximately half. Were they given transfer options with the outsourcer?

Mr Marsden —Yes. The outsourcer advertised and invited all Commonwealth employees—it was not so much a transfer option—to actually apply for positions.

Senator LUNDY —That is not a transfer.

Mr Marsden —No, it is not a transfer. We offered transfers to our own people in house if we could find suitable positions for them. So there was a process done in house as well, and to my knowledge all the staff are comfortable with the outcome.

Senator LUNDY —They are happy with the outcome?

Mr Marsden —Yes, Senator. Very happy, I am told.

Senator LUNDY —Okay. Were any of them employed by the vendor?

Mr Marsden —That has not been announced yet by the vendor.

Senator LUNDY —Okay; but you are sure they are all very happy?

Mr Stevens —That is what they tell us, Senator.

Senator LUNDY —I will wait with interest. Can you take it on notice to provide me with details of the outcomes of all of the former employees?

Mr Stevens —That is a bit hard for us because it is not in our gift. This is a private sector decision by Advantra as to whom they employ. I am not sure they will want to give us details of their employment policies. Once these officers have left the department, as far as we are concerned that is it.

Senator LUNDY —Yes, fair point; it is more out of human interest than anything else.

Mr Stevens —Yes, I understand the point; but I am saying it is not that simple for us to do.

Senator LUNDY —With respect to year 2000 compliance, my understanding is the liability cannot be transferred, but is the responsibility for Y2K compliance within the scope of the contract with Advantra?

Mr Marsden —Yes, it is.

Senator LUNDY —To what degree did the turnover—the refresh of hardware prior to the contract being implemented—in fact address any issues relating to Y2K compliance?

Mr Marsden —In relation to our software, it fully addressed our compliance. We were actually on Word 6 at the time, and we have moved straight to 98 across the department.

Senator LUNDY —Am I making a reasonable assumption to say that that refresh prior to the contract being implemented effectively resolved Y2K issues for the department?

Mr Stevens —It went a fair way towards doing it, but there are some other issues we had to look at independently of the PCs and software.

Senator LUNDY —Given the department had, I think, the most appalling record in terms of the report—

Mr Stevens —I do not think we accept that, Senator.

Senator LUNDY —Then it was one of the worst outcomes. Perhaps you could provide me with an update as to the level of Y2K compliance in the department?

Mr Stevens —I am very pleased to do that, because it is actually quite a good story now.

Senator LUNDY —Ah; you have something good to say about it.

Mr Stevens —Yes, we have actually.

Mr Marsden —We are 92 per cent back on line and compliant now.

Senator LUNDY —Was that great leap in compliance as a result of the hardware and software refresh in March and April?

Mr Marsden —A large degree of that was, Senator, and part of the reason why we had originally delayed was that we were waiting for the machinery of government changes to settle down before we pursued the PC leasing contract. So there was just a delay for that reason only.

Senator LUNDY —Do you expect that the remaining 8 per cent of compliance will be fulfilled?

Mr Marsden —Yes, we do. There are only a couple of areas where we are behind. That is relating to insurance and certain things in the building, that is all; it is not our IT environment as such.

Senator LUNDY —Are you on track to meet the 1 July deadline?

Mr Stevens —We believe we are, yes.

Senator LUNDY —Well, I will watch with interest. Does that include having in place contingency plans on potential failures?

Mr Marsden —Yes, we are just over 75 per cent complete on contingency plans at the moment. We will have those finished very shortly. I beg your pardon, we are 85 per cent complete on those contingency plans.

Senator LUNDY —With the ongoing contract with Advantra extending over five years, what exit clause opportunities exist for the department and how have the department's interests been protected in case the potential failures of that contract do not emanate from your department, necessarily, but from other major partners or agencies in the cluster 3 contract?

Mr Marsden —It is a difficult question to answer, because I cannot envisage any of the other group 5 agencies doing something to adversely affect the contract to that extent.

Senator LUNDY —Or Advantra doing something adversely?

Mr Marsden —At this point in time I cannot envisage that either. Remember, we are still in a transition phase.

Senator LUNDY —One of the issues with Advantra was that they had no previous experience with respect to information technology outsourcing. What is your department's view on their capabilities generally?

Mr Marsden —If I could correct that misunderstanding: that statement would certainly be correct regarding a large contract with the Commonwealth, but they have very large contracts in the private sector.

Senator LUNDY —Advantra do?

Mr Marsden —Yes.

Senator LUNDY —In information technology?

Mr Marsden —With the Colonial Bank and Shell, from memory.

Mr Stevens —Yes, in information technology.

Senator LUNDY —Can you describe the nature of those contracts?

Mr Stevens —Again, I think you are getting into detail we do not really have.

Senator LUNDY —I think it goes to a question of capability.

Mr Stevens —We can give you the information we have. We are very confident about their technical capabilities. We have no reservations.

Mr Marsden —I will take that on notice.

Senator LUNDY —Thank you. I have a few more general questions about the contract. Mr Stevens, I presume you are aware of the ownership structure of Advantra?

Mr Stevens —I think so.

Senator LUNDY —Fifty per cent Telstra, 30 per cent IBM and 20 per cent Lend Lease. Are you aware of the membership of the board of Advantra?

Mr Stevens —I think I may know some of them, but I probably could not recite the names to you now, I am afraid.

Senator LUNDY —My understanding is that Ziggy Switkowski is a member of the Advantra board.

Mr Stevens —That would not surprise me at all, because I know there are Telstra representatives on it.

Senator LUNDY —And Lindsay Ellard.

Mr Stevens —That sounds right but, again, I am not an expert on their board.

Senator LUNDY —And one other. I cannot remember who the other person is. Maybe it was Gerry Moriarty.

Mr Stevens —I think there are some people from IBM on the board as well.

Senator LUNDY —Bob Savage from IBM. Is he the chair?

Mr Stevens —No, Bob is the CEO of IBM Australia.

Senator LUNDY —I know, but is he the chair of the Advantra board?

Mr Stevens —I am not sure. I would be happy to try to find the information and give it to you.

Senator LUNDY —The question I have is this: we know from previous estimates that the department, through its IT policy section, was implicitly involved in determining the industry development components through what constituted a two[hyphen]envelope style process in the deliberations by the Department of Finance and Administration on the awarding of this contract. We also know that the department is engaged in a continual, almost ongoing, relationship with Telstra with respect to the government's privatisation agenda.

What specific provisions do you have in place in the department to ensure that there is no conflict of interest with respect to the consideration of the ID components of this particular contract and the ongoing management of the Advantra contract, given that obviously you have the same people on the Advantra board as you deal with on an extremely regular basis on matters of great political sensitivity.

Mr Stevens —The people involved in the ongoing monitoring of industry development are quite separate from the people who would deal with Telstra as a telecommunications carrier.

Senator LUNDY —Have you had this issue audited by an independent probity auditor? Have your arrangements been audited for probity?

Mr Stevens —There are probity auditors for the ID side of it.

Senator LUNDY —I appreciate that, but I am talking about the broader issue of the department handling, at the same time, sensitive negotiations with Advantra while Telstra is
continually being touted as being the major player in Advantra. They have just won your IT contract, and you deal with them on a vast range of policy matters.

Mr Marsden —There is a probity auditor on that whole group 5 process to look at those sorts of issues, and that probity auditor was engaged by the Office of Asset Sales to look at that issue, amongst others.

Senator LUNDY —I look forward to asking Telstra some questions in this regard. Is the minister available, because I would not mind asking him some questions about this? Telstra have espoused continually their desire to expand into information services markets. In fact, in their latest annual report, they have explicitly identified contracts in the IT services area—or in information services, as I believe they describe it—as being something they hope to expand their operations in. Then we find that Telstra has secured this particular group 5 contract under what I could only describe at the time as controversial circumstances for a range of reasons.

Mr Stevens —I think Mr Marsden has already gone through the probity auditors with regard to the letting of the cluster 5 contract. I don't think they found any problems in the processes that were undertaken with regard to that contract.

Senator LUNDY —They were looking at it from the perspective of the office of asset sales. What I am looking for are some guarantees within your department, given your management of Telstra privatisation and the involvement of Telstra executives directly on the board.

Mr Stevens —There were absolutely no people involved in the outsourcing assessment process who were involved in any of those issues with regard to the Telstra privatisation. They were quite separate issues. We had a limited number of people involved in the contract negotiations as part of the OASITO thing. Mr Marsden was our lead officer. Mr Marsden is in our corporate area. He does not involve himself with Telstra on a day[hyphen]to[hyphen]day basis at all. It was very much an arms[hyphen]length transaction. I was not aware, for example, of the process of the negotiation with cluster 5. We made sure there was no involvement.

Senator LUNDY —If you could take on notice to provide in writing an explanation of how you managed that process of the officers' involvement.

Mr Stevens —I am happy to do that.

Senator LUNDY —And also whether or not any correspondence was received by the department from Advantra, the partners of Advantra or the board of Advantra.

Mr Stevens —About the contract?

Senator LUNDY —About the contract.

Mr Stevens —I am not aware of any correspondence about the contract. I will have a look at it, but I am not aware of any.

Senator LUNDY —Minister, thank you for gracing us with your presence. I have just been asking some questions with respect to the potential of a conflict of interest existing between the awarding of the Advantra contract with respect to your department and the board of management of that particular organisation, or company, and the ongoing involvement on a range of pretty weighty policy issues. Mr Stevens has kindly offered to provide me with a full explanation of what your in[hyphen]house probity measures are to ensure that there is no crossover. Were you aware of Telstra's stated aim, or expressed aim, to involve themselves more comprehensively in information services work, in that direction?

Senator Alston —At the time of what?

Senator LUNDY —I am just reflecting on Telstra's previous annual report, where they make several references to wanting to develop Telstra's expertise in a range of information services areas.

Senator Alston —Yes, I think they have made some fairly grand statements about wanting to become a full services IT company. Clearly, that is the way technology is taking all telcos: you cannot just be a voice operator; you cannot stick to traditional services. I think all they are saying is that they are interested in expanding their horizons.

Senator LUNDY —I have a related question, Minister. The importance of a Commonwealth contract to a given company in information services is considered to be, certainly based on the evidence of several Australian SMEs who have sought to involve themselves in the IT outsourcing program, a critical credential, particularly when positioning oneself in the global marketplace. Has the importance of that ever been expressed to you by Telstra?

Senator Alston —That Telstra would like to get outsourcing contracts?

Senator LUNDY —Yes.

Senator Alston —I do not think I have ever had a discussion with them about that, no.

Senator LUNDY —Have you ever had a discussion with any Telstra executive about the outsourcing contract?

Senator Alston —No, I do not think so.

Senator LUNDY —I presumed you would say that.

Senator Alston —I would be more inclined to say it if it were true. I do not think it is something that has ever occurred for me to raise, and I do not particularly see why they would be wanting to share their strategies with the minister. I am sure, if they need permission for something, they might foreshadow new approaches, but beyond that I would have thought they would not see any need to let me in on board or senior management thought processes.

Senator LUNDY —Have you done an analysis of the impact of the GST on the value of this contract and its operation?

Mr Stevens —No.

Senator LUNDY —Do you intend to?

Mr Stevens —I am told that once the legislation is passed we will have a look at it.

Senator LUNDY —You have just signed a contract worth around $100 million—part thereof—

Mr Stevens —OASITO may have done that. Are you asking has the department itself done that analysis?

Senator LUNDY —No, you are quite right. The Department of Finance and Administration has signed the contract which has locked you in for five years. Let me refer to a news report which I think sums up the concerns regarding the impact of the GST, particularly given its impact on software products which were previously untaxed. Do you expect that this may have the potential to eat into your savings estimates?

Mr Stevens —That is something that we would have to have a look at.

Senator LUNDY —Okay. But you will be having a look at it?

Mr Stevens —I am sure we will. If it has the potential to eat into our savings estimates, we will have a look at it.

Senator LUNDY —Do you think that potential variations to the contract will have the potential to eat into your savings?

Mr Stevens —We are not expecting that, no. As I said at the start, from the point of view of our savings, the important thing is how we manage the contract.

Senator LUNDY —Provided that the contract stays within its current framework—that everyone has no later than the last version in front of them in terms of software, and hardware is turned over every three years—you will not need to renegotiate any aspect?

Mr Marsden —No. If all things stay equal, I would not expect to.

Senator LUNDY —Do you think those terms and conditions will serve the needs of the department for the next five years?

Mr Stevens —Many of those terms and conditions go to speed of response and all of that. I believe they will be consistent over the five[hyphen]year period. They are, in a sense, technology neutral. Help desk response times, service availability and all of that are generic issues which are always relevant. Frankly, from our perspective, they are the important issues.

Senator LUNDY —I appreciate that. I guess what I am trying to find out is whether or not the contract actually introduces some technological stagnation within the department over the five[hyphen]year period.

Mr Marsden —No, it does not. As I said at the outset, the contract allows us to present our strategic plan and to negotiate the implementation of that with Advantra and obviously also with the other Group 5 management committee members if it impacts on them. It is fairly open in that sense.

Senator LUNDY —But those changes would require variations, would they not?

Mr Marsden —Depending on the nature of the changes. I would be guessing at this stage.

Senator LUNDY —And the variations can potentially cost money?

Mr Stevens —There are a range of issues in the contract that can cost money depending on how it is done. However, we are very comfortable with the contract.

Senator LUNDY —I will watch with interest as to how it develops. I am ready to move on to output 1.1.

CHAIR —We are going to do the National Gallery first, because they have a commitment around 11.30 a.m.

Senator LUNDY —I have some questions about the Nugent inquiry. Would they be general or in output 1.1?

CHAIR —We could ask for Mr Steven's guidance on that.

Mr Stevens —I think we would be happy to take them under—

Senator LUNDY —Particularly in relation to the GST.

Mr Stevens —It may be best to take them under the Australia Council. We would have officers here who can do that at the same time.

Senator LUNDY —Okay. We might do it in 1.1.

CHAIR —I will call the National Gallery, in that case.

[10.41 a.m.]