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Employment, Education and Training Legislation Committee
Program 4—Employment
Subprogram 4.1—Employment services

Mr Sedgwick —When would you like to address questions to Employment National so that they know when to come to the table?

Senator MACKAY —It will be sporadic. Employment National do not have to sit here all the time listening to me rave on. When I have a question for them, they can come to the table and then they can go back. Let us kick off with the news of today. There was a report in the papers this morning that a quarter of job agencies will go under, as predicted by Job Futures. Do you believe that is correct, Mr Campbell?

Mr Campbell —I have not seen the newspaper article to which you are referring. If it is a prediction by an individual, I would suspect that is all the credibility or credence you would give it. Certainly, we do not have a view that 25 per cent of Job Network members will `go under', I think was your term.

Senator MACKAY —Perhaps I could just help you out here. Paul Fitzgerald, Chief Executive Officer of Job Futures—as you know, a national network of 30 community based agencies—said that many of the 301 Job Network members were finding it difficult to make ends meet after seven weeks. He goes on to say that he thinks 25 per cent will go broke within 12 months because the contracts are not sustainable. He also talks about Centrelink referrals, which I will deal with in a second. Have you had any feedback from agencies?

Mr Campbell —No, I have not had any feedback. I am not aware of any coming to the department about that line. I will just repeat that that seems to me to be the view of an individual. I would also point out that the market has not been going for seven weeks, which is one of the quotes that you mentioned in the newspaper article. It has not been that long.

Senator MACKAY —Do you think that the new job agencies are currently doing too little to attract clients and this may be the problem?

Mr Campbell —I am not sure what you mean by do I think that they are `currently doing too little'.

Senator MACKAY —In that they currently have to work to draw unemployed clients in order to be viable?

Mr Campbell —As we have said a number of times, the contractual arrangements, which Job Network members have in large measure, for their payments—not totally—are derived from them placing people into work. You can probably draw from that that they need to have several things to be successful: they need to have job seekers and they need to have vacancies from employers.

Senator MACKAY —Dr Kemp thinks they are doing too little to attract clients.

Senator Ellison —Is that a question?

Senator MACKAY —No, that is a statement. I will move to the next question. There have been a number of complaints about Centrelink referrals. Can somebody give me an update on that? What is the story with Centrelink referrals currently?

Mr Rowling —The story is that they are on track to make the number of referrals that they have been asked to make by 30 June. They were asked to make 95,000 in the first month and 30,000 in the second month. They are currently at 96,000 referrals and, on our projections and current progress, will hit 125,000 referrals by 30 June.

Senator MACKAY —Have you had any complaints from any of the agencies about the rate of referral from Centrelink?

Mr Rowling —Not directly, no.

Senator MACKAY —Are you aware of any complaints from the agencies with regard to referral from Centrelink?

Mr Rowling —I have read in the press that some have expressed concern about the rates of referrals. The rates of referrals are on track.

Senator MACKAY —Are you saying that the information that I am referring to, and that you are aware of, has no basis and is not correct?

Mr Rowling —I think some providers may have expected to achieve full capacity virtually overnight. It was never our expectation that that would occur. There is a significant element of choice involved in this process. If the job seeker is not choosing to go to a provider, then they are not going to get as many as they might have expected.

Senator MACKAY —Let us look at a specific example that was the Australian of today. Employment United have indicated that they won a contract to help up to 120 people per month but that Centrelink has so far only referred 12 job seekers. What has happened with that circumstance?

Mr Rowling —Their job contract, as I understand it, is for job search assistance and not for intensive assistance.

Senator MACKAY —So they are contracted for FLEX 1?

Mr Rowling —FLEX 2.

Senator MACKAY —Have they only got FLEX 2?

Mr Rowling —That is my information.

Senator MACKAY —Why have so few job seekers actually been referred to them, 12 in the first four weeks?

Mr Rowling —I really do not know. When we look at the rate of referrals for FLEX 2 they have been very high. Certainly, the national rate of referral is running at 70 per cent of the total target and many areas are already at 100 per cent.

Senator MACKAY —Okay. How does the system work so that, essentially, some job seekers get referred to some agencies? You are saying that perhaps the agencies are experiencing that shortfall because the job seekers themselves do not choose to be referred to that particular agency.

Mr Rowling —That is right.

Senator MACKAY —How does that fit in a planning sense? You have got agencies who have been contracted to provide X amount of FLEX. How are they supposed to budget when they have no idea how many people are going to be referred to them by Centrelink?

Mr Rowling —They have an idea of the numbers that they will eventually obtain.

Senator MACKAY —How do they know that?

Mr Rowling —They know what the contracted capacity is.

Senator MACKAY —Yes, but are you saying that they will get their full contracted capacity eventually from Centrelink?

Mr Rowling —Eventually, over time.

Senator MACKAY —Over what period of time?

Mr Sedgwick —Hang on. We never guaranteed a level to anybody. The contracted capacity is a maximum level of business which they can do at any given time. The actual amount of business that they do will depend on the choices that are made by job seekers. It gets down to their capacity to be able to encourage or otherwise attract job seekers for FLEX 1 and FLEX 3.

Senator MACKAY —Okay, so they are contracted to provide X amount of individual agencies and X amount of FLEX 1, FLEX 2 or FLEX 3, or whatever, and they are dependent upon the referral from Centrelink. How are they supposed to plan their businesses, if they do not know how many people are going to get referred to them?

Mr Sedgwick —Like most businesses that do not have a guaranteed revenue flow. They will need to manage, using their own best judgment of their capacity to succeed in the market. I presume that that was the basis on which they tendered, because the RFT was quite clear.

Senator MACKAY —The basis on which they tendered was on the basis of a mix of FLEX.

Mr Sedgwick —The tender documentation was quite clear that the FLEX would be assessed separately.

Senator MACKAY —But they were required to tender for a mix of FLEX.

Mr Sedgwick —They were required to provide FLEX 1 if they won either FLEX 2 or FLEX 3 business.

Senator MACKAY —Were they required to tender for FLEX 3?

Mr Sedgwick —No, they could choose to tender for what they wanted to tender for.

Senator MACKAY —So it was made quite explicit to them that they were not required to tender for FLEX 3?

Mr Sedgwick —As I recall it.

Mr Campbell —Yes. Indeed, a number of organisations tendered for FLEX 1 and/or FLEX 2 that did not tender for FLEX 3.

Senator MACKAY —I have a question on notice for that and I will get to that in a moment. Mr Sedgwick, this is very interesting in that agencies have been allocated an amount of FLEX—be it FLEX 1, 2, 3 or whatever, and I am going to continue to use FLEX because it is easier and everybody knows what we are talking about—but there is no guarantee that they will get that level of business with regard to referral from Centrelink.

Mr Sedgwick —What we have said is that there will be a certain volume of referrals in respect of FLEX 1, 2 and 3.

Senator MACKAY —Right. In the aggregate?

Mr Sedgwick —In the aggregate, in a region. The share that any individual provider obtains of that business will depend on their capacity to be able to attract job seekers and employers. That is the basis on which the tender is being let.

Senator MACKAY —So even though they have won X amount of FLEX, in whatever guise, there is absolutely no guarantee that they will actually get those numbers of job seekers referred to them?

Mr Sedgwick —Job seekers referred are those who choose to be referred to that agency, that provider.

Senator MACKAY —What monitoring is the department doing with regard to this?

Mr Sedgwick —In what sense?

Senator MACKAY —On the basis that some job agencies are clearly not able to cope, because they are not having job seekers referred to them. They had an expectation because they got X amount of FLEX that they would get those referrals from Centrelink. So what monitoring are you doing to ensure that they do not go under, that their cashflow situation is sound and so on?

Mr Sedgwick —We did not undertake to manage anybody's business for them. We have provided the capacity for an individual provider to provide information at the local Centrelink office about the kinds of services that they are able to provide in the market. We are managing a national vacancy database and recording that information on the touch screens. That allows any job seeker who goes into any Centrelink office to look up and find out the kinds of jobs available and which providers have them. When somebody is assessed as being eligible for, say, FLEX 3—because it is easier—they are given the list of providers in their local area and they have a period of time in which to choose. After that, it is job seeker choice.

Senator MACKAY —Right. But the question is: what monitoring is the department doing in terms of the referrals from Centrelink to individual job agencies?

Mr Sedgwick —Centrelink is identifying somebody who is eligible to be referred.

Senator MACKAY —Right.

Mr Sedgwick —The individual makes a choice.

Senator MACKAY —Yes, I understand that.

Mr Sedgwick —And we know the total number of choices that are being made all the time. When that individual presents to a provider and an activity agreement is entered into—in the case of FLEX 3—we are aware of the fact that that provider now has a caseload of yesterday's caseload plus one. So our system allows us to know the caseload and that, in turn, is information which is available to Centrelink to be used at an appropriate point by them to know whether providers still have contracted capacity left. If a provider's books are full, that provider would be taken off the list that is made available to a job seeker when they come in until such time as they have dropped down and there is a vacancy. So the contracted business level is a maximum and, up until that point, Centrelink will allow an individual to exercise their choice and go to the provider whom they select.

Senator MACKAY —So Centrelink does know how many job seekers have been referred under the respective FLEXs to various job agencies?

Mr Sedgwick —Yes. That information is available to each office for their own planning purposes so they know whether or not they need to send more or less.

Senator MACKAY —Well, what is happening? Are there areas of shortfall?

Mr Sedgwick —In what sense?

Senator MACKAY —In terms of referrals?

Mr Sedgwick —The level of referrals from Centrelink has just passed the 95,000—

Senator MACKAY —No. My question is this: in the areas of shortfall in terms of referrals—appreciating the aspect of job seeker choice here—are there any agencies that have a shortfall with regard to referrals based on what they were contracted to provide?

Mr Sedgwick —The likelihood that any provider would be operating at their maximum at the moment is extremely low.

Senator MACKAY —Okay, but what I am asking is: how many job agencies are actually acting under what they would have thought in terms of being on track?

Mr Sedgwick —It is a bit difficult to know what they thought in terms of being—

Mr Campbell —Senator, perhaps I could add one point here. We had said through the tender process that the referrals will build up. There was never ever any intention or any statement that we would move to 100 per cent of referrals in the market in the first month. It would always take some months to do that, as it did under case management with ESRA. It was never the case that we envisaged getting to the maximum number of referrals, that is, the 230,000 or thereabouts that Mr Pratt mentioned earlier about contracted capacity, in the first month of the market. It was never intended.

Senator MACKAY —Are there any businesses that are in danger?

Mr Campbell —This goes back to your first question to me about Job Futures comments. With the exception of one provider, I am not aware of any provider who is indicating that they have a difficulty in business. I am aware of one provider—and I will not mention the name—and my understanding is, from advice from our state office, that they are having difficulty not with referrals from us but because of a cash source from another arm of government. It is not to do with our referrals. It is to do with the fact that they run a mixed business and they have an issue with regard to another funding agency. I would much rather not mention the name of that organisation as it might prejudice them. However, that is the only one I am aware of where I have been informed that there might be a funding issue, and it is not to do with referrals, as I said.

Senator MACKAY —So there has been no feedback to the department that the rate of referrals to individual agencies is slower than they would have anticipated?

Mr Campbell —That is not the question you asked me, Senator.

Senator MACKAY —Okay, I am now asking you that question.

Mr Campbell —As Mr Rowling mentioned, there has been feedback to us that providers would like to have more referrals. But, as Mr Sedgwick said a few moments ago, they had to set their own planning and at no point in time did we ever lead providers to believe that we would have them anywhere near maximum in the first couple of months of the market.

Senator MACKAY —How many have complained?

Mr Campbell —I do not know how you define a complaint in this circumstance. I have seen some newspaper articles. It is possible that a number of providers have spoken to their local Centrelink manager, which I would think to be quite a normal issue. Some will have spoken to our state offices. I do not know how you could actually count how many have complained.

Senator MACKAY —There must be a mechanism. I go back to my first point where there is clearly a mechanism for monitoring.

Mr Campbell —I suppose it goes to the question of what is a complaint. I know there are cases where providers, when they are not getting the number of referrals they would like, make their first port of call the local Centrelink regional office. We would not necessarily find out about that. The Centrelink office manager may well say, `Nobody's choosing you. Maybe the reason they're not choosing you is that they find there are other people around they know better, or perhaps you don't have any promotional pamphlets.' There are lots of reasons and causes, but there is no way we could count the number of times a provider might have rung a Centrelink office or a state office and raised a number of issues, including the question of referrals.

Senator Ellison —While we are talking about Job Network providers and what they are doing to attract job seekers, Senator Mackay said that the minister, Dr Kemp, had said that they were not doing enough to attract job seekers. The quote that I have here is in fact from a spokesman for Dr Kemp and that quote is:

It is up to the Job Network members to market and promote themselves so that the unemployed person chooses to use their services.

I think that is what was said; I just want to put the record right.

Senator MACKAY —Can I just read into the Hansard my quote. It is Dr Kemp speaking on 3AW this morning, and he said:

. . . some of the new agencies, not realising that they have to get out there and actually persuade unemployed people to come to them.

That is from the 3AW transcript.

Senator Ellison —That is different from saying that Job Network providers are not doing enough. Put that down correctly.

Senator MACKAY —The federal employment minister, Dr David Kemp, is quoted as saying today:

The new job agencies that replace the Commonwealth Employment Service were doing too little to attract clients.

I really do not want to argue about it. That is fine; we have both got our positions on it. We know that Centrelink does assessments with regard to referrals. We know that there have been some complaints, but we do not know how many. Can we find out how many referrals there have been from Centrelink to various job agencies?

Mr Campbell —Both we and Centrelink are aware of the number of referrals to agencies.

Senator MACKAY —Can that be provided to the committee?

Mr Campbell —I would have to take that on notice and seek legal advice as to whether or not the terms of the contract between us and the provider enable us to make that public.

Senator MACKAY —All I am really after is referrals. I am not after any commercial[hyphen]in[hyphen]confidence information.

Mr Campbell —I understand the question but, given that the contract is quite a comprehensive document, I would like to just have that cabled and seek legal advice.

Senator MACKAY —Would you be able to advise me at some point during these estimates as to the result of your inquiries?

Mr Campbell —I will do what I can.

Senator MACKAY —Can we get the Centrelink referral figures broken down by FLEX? That should not be a problem.

Mr Campbell —No. I think Mr Rowling can give you straight away the referrals for FLEX. He has already given you referrals for FLEX 3, which is 96,000 and FLEX 2 is—

Mr Rowling —FLEX 2 is 7,200.

Mr Campbell —With regard to FLEX 3, referrals in the sense of FLEX 2 and FLEX 3 do not apply. Job seekers can go to any FLEX 1 provider and they can have their records linked on the computer with up to five providers. So it is not the same thing as referrals. There is a large degree of self[hyphen]help there for the job seeker to choose how many FLEX providers they
go to. They may at various times be dealing with two or three providers and then actually go to another one or add another one to the list of people they are dealing with.

Senator MACKAY —Please do your best on FLEX 1. FLEX 3 should be pretty easy.

Mr Campbell —We can tell you the number of people who are eligible. We will see what we can do with that breakdown.

Senator MACKAY —Breakdown by region is what I am after, between nine regions.

Mr Campbell —For FLEX 2 and FLEX 3?

Senator MACKAY —Yes. We will deal with this a bit more later on. There were significant start[hyphen]up problems with regard to the new job network. I understand that the sound system failed—the video machine played up and there was quite a deal of bad publicity initially. Can I assume that all those aspects have been fixed—for example, the computer system, et cetera?

Mr Campbell —Before we go to the computer system, I think the article you are referring to refers to the launch on 1 May at the Salvation Army site in Melbourne. The article—if it is the one I think you are referring to, which is on page 1 of the Canberra Times on 2 May—exaggerated the set[hyphen]up. For example, the Salvation Army advertising video took about 40 or 45 seconds to work. I was actually at the launch; I think the article was something of a beat[hyphen]up.

Senator MACKAY —And presumably the Weekend Australian article was as well.

Mr Sedgwick —I was just going to talk about the IT.

Senator MACKAY —I was just going to say there were two articles; there was the Canberra Times article and there was the Weekend Australian article. Okay, what is happening with IT?

Mr Sedgwick —I wrote to the Canberra Times after that article appeared. I was slightly annoyed. The fact is that the DEETYA computer system worked fine on 1 May. It processed over 800,000 transactions. It had been working fine since the preceding Monday, from recollection, when it was available for training purposes. There was a big data upgrade over the weekend and it did not miss a beat, and it kept going quite nicely each day thereafter. The system that underpins this is known as the integrated employment system, or IES, and if we fall into the lingo please excuse us. The IES is a very large computer application. These things are never flawless but it was introduced just about as flawlessly as you can get. The DEETYA mainframe worked perfectly fine to support the network from day one.

Senator MACKAY —So the allegation in the Australian today by Employment United is not right? The article says:

Moreover, the central computer system operated by the Employment Department, DEETYA, was not properly connected, leaving Employment United, with five offices throughout Sydney, stranded without its crucial contact to the network.

Mr Sedgwick —The IES system certainly had a lot of people connected to it. There is now something like 5,000 users who have got access to this system. To get into it, as providers were told quite some time in advance, you need to establish a communication link between your site and our system. There are a number of different ways of doing it but it can run over the phone lines, just using Telstra and a modem, if need be. The system has worked fine.

Senator MACKAY —The system is working fine but some job agencies are not connected to it. Is that correct?

Mr Sedgwick —No, all job agencies that are operational are connected as far as I know.

Senator MACKAY —So this allegation is not correct? I will go back to my original point.

Mr Correll —As far as we are aware, all job agencies that would be seeking any connection at the present stage would be connected. As for the reference you made, the only time that could be a possibility would have been in the first day or so of the operation of the new market when there was a large influx of requests for systems access. Those were quickly processed and turned around, but it might have been for just a very brief period of time where some providers took a little while before they were connected to the system. However, there are no such backlogs in existence at the present stage.

Senator MACKAY —Every job agency that is operating is currently connected?

Mr Correll —I am not 100 per cent sure of that.

Mr Campbell —The last time I looked there were three that were not connected, or did not have the capacity to be connected. One was in Christmas Island, which is not going to be connected because they are not part of the Australian telecommunications system, so we have made fax arrangements. Two other providers, one who is an IES provider and one who is a NEIS provider, have said to us that they do not need to be connected at this stage for the way they are setting their business up. All the others have the capacity and are connected.

Mr Correll —The bottom line here is that for anyone who is seeking to get connected there is no backlog or prevention.

Senator MACKAY —That is fine. I just wanted a status report. How many job agencies are not operating at the moment? You say everybody that is operating is connected. How many are not operating?

Mr Campbell —All of those that are contracted are operating. There are two organisations that have not yet opened all their sites: one is Job Futures and one is Mission Australia, which is opening a site in Glenorchy in Tasmania and I think it opens next week or the week after.

Senator MACKAY —Other than that, they are all up and running?

Mr Campbell —Other than that, yes.

Senator MACKAY —Is the Internet site regularly updated?

Mr Campbell —Do you mean the details of providers on the Internet. Is that what you are referring to?

Senator MACKAY —Yes: the employment service providers, location, jobs filled over last four weeks, available jobs and the target client group. The home page shows employment service provider, job search assistance; employment service provider, job matching, et cetera. Is that regularly updated?

Mr Correll —Yes, it is.

Senator MACKAY —It is completely up to date, is it?

Mr Gibbons —Are you referring to the automated job selection site on the Internet, the one which enables job seekers to search for jobs?

Senator MACKAY —Yes. This is where they click on the service provider and the places available are detailed, the success rate is detailed, the location of the job agency is detailed.

Mr Gibbons —It is updated several times a day.

Senator MACKAY —The Tasmanian one shows, in terms of success rate, zero.

Mr Gibbons —The figures on success rates for providers have not yet been put onto the system. It was always intended that we would wait to ensure that new entrants to the market, as opposed to companies that operated before as contracted case managers with a job brokerage
contract, were not disadvantaged. We decided we would wait a number of weeks before we started publishing performance figures.

Senator MACKAY —How many weeks are you going to wait?

Mr Gibbons —We are looking at the timing of the release of that information now.

Senator MACKAY —When are you going to release the information?

Mr Gibbons —We are looking at the timing of that release now. We have not taken a decision.

Senator MACKAY —It has been five weeks, approximately—a bit over.

Mr Gibbons —For the information to be meaningful, and for it not to disadvantage the new entrants, I think we would have to wait at least six weeks.

Senator MACKAY —In six weeks time, we can anticipate—

Mr Gibbons —I am not saying six weeks; we are looking at the question of the timing of the commencement of that now but my view is that we would have to wait at least six weeks.

Senator MACKAY —Has the department made a decision as to whether the success rate would be released or not?

Mr Gibbons —No, it has not.

Senator MACKAY —In the meantime, in terms of the home page, it is zero?

Mr Gibbons —You will just see zeros there, yes.

Senator MACKAY —How are we supposed to monitor the effectiveness or otherwise if we have got to wait a minimum of six weeks before any success rates are—

Mr Gibbons —How is who to monitor?

Senator MACKAY —Me, for example.

Mr Gibbons —This facility on the Internet is not provided to enable general monitoring of the success of the Job Network. It is a guide, when it is available, to assist individual job seekers to choose a provider. We have information available to us on the system the secretary mentioned—the integrated employment system, which we use for monitoring.

Senator MACKAY —Let us say I am a job seeker and I am looking to see what the success rates are from various agencies that are available. How do I find that out?

Mr Gibbons —It is one of those facilities that it was never envisaged would be available from day one. It has to wait until sufficient information has accumulated in the database to make the information meaningful.

Senator MACKAY —So the job seeker has no way of knowing what the success rate of an individual organisation is?

Mr Gibbons —At the commencement of a new market, the answer is no.

Senator MACKAY —We are five weeks into it, though.

Mr Gibbons —Yes.

Senator MACKAY —There are people being referred from Centrelink now.

Mr Gibbons —People are making choices on the basis of information that individual companies, individual Job Network members, have been making available through Centrelink or on the touch screens. We will be adding shortly a facility that will enable them to compare the performance of those providers, and that will help inform their choice.

Senator MACKAY —But the choices that they are currently making are not predicated on a success rate.

Mr Gibbons —No. You cannot provide that facility from day one of the market.

Senator MACKAY —Why not?

Mr Gibbons —Somebody who started in the market three weeks ago and has not got through the cycle to a point where they can lodge claims for outcomes is going to have a zero.

Mr Sedgwick —The view that we have taken is that, in the early period, the publication of that data would probably favour the incumbents. Down the track it is our intention to put the data out. In the case of FLEX 3, it takes at least 13 weeks before you have got an outcome to report. So it will come on when it is sensible to do so.

Senator MACKAY —Yes, but there are commencements in the interim with regard to FLEX 3.

Mr Sedgwick —When there is a bit more thickness in the market and things settle down a bit, it will be useful information. We just would not want it to be useless information by putting out an incomplete sample of the performance of various providers in the market, including the new ones. It is about trying to ensure that there is as level a playing field as we can get.

Senator MACKAY —How is it about ensuring as level a playing field as we can get if job seekers have no access to the success rate of individual agencies? It is a level playing field in that the answer is zero.

Mr Sedgwick —That is one way of looking at it. It is also, I think, more helpful to recognise that it is allowing the new players time to establish themselves so that market perceptions are properly based.

Senator MACKAY —When will people get access to this information?

Mr Sedgwick —That is a decision that we will be taking.

Senator MACKAY —By whom?

Mr Sedgwick —We will take it in consultation with the government.

Mr Pratt —I will try and put this in perspective. As has already been mentioned, with FLEX 3 we do not have any outcomes yet because it takes at least 13—

Senator MACKAY —You do have commencements.

Mr Pratt —We do, yes. I would also point out, though, that this information has never previously been available to clients.

Senator MACKAY —Neither has the competitive tendering process.

Mr Pratt —It is something which will become available in a month or two.

Senator MACKAY —It is a month or two now, is it?

Mr Pratt —I certainly do not want to pre[hyphen]empt the decision that others will take, but this information will be available. In the past there has never been any information to job seekers about the success rates of labour market program providers, or case management organisations.

Senator MACKAY —With respect, we have now got a completely different regime, as you well know, that is based on competitive tendering; it is based, as the government asserts, on choice. The point I am trying to make is that a key element of choice is determining what the success rate of individual job agencies is. At the moment that information is not available;
the department have indicated that they will not provide that information until they have consulted with the government. Perhaps I could ask the government when they are actually going to provide the information as to the success rate of individual job agencies, to assist consumers in terms of making the choice. It is bizarre.

Senator Ellison —Senator Mackay, I think the secretary made a very good point, that if you release premature data it is of no assistance at all. In fact, it would not help the job seeker if information was released which was premature or immature in the details it revealed.

CHAIR —It could be quite misleading, couldn't it?

Senator Ellison —Yes, Mr Chairman. That is a good point: it would mislead them. So you wait until the time is sensible for those details to be released. The first week's figures would have been of no assistance at all. You are saying—

Senator MACKAY —We are five weeks down the track.

Senator Ellison —It is a question of judgment, isn't it? I think that five weeks is miles too premature.

Senator MACKAY —So because it is too premature, Minister, are you denying people access to information—

Senator Ellison —Which could mislead them.

Senator MACKAY —that they are going to use to determine what choice they make with regard to agencies?

Senator Ellison —We are not in the business of giving job seekers information which will mislead them.

Senator MACKAY —How do you know it is going to mislead them?

Senator Ellison —Because it is still too early for it to render any sensible assistance to those people. It is from a very small period of time. You would know that yourself—five weeks.

Senator MACKAY —When will it not be too early? What do you think is an appropriate time before this information is provided?

Senator Ellison —We are going to have to look at how things are going and make that assessment in due course.

Senator MACKAY —When? You have just said that it is too early. What is a reasonable period of time?

Senator Ellison —I cannot predict on a given day what the feedback will be. It will be at a time which is appropriate.

Senator MACKAY —It is clearly a governmental decision, picking up what the departmental secretary says. It is not a departmental decision. So the government will decide when these figures will be released. When will—

Senator Ellison —And it will be at an appropriate time.

Senator MACKAY —Any idea? What—two months?

Senator Ellison —I do not think I can give you a time line on that.

Senator MACKAY —Have you seen the information as to the success rate of various job agencies?

Senator Ellison —Myself?

Senator MACKAY —Yes.

Senator Ellison —No.

Senator MACKAY —Has anybody in the department seen it—the success rate of various agencies in terms of placements?

Mr Sedgwick —Only in aggregate terms, that I have seen. Can I deal with this a little? In the early weeks a large number of the intensive assistance, the FLEX 3, will be transferred over.

Senator MACKAY —Yes. I know that.

Mr Sedgwick —So, by definition, if you are looking at the thing you are going to see an awfully large number of commencements that are biased towards those providers who were in the previous market. Now that will work its way through.

Senator MACKAY —But the job seekers made a choice.

Mr Sedgwick —The choice the job seekers made was to stay with the organisation that they had been with previously. That is right.

Senator MACKAY —And we will get to that later on.

CHAIR —It being 12.30, the Senate committee stands adjourned until 1.30.

Proceedings suspended from 12.31 p.m. to 1.32 p.m.

CHAIR —Before we start, I would like to notify the committee and the officers that Senator Stott Despoja has also lodged questions on notice.

Senator MACKAY —Just going back to the start[hyphen]up process again, how many Job Network members were not open for business on 1 May?

Mr Campbell —I do not have that information with me, Senator. I am aware that it is also the subject of a question on notice in the other house and we are preparing a response in that context. But I do not have that answer with me.

Senator MACKAY —Was it a few?

Mr Campbell —It was a small number. I think we have to be careful about the confusion between providers and sites. I think that most providers were operating on 1 May, but I think it is fair to say that they were operating with various levels of intensity on that first day because it was a very big move from one night to the next day. If you like, we will take that on notice in the context of the question on notice from Mr Ferguson in the other House.

Senator MACKAY —I am assuming that the ones that I got indications about earlier are now operational and open?

Mr Campbell —I do not think that we said that earlier. I think I said that all providers were operating and that there were a number of sites for Job Futures that were not yet operating.

Senator MACKAY —Yes, sorry.

Mr Campbell —There is a Mission Australia site—I think in Glenorchy—which is opening some time very soon.

Senator MACKAY —How many sites are involved in the Job Futures situation?

Mr Campbell —Are you talking about how many of Job Futures are not open?

Senator MACKAY —Yes.

Mr Campbell —Fifty[hyphen]four. But we have noticed that they are opening 10 of those in New South Wales in the next week or so. The other 44 are spread around the country.

Senator MACKAY —Okay. Can I just go to this sites issue again? I have got a question on notice, 851, with regard to FLEX 3. I was trying to get a comparison of previous sites and I appreciate that we will probably go through a whole lot of semantics about what a site means. It seems that, in terms of the answer, EAA operated at the point of this question, which was 6 March, in around 260 locations, and that there were CCMs in about 600 locations. Appreciating that a number are actually co[hyphen]located, that seems to add up to 860 points where FLEX 3 services were delivered. Would that be an accurate assumption to draw?

Mr Campbell —There is only one caveat I would want to put on that and it is a question I have in my own mind about the 600 for CCMs. When they contracted organisations in a number of cases ESRA contracted organisations both as generalist case manager and as a specialist, for example for people with disabilities, and they would be operating from exactly the same site. I think that was often counted as two locations because there were two contracts, even though they were operating out of the same building, same site. The caveat I would put on that is that I am not sure how the 600 is counted in that regard.

Senator MACKAY —If that is the case, how many locations were CCM operating from? I am deriving 860.

Mr Campbell —I know that you are deriving it from adding 260 and 600—I saw that as your maths. I was just putting a question mark over the background of the 600. If you assume that the 600 does not have any double counting, then the answer points out that there are 860 locations in which case management services were being provided.

Senator MACKAY —Later on it says that after 1 May there will be over 700 sites.

Mr Campbell —Last time I saw the figures I think it was 715.

Senator MACKAY —So there is actually a reduction, it would seem.

Mr Pratt —I know I have laboured this point at previous estimates hearings but, of course, we are comparing apples and oranges here a little bit. On your reading of the answer to this question there may have been 860 locations where case management was offered from. But when we are talking about FLEX 3 sites we are talking about the FLEX 3 service which is far more comprehensive than case management. In addition, FLEX 1 services are also offered from that site. There may well be some FLEX 2 services offered from those sites as well. So I think that there is an apples and oranges comparison there.

Senator MACKAY —I appreciate that, but EAA also offered what is now termed `job matching'.

Mr Pratt —They do. Yes.

Senator MACKAY —It would seem on the face of it that, unless there is some clarification required in relation to this question on notice—and if there is, I would appreciate getting clarification—there has been a reduction in sites where FLEX 3 type services were offered. My question is not as much to the department as to the government. I know you say that it is apples and oranges and so on, but—

Mr Pratt —Another issue is that from those 700 FLEX 3 sites, or 700[hyphen]plus FLEX 3 sites, there is an unknown level of outreach services being provided, and that is quite substantial in a number of cases.

Senator MACKAY —Can I have that information because I have not got it?

Mr Campbell —Certainly, with regard to outreach and coverage for the 700 sites we can provide that, but we will have to take that on notice.

Senator MACKAY —Okay. I will just move on to the financial viability test. Dr Kemp, as you know, indicated that there would be a debriefing session for unsuccessful tenderers. We have details, which I am sure you are aware of, of a Queensland employment services provider who was unsuccessful in securing work under the Job Network program because of financial viability concerns, he says, in his feedback interview. This is Mr Van Putten.

He has strongly rejected that his firm is financially insecure. He has been on ABC Radio National. He asserts that his business has assets and has been trading profitably for the past 11 years and that ESRA has consistently rated his organisation in the top providers in Queensland.

In relation to his debriefing session he attempted, we understand, to ascertain what the doubts were about his financial viability. He alleges that he was not provided details in relation to that and that it was because the department said that accountants of companies submitting future tenders would know how to reconfigure their books to meet the department's standards. What happened with regard to this?

Mr Campbell —Financial viability, generally, or the particular case?

Senator MACKAY —No, with regard to the specific case.

Mr Campbell —Senator, we need to be very careful about any comments we make in regard to the particular case. I have seen the transcripts of his radio interviews—he has had several—and I have seen some of the newspaper articles. I think that he states that he sought reasons under FOI from the department. He was given some information, but not everything that he sought and I have seen reports where it is claimed that he is going to appeal that decision. In those circumstances it is a bit difficult to talk about that particular case in these estimates hearings, bearing in mind that there may well be people in these hearings who are actually going to be the decision makers on the appeal that he says he is going to lodge over the FOI request.

Senator MACKAY —Why was his FOI request knocked back?

Mr Sedgwick —Can we just take you through this financial viability issue? I think that it is important that we not canvass the details of an individual in a forum like this.

Senator MACKAY —He is very happy to have it canvassed.

Mr Sedgwick —Yes, I know.

Senator MACKAY —And I am querying why—

Mr Sedgwick —That sometimes makes it difficult for people like us. But we prefer not to.

Senator MACKAY —Why was his FOI request knocked back?

Mr Sedgwick —I do not know. I was not that decision maker. The point that Mr Campbell makes is very important here because other people will be required, if he does lodge an appeal, to make an independent judgment about whether his FOI case should succeed.

Let me just go back to the financial viability issue. A little while ago in front of the JCPA we had an exchange on this. The position that we put is that, in making the financial viability assessments, we have tapped into some methodology that has been developed by an accounting operation that allows some diagnostics to be made of the books of account of an organisation and allows us to have a look at some factors which, following some empirical work that they have done, suggest indicators of financial stress or likely failure. It is a very sensitive piece of intellectual property, this particular test, for the reasons that Mr Campbell was talking about. If the financial viability process is to serve usefully as a discriminator in the future, then we
do need to preserve the integrity of that process by not telegraphing our punches too widely. We do not want to go into the details of this particular case, except to say that he and all others were subjected to exactly the same set of processes, that that process was oversighted by quite a number of independent observers, including some qualified accountants—including our probity adviser—and that we have got a clean bill of health on that. So this guy was treated the same way that everybody else was.

Senator MACKAY —Mr Sedgwick, I just refer you to your statement at the last estimates where you have indicated that the probity factors were sourced from public records, such as Credit Reference Association of Australia, ASC, Dunn and Bradstreet, Law Point, State/Territory Associations' Registrars and from internal DEETYA records. I think that what Mr Van Putten, or anybody else, is attempting to ascertain is why was he knocked back with regard to financial viability. I will not pursue this individual case, but I will ask you to give me an indication as to the basis on which an FOI claim on this matter would be knocked back by the department.

Mr Sedgwick —As somebody who could potentially be the decision maker, I would prefer not to speculate about that at this stage.

Senator MACKAY —I am not asking about a particular—

Senator Ellison —You are asking about the criteria—

Senator MACKAY —Yes.

Mr Sedgwick —One of the things that we would need to take into account is whether the public interest might be compromised because we reveal too much of our methodology.

Senator MACKAY —So your concern is the revelation of the methodology?

Mr Sedgwick —Yes, basically. That is why we have been very careful about—

Senator MACKAY —Why is that a problem?

Mr Sedgwick —There are several different elements of this methodology. One of them is the element that you referred to where there is a check of all standard databases to see whether there is anything known about the company or its principals. Another element is some analysis of, say, the cashflow or the balance sheet of the company. We might also be looking at some more qualitative data that this empirical work has shown can give a reasonable correlation between the likelihood of business failure and the entity that presents itself. In each of these cases the methodology was applied consistently. It was oversighted by people who are independent of us. It is particularly important, given some other recent events, that we preserve, in a risk management sense, the integrity of this process. I am not trying to snow you here. There is a genuine commerciality and public policy issue here that we have to be very careful of.

Mr Campbell —I can add one point to what the secretary has said, and I am making this as a general comment and not in regard to any particular tenderer. The tender documents make it quite clear that the onus is on the bidder, the tenderer, to provide sufficient information for financial viability to occur. The tender documents go on to point out that if potential providers or bidders do not provide sufficient information for a full financial viability assessment to be done, then those organisations' bids will be put to one side and we will go back to them only if we have insufficient viable bidders for the services in the regions for which they are bidding. I make that as a general comment and not for anything to be read into it with regard to particular providers. I think that some bidders have not fully understood that the onus is on them to provide full financial information.

Senator MACKAY —Where they did not—just explore that for a moment—

Mr Campbell —Where they did not—

Senator MACKAY —did DEETYA go back and request—

Mr Campbell —No. The tender document made it quite clear that, where they did not provide sufficient information, then they would be set to one side—it is in the red tender document book—and we would only go back to them and ask them for further information if we had insufficient viable providers in the regions for which they were bidding for services. The reason I make that point is that I think a number—it is a small number—of bidders had not appreciated that. They had not understood that from reading the tender document.

Senator MACKAY —It is only a fairly small number, though, from what you are saying?

Mr Campbell —I think so, yes. I just mentioned that to give you the full picture.

Senator MACKAY —Mr Sedgwick, let me just go back to this comment in the section that I read out in terms of your statement that was clearly to do with quantitative analyses. You made a reference to qualitative data. What sorts of things did you mean there? It sounds a bit subjective to me. Is it intended to be?

Mr Sedgwick —No. I do not think I would characterise the search of the company records, for example, as being quantitative.

Senator MACKAY —Or empirical.

Mr Sedgwick —Or empirical in that sense. Let me give you an example. In answering the RFT, individuals were asked to provide information on the directors of the company, or the association, and whether any of those persons had been bankrupt, for example. The interrogation of these registries would provide us with information independent of what was in the RFT about whether somebody, in fact, had been a discharged or an undischarged bankrupt, for example. That is not a quantitative piece of information; that is a qualitative piece of information. It is difficult to make this clear without giving you an example and I am rather cautious about doing that.

Senator MACKAY —I am not interested in a particular example. What do you mean by qualitative, other than a search on bankruptcies? What else would determine qualitative?

Mr Sedgwick —Let us say that we were looking at a case of a new starter. There are some indicators around that might give you some information about the robustness of the start[hyphen]up company.

Senator MACKAY —I am sorry, I did not quite catch that last bit.

Mr Sedgwick —The financial robustness of the start[hyphen]up company, for example.

Senator MACKAY —The robustness of the start[hyphen]up company?

Mr Sedgwick —Yes. You may have some work that looked into the reasons why companies fail, for example. Drawing on that information you might be looking for telltale signs in what people tell you about their financial affairs and how they are organised.

Senator MACKAY —What do you mean `telltale signs'?

Mr Sedgwick —If, for example, a company had insufficient capital, you might well say to yourself that this company might find it difficult to survive except for a very short period of time. That might be one indicator that you might want to take into account.

Senator MACKAY —How would you determine what was a sufficient level of start[hyphen]up capital?

Mr Sedgwick —It is exactly what we do not want to talk about.

Senator MACKAY —Why?

Mr Sedgwick —Because—

Senator MACKAY —I am not asking about a particular organisation. This is presumably public information.

Mr Sedgwick —No, exactly, it is not. We would want to have the tests against which we will assess a company private and confidential so that we can be confident that the system cannot be turned against us. It is as simple as that.

Senator MACKAY —What you are saying is that you are not prepared to provide me with the benchmarks or tests that we use to determine financial viability?

Mr Sedgwick —No, Senator.

Senator MACKAY —Why?

Mr Sedgwick —Because it is—

Senator MACKAY —On what basis can you refuse to provide that information?

Mr Sedgwick —It is prudent risk management. We would not want to put ourselves into the position where, having indicated what the hurdles are, people just contrive to pass them.

Senator MACKAY —But, on the same basis, when people attempt to establish why they have been knocked out on the basis of financial ability they are not told that either? How are we to know what constitutes financial viability with regard to this process? They cannot find out and we cannot find out.

Mr Sedgwick —We put in place very comprehensive quality assurance processes to enable us and others to be confident that the system had in fact been properly applied. That was why we got this bunch—I forget how many—of independent quality assurers and sent them around to keep their eyes and mouths open just to see that we were actually applying the system in the way that we said that we would; that was why we spent a small fortune hiring Blake Dawson Waldron to provide independent probity advice to us. We have been quite open with the ANAO as well about the processes that we followed and how we went through things because we believed that that would be able to give you a level of assurance that the system was in fact being properly managed.

These things are difficult—there is no doubt about that. But I think we have gone to quite some lengths to give you assurances while, at the same time, protecting the integrity not just of the next employment services market tender but every other tender that we run in the meantime.

Senator MACKAY —What you have done is told me that what you have done is okay. You have not told me what you have done. You have just assured me that it is all all right, but I am not getting any information as to what the process was, other than your assurance—and I take that at face value. But this is an estimates process and our job—Senator Crowley's and mine—is to determine whether taxpayers' funds are expended properly. I cannot understand why a question as direct as what benchmarks were used to determine financial viability is not something that should be subject to this estimates.

Mr Sedgwick —That is a matter that goes to the very heart of the financial viability assessment process.

Senator MACKAY —Correct.

Mr Sedgwick —I can give you an assurance that the ANAO has tested our methodology. We are perfectly happy with them to have a look at it.

Senator MACKAY —I am sorry, I missed that.

Mr Sedgwick —The ANAO has tested our methodology. We are perfectly happy for them to have as large or as small a look as they feel necessary. Both because of the assurance that we have received from the experts that we consulted in setting this process up, and in the observations of those who were part of this probity and quality assurance process and in what the ANAO has been saying to us so far, I can say to you that you can have assurance that the system has been properly implemented. That is why we went to all those steps of bringing in all those other players to check the thing out.

Senator MACKAY —I know that, I appreciate that and I appreciate that the process that has been gone through appears thorough. But I do not know what underpins the process. You said the ANAO have been through the process?

Mr Sedgwick —Yes.

Senator MACKAY —But we are not even allowed to hazard a guess as to what the process in fact was in terms of determining financial viability at an estimates hearing.

Mr Sedgwick —No, I think I said to you that there was a number of elements of that process. One was looking at the cashflows of the organisation; another was looking at the quality and structure of their balance sheet; another was looking at these various databases so that we could, to the extent that you can ever do these things, find out what may have been available about the probity or the past dealings of key members of the organisations and of the organisations themselves.

We checked out our own internal records to see what we knew about these organisations in the way that they handled money—there are other issues about performance that are separate from these, but in relation to the way that they handled money we checked, for example, to see that there were not outstanding issues of fraud or unacquitted grants or whatever. We had some assistance looking at what I have been calling some qualitative indicators to look at the general financial health of the organisation that presented to us.

We did not at any point form a judgment about the likelihood of success of the business in the sense of whether or not they would be able to attract funds. We were looking at the organisation that presented to us and its financial strength or not, given the kinds of business that we were going to offer. In some cases we limited the amount of business that we were prepared to do with an organisation either because we limited the service that we were prepared to contract with or because we limited the number of places that we would allow them to operate in on the basis of what we knew about their financials at the start. I cannot be more specific than that—

Senator MACKAY —I appreciate that.

Mr Sedgwick —except to give you the assurance that it has been thoroughly worked over.

Senator MACKAY —Okay. In terms of the qualitative factors that you alluded to, there were two that you specifically mentioned. One was determining information on directors of companies in terms of financial status, bankruptcies et cetera. You also mentioned the robustness of the start[hyphen]up company. Do you mean by that access to capital in terms of start[hyphen]up?

Mr Sedgwick —That is one factor, yes.

Senator MACKAY —Why did you look at access to capital in terms of start[hyphen]up?

Mr Sedgwick —Sorry, I did not hear that.

Senator MACKAY —Why did you look at access particularly?

Mr Sedgwick —Any company needs to have enough behind it to be able to cope with the ebb and flow of business. Earlier on today we were talking about the fact that it is going to take some companies a little while to get moving.

Senator MACKAY —That is what I am referring to.

Mr Sedgwick —Yes. So we had a look to see what level of capital they actually had.

Senator MACKAY —Okay. There was an assumption, clearly, that there would be an ebb and flow period.

Mr Sedgwick — Sure.

Senator MACKAY —There was an assumption, clearly, that there would be Centrelink referrals probably sporadically and maybe in a clump and then sporadically and then maybe in a clump. So am I right in assuming that what you looked at was the capacity of an organisation to see itself through, in terms of access to capital, the exigencies with regard to those business flows?

Mr Sedgwick —Job seeker choice is one of the factors that would impart some variability into the cashflow of an organisation. But I must say to you that we did not make a judgment about the likelihood or not of an individual provider being successful in attracting business. Each provider was asked to make their own assessments, reflected in the cashflow projections that they provided to us and in the level of business that they bid for. We were very careful not to second[hyphen]guess things.

I am reminded that we had some sensitivity analysis that enabled us to pick up outliers, people whose assumptions would appear to be unduly favourable to them, given the history.

Senator MACKAY —I do not understand.

Mr Sedgwick —Let us say that we had somebody who assumed that they were going to get 100 per cent of the market from day one: we might question them.

Senator MACKAY —All right. What do you mean by `sensitivity analysis'? Was that one of the benchmarks; was that one of the analyses that were conducted? What does `sensitivity' mean?

Mr Sedgwick —We seem to be going down a similar track.

Senator MACKAY —You cannot blame me, with respect. I am attempting to find out information.

Mr Sedgwick —We had some testing tools that enabled us to identify somebody who appeared to believe that they would do a lot better than average, for example.

Senator MACKAY —Okay. So an organisation has asserted that they would do X—

Mr Sedgwick —Yes, we might be a bit wary of that.

Senator MACKAY —You are not sure that they could do that so you used testing tools to determine that?

Mr Sedgwick —Yes.

Senator MACKAY —Okay. What were those testing tools?

Mr Sedgwick —Again, I do not really want to go into that. We just had a view about a range of behaviour that, based on experience, would be so outside of what you would expect that you had this question that you needed to explore.

Senator MACKAY —What do you mean by `behaviour'?

Mr Sedgwick —Well, let us say that somebody believed that they were going to place everybody immediately in a job.

Senator MACKAY —Did that happen? Did people actually assert that at the tender?

Mr Sedgwick —I do not know that for a fact, but I would be extraordinarily surprised if anyone did.

Senator MACKAY —That is right.

Mr Sedgwick —Let us just take that as a hypothetical, since I do not want to give precise examples. In those circumstances we might want to question their cashflow.

Senator MACKAY —That would just not ever happen. Can you give me something that is more likely?

Mr Sedgwick —You could think of a continuum between assuming no outcomes, in which case we all know that they would not be putting a bid in, through to 100 per cent: somewhere in the middle we might have a view that that is just too much and look at their cashflows, for example.

Senator MACKAY —Okay. Then you have got the sensitivity analysis and then you have got these testing tools and then you look at behaviour. Then you have given me two indications of qualitative data, the bankruptcy issue and the start[hyphen]up capital issue, and an organisation's assertion as to how much business—

Mr Sedgwick —You are trying very hard, Senator, but I do not think we can go any further.

Senator MACKAY —Mr Sedgwick, the reason I am trying very hard is that I am having great trouble coming to grips with why this information cannot be provided to a Senate estimates hearing. It is not commercial[hyphen]in[hyphen]confidence, it does not refer to a particular organisation, and it is actually a critical issue in terms of probity checks and financial viability. I am entitled to it, in my view.

Mr Sedgwick —Again, I have said this several times now. We believe that it is commercial[hyphen]in[hyphen]confidence because it is inconsistent with the best interests of the Commonwealth to go through this information in a lot of detail. I am simply saying to you that we have—and we can give you the assurance that we have—a number of sign[hyphen]offs on this approach: through the people that we consulted, through the ANAO, through our probity advisers and various other people; and that should be able to give you a degree of confidence that the thing is being done right.

Senator MACKAY —I am sure it is, but I do not know how it is being done. That is the difficulty in that. I fail to see how the methodology is commercial[hyphen]in[hyphen]confidence. How is the methodology commercial[hyphen]in[hyphen]confidence?

Mr Sedgwick —I have said this several times now, Senator. It is commercial[hyphen]in[hyphen]confidence because we want genuine information from tenderers, not what they believe they have to tell us in order to get a tick. We do not want to find ourselves in the position where it is possible, using contrivance and other means, to apparently pass the test because you know where the hurdles are.

Senator Ellison —Can I just use an example of the ATO? As they investigate somebody, you do not know that you are being investigated—for obvious reasons, so you cannot attempt to cover your tracks. Similarly, we are trying to limit the exposure to the Commonwealth here. If we advertise to the world at large our modus operandi, then they could, as the Secretary said, indulge in ruses and all sorts of things to take advantage of the Commonwealth. It is not out of any intent to keep things away from you; it is just a question of protecting the Commonwealth's position.

CHAIR —I think the minister and the secretary have been incredibly generous in what they have given you so far, and there are some dangers in exploring it further—as they have indicated to you about four or five times, so perhaps we could move on.

Senator MACKAY —Minister, just in relation to the tax example, there is a tax act and you know when you have breached it, and there is a whole industry that is actually flourishing on getting around it; so I am not very sure that that is a very good example.

Senator Ellison —Perhaps you have just proved our point. There are aspects which they keep to themselves and which are not in the tax act.

Senator MACKAY —But I cannot even get the equivalent of the act, if you know what I mean. I cannot find out. The act says, `You shall not do this with regard to tax avoidance, or evasion, or whatever.' I cannot even get to the point where I know what an organisation has to do in order to be wrong or in breach.

Senator Ellison —I appreciate the position you are coming from and the fact that you want to know how the system is operated, but unfortunately there are parts in the working of government, the exposure of which can make government vulnerable. That has been a longstanding precedent. The Auditor's office has jurisdiction here—which, as the Secretary said, gives it integrity. I just do not think we can take it any further.

Senator CROWLEY —Have the rules for tendering changed of recent times, Mr Sedgwick?

Mr Sedgwick —The approach to managing this tender was developed reflecting the particular complexity and risk that the employment services market tender represented. We are actually applying not necessarily all of the steps of it—because some parts of it are not needed when you are dealing with smaller valued processes—but we are actually applying similar things in a lot of the tendering that we do in the department, which is one of the reasons I am quite sensitive about how specific we are about how it works.

Senator CROWLEY —You have not told me when these were developed. Has it been in the last year? Has it been since the `ship of fools'?

Mr Sedgwick —It has certainly been developed in the context of the employment services market tender, Senator.

Senator CROWLEY —Thank you, Mr Sedgwick. I take that as an affirmative. Can I ask what you learnt from that process, and what particular shift has happened since that? Presumably nobody in the department gave you a tick for the `ship of fools'?

Mr Sedgwick —I am not sure that I would accept your characterisation of the ship.

Senator Ellison —Senator Crowley, I do not think we appreciate what you mean by the `ship of fools'; you might want to make yourself clearer.

Senator CROWLEY —South Pacific Cruise Lines, thank you, Minister. That was a big error. Have you examined that, and what have you learnt from it?

Mr Sedgwick —Yes, we have examined that. We have examined the entrails of it very many times here and in other places. We have learnt a number of lessons from it, I think. One is the importance of not simply having clear risk management principles but also ensuring that they are applied. In the case of the cruise ship, our guidelines were set down in such a way that, had they been followed, we would have minimised some of the risks that, in fact, were visited upon us. One of the reasons we were so concerned to make sure that we had a rigorous financial viability process, and that its integrity was protected, was so that we could have the capacity to identify providers, tenderers, or other partners, whose future viability might be suspect.

We also learnt some things about communication within the department, and we are working on building up our expertise in respect of risk management and project management as a consequence of that. I can go into further detail if you like, but I think it has been fairly done to death.

Senator CROWLEY —Maybe you might provide that to us on notice. I am particularly interested in this tender process. There has been one stunning mistake and other, perhaps less stunning, mistakes in the tender process—the gentleman from Sydney comes to mind—and I wondered if you could explain to us what happened in that case. According to your comprehensive analysis, what failed so that that person got a tick?

CHAIR —Senator, we did actually trawl right through this for hours at the last estimates: do you really think it is relevant at this point?

Senator CROWLEY —Yes, I do, because it may indeed assist us to find out a bit further about what the Secretary is explaining to my colleague. He has got to the stage when he says, `I do not want to say anything more.' I appreciate that we are caught a little here between what are properly the interests of the Commonwealth and that kind of process. At the same time, I think you may also understand our difficulty: it is called, `Trust us,' and there have been some glorious mistakes. Our trust is a very nervous beast, and I was wondering whether you could explain what you have learnt about the mistakes in the tender process that mean that you have tightened these tools, or how they failed.

Mr Sedgwick —Hang on! There are several things here. Firstly, I do not accept that there have been mistakes in this tender process. I do not for a minute say to you that, when you are dealing with 5,300 tenders, as we were, that you would have perfection every time. I just have to tell you that, so far, we have not come across a situation where, frankly, the system has not worked.

Again, we have got difficulty here, because we are dealing with a particular case, right? This was a particular case, which did go through the financial viability processes. At the end of the day, for the nature of the business that this person was offered, which was FLEX 1—where there were no Commonwealth funds at risk, because FLEX 1 is only paid on placement—we were prepared to do the level of business that we offered to this character. He, on his side, was prepared to accept. He also got some FLEX 2, by the way, but that is also a low risk business.

There were other cases around the country where individuals, having received their contract, formed the view that they did not want to go through with it. Maybe they had a view about the need to have FLEX 3 as well as FLEX 1, for example, and when they did not get FLEX 3 they turned their FLEX 1 contract in. That was fine; we let them go and we reallocated. But I do not accept that the case that you are talking about is a mistake in financial viability terms.

Senator CROWLEY —So nothing about any of those tenders, in your ongoing review of them, gives you any reason to reappraise the criteria by which they were let or your financial viability process?

Mr Sedgwick —We will, as a matter of course, review the tender, its construction, the logistics of how we managed it, the criteria, the way the RFT was expressed—we will review the whole box and dice.

Senator CROWLEY —Will the ANAO be looking at it again?

Mr Sedgwick —The ANAO is providing a report.

Mr Campbell —They have done a comprehensive audit of the whole process from go to whoa. My understanding is that that audit report will be available some time in the not too distant future. We are expecting a draft shortly.

Mr Sedgwick —And we, for our own purposes, will thoroughly evaluate every aspect of the tender to see whether guidelines could be clearer or processes could be simplified—the things that you normally do when you go through something as big and as complicated as this. I am sure we will find things that we could do better.

Senator CROWLEY —But so far you have said that any of the tendering process and any of the systems out there not yet up and running, or beginning to run or whatever, have not yet given you reason to change any of those criteria.

Mr Sedgwick —There is nothing in the results, in and of themselves, that would lead me to want to change anything, but we will be seeking to improve the model. So I can guarantee you that we will be changing things. Whether they will be things that we change in the RFT or things that we change internally, I do not know. What they might be, I do not know. But we will certainly look very critically at what we have done to see if there is another way of doing it that achieves the result—with less aggravation all round, frankly. You would expect no less. But at the moment I do not have a problem with the way that the system ran and neither does anyone else who actually saw it from the inside.

Senator MACKAY —You have got the advantage over us, then, haven't you?

Mr Sedgwick —I appreciate that comment but I do genuinely say to you that we have gone to quite extraordinary lengths, by any standards, to provide that independent assurance. These are independent quality assurance people—with two exceptions, I think from memory—drawn from other levels of government or other departments around the place. They had complete access to every document, every individual, every part of the secure premises that this thing was done in, at any time. They had complete access to the probity adviser from Blake Dawson Waldron or to me at any time. In fact, one of the things that we did at the end was to get them all in a room, throwing everyone else out, and to say, `Okay, fine. Tell me if you have got any problem. For God's sake, tell me. I want to hear.'

We have had the ANAO in through this process. We have had Blake Dawson Waldron with free rein on everything that was done and a party to, in the sense that they were there observing, every decision making step of the process along the way. We did put in place processes that allowed nobody to fail on the basis of one say[hyphen]so. If somebody was assessed as being not financially viable or was not judged as being suitable against the selection criteria, a different set of eyes was applied to the problem and asked to form a view.

Senator CROWLEY —What about the ones that were judged to be financially successful? Did a second set of eyes look at them?

Mr Sedgwick —We reassessed, I think, a third.

Mr Campbell —Your question related to financial viability. All those that were assessed as not meeting the financial viability parameters were reassessed. The process for those that were assessed as meeting the financial viability considerations was done in several stages. That included several senior accountants looking at it in the final stage. So it was done by the assessors and then it went through several other pairs of eyes subsequent to having been through the first assessment.

Senator CROWLEY —Every one of them?

Mr Campbell —Yes.

CHAIR —Would it be true to say that this is the most comprehensive set of probity checks that has been carried out in any labour market program in recent years?

Mr Campbell —Anywhere.

Mr Sedgwick —I think I am prepared to say that. Our probity adviser has said to us that this was the most complicated thing that they have ever been associated with. They have said to us that we have set new benchmarks in how you go about providing the kinds of quality assurance that you need to make a tender as big and as complicated as this work.

Senator MACKAY —I appreciate that. We just do not know what they are.

Mr Sedgwick —I do realise that from the outside it is possible to pick up one aspect or another and it looks bad. I just have to tell you that we have done it as well and as consistently as is humanly possible.

Senator CROWLEY —Does each of those contracts have a service contract line in it—a promise to deliver service in sympathy with your charter of the department?

Mr Sedgwick —They have got to comply with the code of conduct. They have a contractual obligation to comply with the code of conduct. We have dispute resolution mechanisms and complaints mechanisms built into that.

Senator MACKAY —We might leave that and come back to it. I am interested in talking to Employment National in a minute, but before I do I would just like to ask a few questions with regard to whom DEETYA used as headhunters for the CEO position at Employment National.

Mr Sedgwick —Egon Zehnder.

Senator MACKAY —With regard to the people who were approached for the CEO position at Employment National, what was the structure that they were advised that Employment National would have?

Mr Sedgwick —Sorry, there is something here that is important. DEETYA commissioned the process; we commissioned Egon Zehnder. The search for the chief executive and the final recommendation in respect of the chief executive was undertaken by the board of Employment National.

Senator MACKAY —That is fine. I appreciate that. What brief was provided to the headhunters and what was advised to the people that they were discussing—not applicants but people they approached—in terms of the structure of Employment National at that point of time? It was PEPE then.

Mr Sedgwick —When the first contract was let it would have been PEPE, but the process of executive search was a sequential one. We let a process that led to the appointment of Mr Swan as chairman designate. I think the human resource person and the CFO came next, and the CEO was down the track.

Senator MACKAY —I appreciate all that. What I am getting to is—and I am not going to embarrass Mr Swan by asking him this—

Mr Swan —You won't embarrass me.

Senator MACKAY —All right, Mr Swan, what were you advised the structure of Employment National or PEPE would be?

Mr Swan —The company was not incorporated, and it was the basis of the initial brief, I think, that a company would be incorporated as a body corporate following the task force. But there was no more specificity than that. It did not have a name, so there was nothing more specific than that.

Senator MACKAY —All you were advised was that it would eventually be incorporated?

Mr Swan —That there would be a company incorporated to conduct the activity that was mooted in the policy document, if you like, or whatever.

Senator MACKAY —Were you ever advised that the company would be listed on the stock exchange?

Mr Swan —Never. The subject has not been touched on.

Senator MACKAY —Was that advice to anybody else, Mr Sedgwick? Was that ever floated—no pun intended—as a proposal?

Mr Sedgwick —Not to my knowledge. It is certainly not the policy of the government so if anybody did, they had no authority for doing so.

Senator MACKAY —Is anybody else aware of this?

Mr Sedgwick —No.

Senator MACKAY —That's interesting. With regard to the CEO appointment, what was the salary offered?

Mr Sedgwick —Sorry, who are you asking that question of?

Senator MACKAY —You, Mr Sedgwick.

Mr Sedgwick —I cannot answer.

Senator MACKAY —Who does know that?

Mr Sedgwick —We do not know.

Mr Swan —It has got nothing to do with the department, Senator.

Senator MACKAY —So who could answer that question?

Mr Swan —I do not propose to answer it. The salaries of all the executives will be reported in the annual accounts of the company in the normal manner for Corporations Law companies but the salaries of individuals I do not propose to disclose.

Senator MACKAY —Mr Swan, I think you have to, actually.

Mr Swan —That is not my advice, Senator, and I will take further advice on it. There are 18 executives whose salaries range from $100,000 to $300,000, and you can guess who has got the most.

Senator MACKAY —Right.

Mr Swan —They come in bands that are required under the reporting requirements. That is the amount of information that I proposed to disclose, other than to the shareholders who might ask.

Senator MACKAY —I am asking a question of anybody, including the Minister: what is the salary of the CEO of Employment National?

Mr Sedgwick —Senator, we do not know.

Senator Ellison —I am not a shareholder.

Senator MACKAY —So you are not going to tell me what your salary is, Mr Swan?

Mr Swan —Mine?

Senator MACKAY —The CEO, sorry.

Mr Swan —No, I do not believe it is appropriate. If I am absolutely obliged to then I obviously will, but I do not know that I am obliged to and I do not think it is appropriate that I do.

Senator MACKAY —I think you are obliged to in that you are a public company.

Mr Swan —We are not going to debate it.

CHAIR —Senator, I think the answer has been given.

Senator Ellison —The annual report is coming out and it will have it in it. It is within bands—

Senator MACKAY —The annual report is coming out and it is going to be in the annual report. I would like to know now what the salary is of the CEO of Employment National.

Senator Ellison —Mr Swan has mentioned the range of salaries.

Senator MACKAY —I want to know the actual salary. Why can't I know that now, Minister?

Senator Ellison —Employment National is not part of the department, as you know.

Senator MACKAY —No, but it is a public company.

Senator Ellison —That really is a matter for Mr Swan, but I have to say to you that there is going to be a report and it will be in the report.

Senator MACKAY —I know it is going to be in the annual report but I would like to know what it is now, and I do not see why you cannot tell me.

Mr Swan —First of all, there is a privacy issue and there is a privacy clause in the incumbent's contract in the first place. But that aside, I do not think it is appropriate to reveal individual salaries, especially when we are still in the process of recruiting at various levels. It just does nothing for the company and, with respect, I am not sure that it does very much for anyone else.

Senator MACKAY —That is an opinion. In response to a question on notice, Employment National gave me a salary range of between, I think, $200,000 and $300,000.

Mr Swan —Yes.

Senator MACKAY —So the CEO's salary is somewhere between $200,000 and $300,000?

Mr Swan —Yes.

Senator MACKAY —Is it $201,000 or is it $299,000? This is ludicrous.

CHAIR —Come on, Senator.

Senator MACKAY —Can I ask you a question, Chair?

CHAIR —Sure.

Senator MACKAY —Is this information not to be provided to this estimates committee?

CHAIR —I think it would be very clear to everyone here, Senator, given the answers from the Minister and the answer from the chair that at this stage they are not prepared to divulge it and it will come out eventually in a report. I think you are going to have find it and we would appreciate if you would stop wasting the time of the committee and move on.

Senator CHRIS EVANS —I would like to apologise for coming late, but I am most concerned at what I have heard so far given that the previous minister assured us that Employment National would be accountable to the estimates committee processes, especially when the government made the decision to proceed with setting up the new network without parliamentary legislation.

We received assurances that the proposed $180 million to be spent on Employment National, which I gather now has been reduced in order to deal with the greater number of expected redundancies, would be accountable to this committee. I do not want to badger Mr Swan about it, I want to badger the Minister. Is the Minister saying to us that he will not provide that information to the committee? If he is, I think that is a very serious step.

Senator Ellison —Employment National is in the market just like any other jobs provider. It did not replace the CES as some people think, it is out there with 309[hyphen]odd other organisations in a competitive environment.

Senator CHRIS EVANS —With respect, Minister—

CHAIR —Order! You are interrupting the Minister.

Senator CHRIS EVANS —I have heard this speech before.

CHAIR —Could you just wait until he finishes the answer before you ask your next question?

Senator CHRIS EVANS —I would be happy too.

Senator Ellison —I have not given it before. I am not a shareholder of this company. He is not in the same position as an officer from this department over which I take responsibility for. This body here, this entity here, is a completely different personality. There will be a report of earnings, within bands, and I daresay Mr Swan might give you those bands today.

Senator MACKAY —We have got them, $100,000 either way.

Senator Ellison —The annual report will only go as far as those bands in any event, as I understand it, because that is all that is required under the guidelines for GBEs.

Senator CHRIS EVANS —Minister, that was not the question I asked you. The question is: as the responsible minister, will you provide information on Employment National? The difference between it and all the other providers is that it is set up and funded with Commonwealth revenue. That is why it is before the estimates process. It has nothing to do with the Salvation Army or any of the other institutions, they are private institutions not funded by the Commonwealth but merely winners of contracts.

Senator Ellison —But that does not take from it the commercial[hyphen]in[hyphen]confidence aspects which apply just as much to the department because we have here dealings with other entities. But with respect to the reporting, all that is required under the GBE guidelines is that it be within bands. As to the extent of the bands, we can perhaps clarify that for you.

Senator MACKAY —I know what the band is—and I'm sorry to interrupt you—and I will tell you. The band that was given to me in answer to a question on notice was somewhere between $200,000 and $300,000. With respect, that is not really a narrow band. Do you regard that as adequate along the lines of Senator Evans?

Senator Ellison —Let me get you the GBE guidelines and we can approach it on that basis because those guidelines are what are in place for all GBEs.

Senator MACKAY —This is a joke.

Senator CROWLEY —Minister, I would like to draw your attention to a minute circulated by the Clerk of the Senate, dealing with exactly this kind of question, how accountable governments need to be, particularly about contracts and public accountability. This would suggest that our questions are entirely in order. There is precedent for this. I can refer you to the ABC, for example. It is just an extraordinary step that you are taking to say, `You'll know all about it in the annual report in a week's time, or a month's time, so we're not going to tell you now.'

Senator Ellison —What I am saying is that it is not entirely the government's call here because Employment National is a separate entity. In any event, there are guidelines for how this is reported by GBEs.

Mr Swan —Mr Chairman, may I add something to the information presently available to the committee?


Mr Swan —The total compensation of the chief executive got the approval, the green tick, or the imprimatur of the Remuneration Tribunal. It has been through the processes of being checked as being appropriate by the Remuneration Tribunal.

Senator MACKAY —We are quite sure that there is no problem with it, absolutely. I certainly do not want to cast any aspersions, and I do not think any of my colleagues meant to. I am sure that the salary is merited. We just want to know how much it is. You can find out how much I earn: you can find out how much Minister Ellison earns. Anybody can find out how much anybody here earns. We just want to know how much the CEO of Employment National earns.

Mr Swan —There is a lot more competition for your job, Senator, than there is for the Chief Executive Officer of Employment National.

Senator MACKAY —But my salary is out there.

Mr Swan —That is your choice.

Senator MACKAY —No, it is not.

Senator CHRIS EVANS —The question before us is whether we approve the Appropriation Bill to pay that salary. Some of us take the view that if we do not know what the money has been spent on and we might not approve the bill. That is why we come back to the accountability mechanism. This process is set up for those monies to be accountable to the Australian people through the parliament. It is reasonable, it seems to me, for Senator Mackay to ask where that money is going and how much you are paying the senior officer.

I want to be very clear. If the minister is actually saying to us that he refuses to give us that information, then I think you will find that we will take a very serious attitude to that. The assurances given to us, when these concerns were raised up to two years ago with the previous minister, were that Employment National would be accountable in the estimates process. This seems to me a very clear sign that that is not the case and that some of the concerns we raised at the time are going to prove well founded. Why can't the Senate have the information? You are asking us to approve $130 million of expenditure on Employment National but you will not tell us what it is being spent on.

Senator MACKAY —Nor the criteria.

Senator Ellison —May I take this on notice? We will come back to this later in the afternoon. In the meantime I will obtain the GBE guidelines, which we operate under. They are, after all, the rules of the game. Whatever is appropriate will then be done.

CHAIR —Could we move on? Senator Mackay.

Senator MACKAY —Mr Swan, what is the current structure of Employment National?

Mr Swan —The parent company is Employment National Ltd, in which the shareholders are the portfolio minister, the minister for finance and some executives from DEETYA and the department of finance. Employment National Ltd has a wholly owned subsidiary, Employment National Administration Pty Ltd.

Senator MACKAY —How did Employment National Administration Pty Ltd emanate? I understand it was before your time.

Mr Swan —No. It was something that the directors decided to do. I think the company was incorporated on 18 September, before the present chief executive or managing director joined the company. The purpose of doing so is not uncommon with either listed or unlisted companies. I can cite several, in fact, and there are dozens in the corporate arena. We had a view of the employment market which indicated that we might undertake some services that we felt were better not undertaken by the parent company, which would be the prime contractor with DEETYA. So we decided to operate through a wholly owned subsidiary—which is not a shelf company; it, in fact, has a very substantial contract with the parent company; it employs all the staff and it has entered into leases. In other words, it is a complete, functioning, operational corporation.

Senator MACKAY —When was EN Administration Pty Ltd established?

Mr Swan —On 18 September last year.

Senator MACKAY —So it was concurrent with the establishment of EN?

Mr Swan —I think it was just after—six weeks or a couple of months later.

Senator MACKAY —But within a couple of months?

Mr Swan —Within a few months, yes. Mind you, the directors, or the directors designate, of Employment National had actually met before Employment National was incorporated. They had been selected and approved, and had met and been discussing how we were going to operate prior to the incorporation of Employment National Ltd.

Senator MACKAY —What services are you referring to there that led to the decision to set up Employment National—

Mr Swan —Do you mean the services that we might provide that indicated it was a good idea?

Senator MACKAY —Yes.

Mr Swan —Those I definitely will not, under any circumstances, discuss, because they are matters that we might undertake in the employment market which we think will be necessary for us to generate the vacancies that we will need and we feel it would be better not to expose the parent company to that particular operation.

Senator MACKAY —I am not asking in any specific terms; I am just asking generally what services.

Mr Swan —It is services in the employment market. There are not a—

Senator MACKAY —For example?

Mr Swan —No, I really would prefer not to, Senator. It is something on which I am absolutely certain it will not do this company any good for our competitors to know precisely what we have in mind.

Senator MACKAY —Can I take it that Employment National Administration Pty Ltd, in terms of actually conducting the services that you alluded to, will not be using any public money?

Mr Swan —It will be using the capital that has already been allocated to it.

Senator MACKAY —So it will be using public money?

Mr Swan —It cannot use anything else, other than retained earnings.

Senator MACKAY —If it is using public money, why can't I ask what services will provided?

Mr Swan —We have not finally decided what they are going to be. We have a view as to what they might be.

Senator MACKAY —What is your view as to what they might be, given that Employment National Administration Pty Ltd was set up on 18 September, which is a substantial period of time away?

Mr Swan —It is early days for the company. We are not quite ready—in fact, we are probably some time from being ready—to go into this particular line, if we do go into it. I suspect that we will, but in the meantime I am absolutely certain it is not in the company's interest to telegraph its punches.

Senator MACKAY —I appreciate that. I am not attempting to provide the company with any commercial disadvantage, but I am attempting to find out, as Senator Evans has indicated, how taxpayers' money is being spent. You have indicated that EN Administration Pty Ltd was set up in order to conduct services separate from Employment National Pty Ltd.

Mr Swan —No, not separate. Actually, at the moment, the Adminco—for want of a shorthand term—is providing all the services for which the parent company has contracted.

Senator MACKAY —What services is it providing?

Mr Swan —All the services—FLEX 1, FLEX 2, FLEX 3—are being provided through Adminco, and it is providing the labour for the parent company; it is providing the IT for the parent company, the premises for the parent company. The parent company is the contractor with DEETYA—

Senator MACKAY —So the parent company has contracted these services to the administration company?

Mr Swan —Yes.

Senator MACKAY —So what services is the parent company responsible for?

Mr Swan —The parent company is responsible to DEETYA for the performance of the DEETYA contract. In simplistic terms, all of the operations of the company are through the subsidiary—all of the operations.

Senator MACKAY —Why was it felt necessary to form a subsidiary in which all of the operations of the parent company would be conducted?

Mr Swan —We foresaw the addition of other services in the employment market, consistent with our memorandum and articles, that we felt should not be in the parent company. It
seemed efficient to have all those services through the one company, but still remote from the parent company, which is the contracting party—the contracting party with DEETYA.

Senator MACKAY —I am unclear as to why this prescience, if you like, actually resulted in the need to form another company. I do not understand why.

Mr Swan —There are some activities that we are not presently in, in the employment market, that we think we probably will go into. It seemed appropriate and efficient to have all of the employment services in the one company, but the ones that we might add to it would be remote, or one step removed, from the contracting party.

The other matter is, of course, that by having companies operating in this manner there is some facilitation of cost allocations, which is why people do it. I can think of two fairly prominent examples whose names will come to mind: Lend Lease is one, Brambles Industries is another. I can think of others if I set my mind to it. They are companies where the parent company is really only a contracting party with the subsidiary company, or companies in their case. It is not uncommon.

Senator MACKAY —I know it is not uncommon, but I am just curious as to why the activities that you are alluding to necessitated the formation of an additional company. I do not understand why this track was gone down. I appreciate there are probably things you do not want to tell me, in terms of what you are likely to be doing, but I do not understand why.

Mr Swan —It seemed like a good idea at time, Senator.

Senator MACKAY —All right, why was it a good idea? I am not asking you what these things are, what these services are; I just want to know why it necessitated a further incorporation.

Mr Swan —That is exactly the same thing. Some of the services are not presently captured by the DEETYA contract, and it seemed a good idea to separate those from the contracting party. At the same time, it seemed to be more efficient to operate all of the services that we were providing under the DEETYA contract in the same corporation. I suppose in hindsight you might say, `Well, why didn't you just set up a separate corporation as and when you got into these new services?' in which case you would then have the parent company doing everything. This seemed to be a better way to go within the commercial experience of the directors, none of whom seemed to find anything unusual about it.

Senator MACKAY —I am sure they probably would not, in that this is fairly common in the private sector, but this is not the private sector we are dealing with here. What I am suggesting is that, in terms of accountability, which I think was touched on earlier, you have a situation whereby Employment National is accountable to this estimates process—and, therefore, to the parliament—in terms of the appropriations, but what you are saying is that delivery of all Employment National services is now through the subsidiary company, Employment National Administration.

Mr Swan —Correct.

Senator MACKAY —Is the subsidiary company, Employment National Administration, accountable through this estimates process?

Mr Swan —Absolutely. It is caught under Employment National Ltd. A wholly owned subsidiary is as accountable under this process to the shareholder, or whomsoever the shareholder would nominate, as the parent company.

Senator MACKAY —So it is accountable to the estimates process?

Mr Swan —I would see no reason why not. Absolutely. It never crossed my mind, Senator.

Senator MACKAY —Well why isn't the salary of the CEO of Employment National accountable to this estimates process?

CHAIR —I think we have been through this issue, Senator.

Mr Swan —As I said, there is a privacy clause in the company's contract with him for a start. I am not inclined to breach that unless I find there is something that overrides it.

Senator MACKAY —All right. We will get back to that later on. Employment National Administration Pty Ltd is accountable to the estimates?

Mr Swan —Yes.

Senator MACKAY —So what is Employment National Administration Pty Ltd doing that Employment National Pty Ltd initially was not doing?

Mr Swan —At this moment it is doing nothing that the parent company could not have done. It may in the future do something that the parent company does not want to do.

Senator MACKAY —It may do something that the parent company doesn't want it to?

Mr Swan —Or does not think it appropriate to expose itself to.

Senator MACKAY —I am having difficulty grasping the concept.

Mr Swan —It might engage in an activity not presently caught by the DEETYA contract, and that activity might involve purely commercial activity and the directors feel it would be useful to separate the parent company, the contracting party, from the subsidiary company, the operating company—regardless of what activities it is doing.

Senator MACKAY —But what does inappropriate—

Mr Swan —It does not imply anything improper or anything like that. It could be a commercial risk to which they do not want to expose the parent company. That is the simplest example.

Senator MACKAY —All right. But we have all the functions of Employment National currently being conducted through the subsidiary company. So how does that work?

Mr Swan —Quite effectively.

Senator MACKAY —No, you know precisely what I am getting at. You have got Employment National parent company, which is responsible to DEETYA in terms of the management of all it is contracted to, but you have got all of the services by Employment National actually provided through Employment National Administration. If Employment National Administration decides to do something which it does not want to put Employment National Pty Ltd at risk in, all the services are already being provided by Employment National Administration.

Mr Swan —The separation there is, as I have said, whether it is an add[hyphen]on service or a brand new service. I am having difficulty explaining, Senator, because I think we are coming at it from different directions. There is nothing untoward in the process, and the concept is something that was done ab initio. It is a new business. There are new elements of risk in it for the company. There are some avenues in the employment sector that we are not in and may never be in, there are others we are not in but we think we could well get into, and it seemed appropriate to separate the corporations.

Senator MACKAY —The reason we are perplexed is that we were not made aware of this at the outset in terms of the establishment of the PEPE—

Mr Swan —I do not think the government was aware of it either because we told the minister that this is what we would like to do. It was a board initiative.

Senator MACKAY —But the minister is the majority shareholder—

Mr Swan — Yes.

Senator MACKAY —so he must have approved it?

Mr Swan —I do not recall getting an approval for it. We just—

Mr Halstead —Under the GBE guidelines there is provision to advise shareholders in relation to the establishment of subsidiary companies, joint ventures and other like arrangements. In accordance with those guidelines we notified the shareholder ministers once the board took the decision to set up this wholly owned subsidiary company.

Senator MACKAY —But the board is actually composed of whom—can you refresh my memory?

Mr Halstead —The board is composed of six directors: Mr Swan as chairman, the managing director, Mr Storey, and then there is Dr Fleming, Mr Harvey Parker, Mr Greg Harvey and Mr Andrew Kirk.

Senator MACKAY —And you are currently employed by Employment National Administration?

Mr Halstead —Everybody is employed by Employment National Administration Pty Ltd, with the exception of one person, Mr Storey, who is employed by Employment National Ltd, in accordance with the articles and memorandum of that company—

Senator MACKAY —On the basis of the accountability provisions et cetera.

Mr Halstead —because of his directorship.

Senator MACKAY —When was the decision made for Employment National Administration Pty Ltd to employ all the staff, rather than Employment National Pty Ltd?

Mr Halstead —With the establishment of the company.

Senator MACKAY —So 18 September?

Mr Halstead —Yes.

Mr Swan —I do not think we had any staff, did we?

Mr Halstead —Yes, we did. As we established the company, some of these gentlemen that the secretary referred to, the chief finance officer and others, were employed under the administration company.

Senator MACKAY —So the decision was made on 18 September that Employment National—

Mr Swan —No, the incorporation was on 18 September. The decision pre[hyphen]dated that by some time.

Senator MACKAY —I see. So the decision for the subsidiary company to employ the staff of Employment National was made substantially prior to 18 September last year?

Mr Swan —It was our intention that all the staff be employed—I cannot put a date on when that decision was made. The decision to incorporate was made after the first meeting, but the actual decision as to when the staff would go into it must have been prior to incorporation but I could not say when. I really cannot remember. Conceptually that would have been the expectation anyway, but I do not recall it being a matter for debate.

Senator MACKAY —All right. So it was always intended that there would be a subsidiary company which would employ Employment National staff?

Mr Swan —That is my recollection, but I do not even remember discussing it.

Senator MACKAY —This is all news to us. I appreciate your situation, but this is news to us. So what is the effect of this, of Employment National Administration Pty Ltd? There have been allegations, which you would be aware of, that it allows Employment National to ensure that it is not liable for the same conditions, et cetera, in terms of the transmission process.

Mr Swan —There are other reasons to believe that there is no transmission of business. That only happens to be one of them. The other reasons: one is the procedural one, which I am sure Mr Sedgwick could explain better than I; and the second is the fact that the businesses are dissimilar from what the CES was doing, and this is what I would call a fortuitous congruence of the circumstances.

Senator MACKAY —The difficulty we have, of course, is that the department has consistently given advice that people from the CES are being transferred to Employment National. In fact, this word `transferred' is peppered throughout all correspondence, questions on notice and the Hansard of last estimates. So the department's view is that people are being transferred, which would imply a capacity to take entitlements with them and would imply—and I think it was Senator Vanstone's initial concept and Dr Kemp did not disabuse us of this—that there would be a transferral process, rather than a cessation of employment and a rehiring, which seems to be what you are saying.

Mr Halstead —As you said earlier, a number of staff came across from the CES. I think the number was quoted as being in the order of 712. Employment National has got just under 1,200 people, many of whom did not come across from the CES in the same mechanism that you were referring to earlier. So it has a mix of people, both from the private sector and that have previously worked in the CES. That also goes to the commercial reasons underpinning the operation of the company: it is a multifaceted organisation with different people employed from different sources and it will be servicing, as Mr Swan said, a variety of commercial arrangements.

Mr Sedgwick —Can I add just one thing. The section 81C instrument that was used for this transfer was the vehicle by which the government was able to give expression to a number of guarantees that it had given to staff, things like this was a vehicle that allowed things like sick leave to be transferred with an individual who subsequently took up employment with Employment National when somebody was a permanent employee of the CES beforehand.

It was in that sense that it has been a transfer under section 81C. There is actually a legal case running at the moment that goes to all of these issues, and I think we all might need to be a bit careful because of the wish not to prejudice that case one way or the other.

Senator Ellison —It is currently pending in the Federal Court.

Senator MACKAY —Yes. I am aware of that. So there are currently 712 staff from the old CES network employed in Employment National?

Mr Swan —There are 712 former permanent.

Senator MACKAY —But you have currently got a work force of—

Mr Swan —There are 1,189.

Senator MACKAY —Where are the balance?

Mr Swan —There were 398 temporary CES employees and 14 full[hyphen]time DEETYA employees, and I hope that leaves 65, and they would have come from outside the service. That adds up to 1,189.

Mr Sedgwick —Fourteen had resigned rather than be counted in the 712.

Senator MACKAY —So there are 65 from outside the service. Were those positions advertised? How did you find those 65 people?

Mr Swan —Some, such as the chief finance officer, came through Egon Zehnder. The marketing people came through another consultant. Some positions were advertised, I think, but they were generally in the areas that the CES could not provide—accounting, marketing, some IT people, company secretary and legal. They were externally recruited and I cannot recall the individual firms that were employed, other than Egon Zehnder and Amroc for the two senior positions. I think Amroc we used for the marketing manager but I am not positive about that.

Senator MACKAY —You said 712 came who were permanent ex[hyphen]CES staff.

Mr Swan —Yes.

Senator MACKAY —Why was the decision made to offer positions to temporary CES staff?

Mr Swan —We gave an undertaking that we would recruit to the extent possible from full[hyphen]time CES staff. Failing to fill the vacancies we had, we would then go to temporary staff.

Senator MACKAY —So presumably there were insufficient—

Mr Swan —We made offers to enough people in the CES to fill our requirements but contemporaneously with that offer there was the opportunity to take voluntary redundancy and the opportunity to go to Centrelink. I think the answer is that we did not get enough acceptances to fill the vacancies. The procedure was permanents first, then the shortfall to the temporaries.

Senator CHRIS EVANS —We have been asked to approve the budget papers which include an extra $25 million for redundancies out of DEETYA because, it is claimed, of lower than anticipated numbers of staff transfers from CES to Employment National. Could you explain what your original target transfer rate was? Given that there are only 65 from outside the old CES, $25 million seems to be an awful lot for additional redundancies one way or another.

Mr Halstead —We were always waiting on the outcome of the tender process to see the actual numbers. We did not know until February what the market share was that we won in the different business streams. We were also developing an integrated servicing model which enabled us to use our staff much more effectively than we had done in the past. We decided that around 1,200 was the figure we would like to take and we sought to offer people—

Senator CHRIS EVANS —Was this after you knew what your share of the market was?

Mr Halstead — This was after we knew what our tender allocation was. We sought to recruit up to that level with 60, 70 or 75 being in the head office or main office of the organisation and the balance in the mainstream servicing the client element of the business.

Senator CHRIS EVANS —Did you have a target for the number of that 1,200 you expected to get from the old CES or DEETYA more generally?

Mr Halstead —We assumed that something close, as I said, to 60, 75 or 80 would come from outside and that the balance we would take from people that worked in the CES. We went through a process to identify people that were interested and suitable to come across.

Senator CHRIS EVANS —Are you telling me that originally you thought the majority of those would be current permanent employees of the CES?

Mr Halstead —We certainly looked at the pool of people that were available to us from within the CES, and that included both permanents and temporaries. You may be aware that, as the CES went down and people found other pathways, a large number of temporaries were working in the CES in the last 12 months of its operations. We were aware of that and aware of their interests, and aware of their expectations in becoming part of our new organisation.

Senator CHRIS EVANS —Perhaps it is more a question for Mr Sedgwick. I guess I am looking for an explanation as to why the redundancies are $25 million more than anticipated. Were you anticipating a larger number of permanent employees to transfer to Employment National?

Mr Sedgwick —We certainly had a basis for figuring earlier on, which assumed a larger number of transfers. When, for a wide range of reasons, it turned out that a lesser number was required than had been previously anticipated, the government made the $25 million available to us so that we could cope and fund what we had to do.

Senator CHRIS EVANS —So how many had you originally estimated would transfer across?

Mr Sedgwick —I will need help on that.

Mr Watson —The original capitalisation requirements estimated was $180 million, you will recall, very well, I am sure.

Senator CHRIS EVANS —I remember asking you to explain what it was made up of. You said, `Trust me.'

Senator MACKAY —We have had a bit of that today.

Mr Watson —That is right.

Senator CHRIS EVANS —I see it has worked out at about $130 million there.

Mr Watson —That is right.

Senator CHRIS EVANS —Only $50 million out.

Mr Watson —The original estimates were based on 2,900 staff transferring. When the estimates were reduced to $130 million, that was on the basis of 1,200 to 1,300 staff transferring. The difference between those meant that one of the options open to staff remaining in the department would be taking a voluntary redundancy.

Senator CHRIS EVANS —So you are saying the original estimate was about 2,900 transferring?

Mr Watson —Yes.

Senator CHRIS EVANS —So you are saying that you had originally worked on Employment National getting a much larger share of the market?

Mr Watson —We did, yes.

Senator CHRIS EVANS —Did you have a percentage placed on that?

Mr Watson —Yes. You will appreciate that, when we first started off with this, nobody really knew what the outcome might be.

Senator CHRIS EVANS —I was not really having a go at you before, I understood the position you were in.

Mr Watson —Yes. The intention was to go to the upper end to ensure that there was sufficient capitalisation for the company. That was worked on the basis of a 60 per cent across-the[hyphen]board market share and the transfer of 2,900 staff. Once the outcome of the tender was known, that came down to about 30 per cent across[hyphen]the[hyphen]board market share and, therefore, a need for the company of a consequential fewer number of staff. That is the basis of where it is driving from.

Senator CHRIS EVANS —Do I gather that the 300[hyphen]odd casual staff who have been employed by Employment National were not entitled to redundancy payments, in general?

Mr Sedgwick —That is quite correct. The temporary staff who went across, I presume, have been offered a new temporary contract in Employment National.

Mr Halstead —We have employed some on a permanent basis and some on a fixed term basis.

Senator CHRIS EVANS —So the redundancy money is to fund people who are leaving the CES and not going to Employment National in increased numbers, as it were. Is that correct?

Mr Sedgwick —Yes, they are people who are not transferring under section 81C, and who are permanent employees.

Senator CHRIS EVANS —Thanks for that.

Senator MACKAY —I am curious about the change of focus of the advertising campaign. Can you explain why Employment National has decided to change its focus?

Mr Swan —The initial advertising campaign had, as an objective, a grand awareness of positioning, and we were rather successful at that. The tracking indicates that it was a successful campaign. But, having established that, any future advertising will have to be far more specific. The change of focus will be to advertise, say, a product or a specific service or a specific location—that is, much more specificity in the new program. You cannot go on advertising your brand forever: it becomes boring.

Senator MACKAY —What type of specific advertising are you talking about? How is the focus changing? You are saying it is going from broad to narrow but what has changed?

Mr Swan —You are into an area now where, again, I do not want to go into details. There will certainly be a change of focus. There will be change in media emphasis and there will be, as I said, a degree of specificity on individual services. The methodology of reaching each target market is something that, as I think you would appreciate, we would not Paul Revere around the town.

Senator MACKAY —It has been swung over towards more business oriented advertising?

Mr Swan —Yes.

Senator MACKAY —That is what I am getting at.

Mr Swan —I beg your pardon; I thought you meant which particular products or services.

Senator MACKAY —No, I am not asking that.

Mr Swan —The thrust must be towards getting vacancies, because we are getting referrals on the one hand, but, if you do not have vacancies, you can get all the referrals in the world and it does not do the candidate any good.

Senator MACKAY —Okay, is this still within the $7.6 million budget?

Mr Swan —No, that budget figure that I gave you at the last meeting I anticipated to be the figure up to 30 June. That was my recollection any way. It is not precisely that but, at the margin, that is a reasonable estimate.

Senator MACKAY —So this campaign will take you through to 30 June?

Mr Swan —I think that was the figure.

Senator MACKAY —And it will still be approximately $7.6 million. What is budgeted with regard to the new advertising campaign?

Mr Swan —It will be in the revenue account of the company. I do not propose to discuss the marketing expenditure of the company.

Senator MACKAY —Mr Swan, I am struggling to find out where the degree of accountability is. I appreciate your position, do not get me wrong. Minister, I have asked a number of questions, and I appreciate Employment National's position but they are accountable through estimates or through you. I asked a specific question: what is the budget for advertising? I am told that that is not permissible.

Senator Ellison —It is a commercial[hyphen]in[hyphen]confidence aspect because it does signal to competitors what they have available for advertising. That would be a key part of the armoury of anyone involved in this. Even the department cannot tell this committee certain things which are commercial[hyphen]in[hyphen]confidence. That is not so much a lack of accountability, it is just an accepted convention not to disclose your hand as to what you are going to be doing in relation to your advertising. I appreciate some of your questions have been rather general, and that is fine, but if it gets into the nitty[hyphen]gritty of who you are going to target in particular, and the amount of money you have available, that really becomes a commercial matter which other competitors in the field would be looking at very closely. They do not have to provide that. I know you are going to say, `There is taxpayer's money in this entity.' But, at the same time, this department certainly can use the convention of commercial[hyphen]in[hyphen]confidence where it is properly available.

Senator MACKAY —But, minister, commercial[hyphen]in[hyphen]confidence has been used routinely in relation to the private sector. This is an entity which is accountable to the parliament through estimates for its appropriations of $130 million. I am asking questions related specifically to the appropriation and I am told that that is commercial[hyphen]in[hyphen]confidence. This is a joke.

Senator Ellison —I think you will find that, in any estimate committees, departments which have a more proximate degree of accountability still have available the convention of commercial[hyphen]in[hyphen]confidence where they are dealing with taxpayers' funds. For instance, we had evidence earlier today where the Commonwealth might be unduly exposed. In this situation, it could well be that this entity, Employment National, is unduly exposing itself and thereby jeopardising taxpayers' funds. The question of my relationship with this company is that I am not a shareholder—

Senator MACKAY —But you are representing a minister who is.

Senator Ellison —Certainly, but I do not have his proxy.

Senator MACKAY —You are also representing the government here.

Senator Ellison —There are two ministers who happen to be shareholders of this company. I cannot sit here and direct legally this body to do certain things. It is different in relation to the department. The department sits in an entirely different situation. The question of the amount of money for advertising is one which goes directly to commercial advantage or disadvantage.

Senator CHRIS EVANS —You just want a blank cheque for $130 million and we give it to them and forget about it.

Senator MACKAY —That is right.

Senator CHRIS EVANS —We have no legislation and no accountabilities, so we will just forget about it. It was $189 million last time we met and it is $130 million now. Why don't you ask for $300 million and we will forget it.

Senator Ellison —This body has to give an annual report and that annual report is subject to scrutiny in the parliament. Its competitors do not have to do that. Under Corporations Law they have to supply a report—

Senator MACKAY —Yes, but their competitors are not using taxpayers' money.

CHAIR —Order. The minister had not finished his answer.

Senator Ellison —You are totally right, and we are in agreement. This body has a report which is scrutinised by the parliament and that is because it has taxpayers money.

Senator GEORGE CAMPBELL —And they stick commercial[hyphen]in[hyphen]confidence in the middle of it.

Senator Ellison —Commercial[hyphen]in[hyphen]confidence can apply even to departments. Commercial[hyphen]in[hyphen]confidence is not unique to the private sector.

Senator GEORGE CAMPBELL —What is this body going to put in a report to the parliament about its funding that it will not answer questions about at estimates?

Senator Ellison —They have been doing a very good job so far of answering the questions put. We have now come to the question of an exact amount—

Senator MACKAY —We have now come to a question with regard to the appropriations and how the $130 million is being spent, which is absolutely within the purview of this estimates committee. Could you advise us precisely what we are allowed to ask Employment National and expect to get a response with regard to the appropriations?

Senator Ellison —The question of the $130 million does not necessarily correlate to the advertising campaign, because this body is also going to make its own money, which one would expect it to do. That is going to come from other sources. I am saying to you that the $130 million does mean that it is accountable to the parliament in other ways which its competitors are not, and that is because of the $130 million. The commercial[hyphen]in[hyphen]confidence aspect still can apply to this body, just as it can apply to government departments. The previous government used that as well in certain circumstances and there was complaint made by the opposition at the time. It is a matter which goes to commercial competition.

Mr Swan —Can I add to this question of the $130 million that has been bandied around. The matter of the debt equity ratio, or the split of that, between the shareholders and ourselves, and the effective rate of return that we are required to make on that equity has yet to be decided. The board feels that the degree of accountability will be a very strict financial one, for what it is worth.

Senator MACKAY —I have the question on notice that Employment National provided to me. In breaking down the $130 million, it says that $35 million has been estimated for the cost of the capital infrastructure required for the commencement of Employment National Ltd. This is intended to provide the company with an IT system. Is the $35 million solely for the use of the IT system?

Mr Swan —No, that is included in it.

Senator MACKAY —What is the $35 million for?

Mr Swan —All of the start[hyphen]up costs of the company, which include IT, some of it for the office fit outs and some of it for expense items during the course of the start up.

Senator MACKAY —How much was spent on IT?

Mr Halstead —The IT development is continuing and it has not been finalised as yet.

Senator MACKAY —How much has been put aside for IT?

Mr Halstead —Approximately half of it.

Mr Swan —The thing that sticks in my mind is that it has come in under budget, which I found very reassuring.

Senator MACKAY —Would it be approximately $17 million for IT?

Mr Swan —Yes.

Senator MACKAY —What is the remaining half being spent on—capital infrastructure?

Mr Swan —Office fit outs—

Senator MACKAY —No, specifically.

Mr Swan —I cannot go through carpets, partitioning, desks and chairs but there is a lot of that. Do not forget it is in 207 sites.

Mr Watson —The $130 million is a notional appropriation available for drawdown for the company. It does not mean that $130 million has been provided to the company and, in fact, the drawdowns, at the moment, only relate to something like $47 million. That is being continually reassessed between the company and the department, in terms of the actual drawdown that is necessary, the cash flows that are coming in from the market and so forth. It is very feasible that, at the end of the day, $130 million will not be drawn down.

Senator MACKAY —I understand that, but on the same basis the department is required to provide us with estimates. I am asking for an estimate. I have here response to a question on notice that I presume Mr Halstead had some hand in.

Mr Halstead —No, Senator, the department prepared that response.

Senator MACKAY —The department prepared this response?

Mr Watson —If you are referring to question 759.

Senator MACKAY —Yes. Can you answer some questions on this then? We have got $30 million which is estimated as a cost of capital infrastructure. We have disposed of $17 million in terms of the estimate as being IT related. What is the remainder being spent on?

Mr Watson —I think the answer to the question sets out what the $130 million is based on.

Senator MACKAY —No, the $35 million, Mr Watson.

Mr Watson —I do not have those details in front of me, Senator.

Senator MACKAY —Where can I get those details from? Do I have to go and ask Employment National again, do I?

Mr Watson —Employment National would be in a better position to answer.

Senator MACKAY —Right. Can you tell me—

Mr Swan —Fifty/fifty IT and property. IT including telephony—in round figures.

Mr Halstead —We have not got those figures available to us but we can take that on notice if you would like to get a breakdown into broad headings of property, IT, fit[hyphen]out, et cetera.

Senator MACKAY —All right.

Mr Swan —There is some debate as to whether or not—that is the cash cost, but the taxation commissioner has a fairly strict view as to what is start[hyphen]up costs and what is expense. We might end up capitalising a little bit more than that.

Senator MACKAY —Okay, that is fine. I appreciate that. Mr Watson, can you help me with the balance which is $83 million estimate, as the cost of maintaining a positive cash flow for EN until revenues enable it to sustain itself as a financially viable entity? Can you explain to me what the $83 million is specifically?

Mr Watson —It says that the funds are used to meet operational costs of staff salaries and expenses, leased property and other business costs, such as assistance for clients.

Senator MACKAY —How much is being expended on staff salaries?

Mr Watson —I do not have those precise details, Senator.

Senator MACKAY —Where would I find them? It is the estimate.

Mr Watson —For the precise details you would have to go to the company.

Senator MACKAY —Okay. How much of the $83 million balance, which the department has kindly dumped you in for, is being expended on staff salaries in terms of the estimate?

Mr Swan —The $83 million is the cash required to carry on. The staff salaries on an annualised basis, I believe, would exceed that. In fact, I think they do because there will be revenue coming in to augment the cash component. I really cannot tell you how much of the initial capital will go on salaries. In fact, it is not a sum that you really do. If you are asking for what the annual salary bill is, I will get it for you but how much of the $83 million goes into staff salaries, I really cannot say.

Senator MACKAY —I appreciate that. The problem I have is that the department has given me a response on behalf of you, which I do not know if you have seen. Have you seen—?

Mr Halstead —Subsequently, yes.

Senator MACKAY —Right. They have said that the $83 million balance will be used to meet operational costs such as staff salaries and expenses. Why don't I ask you what is the estimate for staff salaries and expenses? What is the estimate for property? What is the estimate for other business costs, such as assistance for clients? You have indicated yourselves that the cash flow estimates will incorporate earnings outside of any funding available by our out[hyphen]group appropriations.

Mr Swan —That is our ambition, yes.

Senator MACKAY —Okay. How will that money that you actually derive for being a commercial operation be processed?

Mr Swan —It will come into revenue. It will be taken up in the accounts as revenue and, if we get it in sufficient quantities, then obviously we would not draw down as much capital from the shareholder. In fact, one would like to think that we might even repatriate some but, at this stage, it is too early to say how much working capital we need, because there is a pretty steep learning curve for everybody involved in this, not least of all the company that has really only been operating for six weeks.

Senator MACKAY —I understand that. How will you derive income then? For example, we have seen the Employment National schedule.

Mr Swan —Most of it from DEETYA. For all practical purposes you could say, if not 99 per cent, most of it.

Senator MACKAY —This is in terms of the 19 months?

Mr Swan —You could have it for any period, yes.

Mr Halstead —Existing contract?

Mr Swan —Yes.

Senator MACKAY —Most of it is from DEETYA. Maybe I will just put a whole series of questions on notice on Employment National and you can have a look at them but essentially I do remind the minister that there is a compulsion here for Employment National to answer questions on it with regard to estimates.

Can I go to the charging regime that has got a bit of currency around the place; no pun intended there either. What is the charging? I understand it ranges from $250—this is for businesses—to $2,000.

Mr Swan —Approximately.

Senator MACKAY —Can you give me an indication of what that range represents in terms of services?

Mr Swan —Yes, $250 is the cost of a placement or advertising a vacancy and actually filling the placement.

Senator MACKAY —Broadly, job matching?

Mr Swan —Yes, broadly, job matching. It is a little bit more than that. It depends on the degree of service that the client wants because it will be client driven. If they want not only advertising but screening and interviewing and referees checking, then it could be getting up around the $2,000 mark. A lot of it is related to the salary for the vacancy that is advertised but most of it is the level of service required of the agency.

Senator MACKAY —How is it related to the salary of the vacancy advertised?

Mr Swan —At some stage one would like to think that we would have a range of vacancies that are getting up in salary above the traditional level that was handled by the CES and we might get a percentage of the salary, which is a common practice in the industry, but that is a fairly ambitious target at this stage.

Senator MACKAY —That is something that is routine in terms of the private sector and the CES?

Mr Swan —It is common practice in employment agencies, yes.

Senator MACKAY —And it is something presumably that you will be looking at down the track?

Mr Swan —Certainly, and with that of course goes guarantees that, if the placed person is not satisfactory, you will replace them within a certain time at the agency's expense.

Senator MACKAY —Okay. I am trying to do all the Employment National questions at once so they can leave.

Mr Swan —Thank you.

Senator MACKAY —Have you had complaints from employers with regard to this? There have certainly been complaints reported in the media.

Mr Halstead —There have certainly been some reported complaints that I have read, and I am sure you have as well, but not directly to us that I can recall. I think there is, as you have commented on a couple of times today, some learning happening in the market in terms of what services are available and from whom. I think some employers who traditionally used the CES are looking at a variety of providers. Some of them are coming to us and understanding what our services are, what we provide and at what cost. They are going to others and shopping around, so we are finding some employers are reacting to the range of services and products that are available on the market and certainly some are reacting to what we are providing.

Senator MACKAY —What kind of vacancy stream are you getting from the private sector where you are charging?

Mr Swan —Not nearly enough.

Senator MACKAY —Is this an impediment to the type of business that—

Mr Halstead —There are mainstream vacancies that are available traditionally both to the existing unemployed and others that are job changes, so they go from blue right through to white collar. They vary in geographical location and number. There are some traditional users of the CES that are using Employment National and, indeed, other job brokers in the marketplace. We are finding there are some new entrants coming to our organisation that had not traditionally used agencies and we are quite happy with the level of contact we are getting from those new sources.

Senator MACKAY —How many vacancies are you getting, for example, just as a guesstimate, where you are charging the employer?

Mr Halstead —I do not have that figure available to me and it is not necessarily a figure that would be available in terms of our business activity levels. But we tend to operate on a commercial basis with employers. We understand that, for us to be successful in the marketplace, we need repeat business. It is no good just doing one placement. You need employers to be repeat users and to come back to use your services, so you need to negotiate commercial arrangements that are both attractive to them and attractive to us. They understand what they are getting. They are prepared to pay on the basis of the service they are getting and we in turn can cover our costs in delivering that service.

Senator MACKAY —I appreciate that. Perhaps you could take that on notice and see whether you can provide that information to me.

Mr Halstead —The quantum of vacancies we hold would not be a figure that we would necessarily provide.

Senator MACKAY —No.

Mr Halstead —There may well be some opportunity to look at general percentages or aggregate figures that we might be able to provide.

Senator MACKAY —Sure.

Mr Halstead —I am happy to look at that. But you would appreciate the commerciality of that issue, in terms of our success or otherwise in getting fees being something that our competitors would be most interested in; and it would not be something that we would expose.

Senator CHRIS EVANS —Mr Halstead, perhaps I could jump in there. Could you describe to me more generally what is happening in the market in terms of relationships with employers? We know what the government claimed would occur prior to the setting up of the
system. I do not just mean Employment National: I know you are sensitive about your own information, but could you describe for me more generally what is happening in the market, in the sense of who is paying for services and what proportion of fees is coming from the government funded placements? Could you just give me some feel for that?

Mr Swan —The first thing to point out is that, much to the surprise of people like myself, we discovered that something in the order of 60 per cent or 70 per cent of vacancies are not filled through any intermediary whatsoever. In other words, all of the employment agencies—and there are literally thousands of them in Australia—generally only place about 25 per cent to 30 per cent.

Senator CHRIS EVANS —So it has not changed much from the—

Mr Swan —That really has not changed. That has nothing to do with the CES or Employment National. It just means that all employment agencies—from Egon Zehnder, down to someone with a telephone, one desk and two chairs. Most vacancies are filled in some other way. The CES had some very strong associations with some firms that were regular users. Several of the largest, including one of the largest companies in the world and one of the most rapidly growing retailers in Australia, have continued those arrangements with us on a fee for service basis, which we find quite attractive. So that is evidence of significant employers who can recognise the cost of recruitment.

As has been reported, some small employers have complained. I suspect the prospect of a $100 or $200 cost is readily understood, but what is not generally understood—and I can speak from experience in other industries—is that the cost of recruitment is something that a lot of firms do not really know, let alone understand. I do not think it is any different for a small employer than for a large employer. In fact, it is certainly more difficult to cost but it is also potentially more damaging if they recruit the wrong person, on the basis that they think it will be okay. A little bit of screening is a big help. I suspect that that is where some of the complaints are coming from. People recognise a couple of hundred dollars, but they do not recognise the potential cost of making a bad recruitment by not having recourse to anything other than their own judgment.

Senator CHRIS EVANS —Is it fair to say, though, that the complaints are mainly coming from small employers who have not had to pay fees for that sort of service in the past?

Mr Swan —That is what has been reported. As Mr Halstead said, we have not had any direct complaints to us, that I am aware of.

Senator CHRIS EVANS —But have you been successful in negotiating fee for service arrangements with small employers, or are you more in the medium to large employment area?

Mr Halstead —We have been successful in negotiating commercial arrangements with small employers, yes.

Senator CHRIS EVANS —I am trying to get a feel for the market. I am not asking for percentages, but is it true to say that you have more arrangements in place with medium to larger size businesses?

Mr Swan —Remember, after six weeks, the database from which we could draw a reasonable conclusion is really not—

Senator CHRIS EVANS —No, that is why I am after impressions rather than—

Mr Swan —It would be absolutely misleading to even pass an opinion about that. We just have not got sufficient information available to really make an intelligent guess.

Senator GEORGE CAMPBELL —The difficulty is that the other side of that question is that there is a fair bit of anecdotal evidence around that there is a lot of dissatisfaction—amongst small employers, particularly—about suddenly having to turn up at the CES, who were providing a service to them over years for free, and be confronted with charges to employ people. Some of that evidence has been made public. It has been written up in various newspapers.

Mr Halstead —Our position would be that, clearly, the market manager is DEETYA, and it is a matter for them in terms of how employers and users of the market may well use it. As one provider, we are very conscious that the dynamic is changing, and the market dynamic is changing on a daily basis, in terms of potential users, non[hyphen]users and new users, et cetera, coming into the market. We are monitoring that, and we will adjust our operations to take account of that dynamic. We understand the point you are making, but I cannot quantify the numbers of potential users that have come in and out of the market. We certainly know there are new ones coming in to the market.

Senator GEORGE CAMPBELL —One of the concerns is the figure—the break[hyphen]up you gave was 70:30—of people that find employment other than through employment agencies. If there is a level of dissatisfaction out there, particularly amongst smaller employers, that is being written up as anecdotal evidence, you would have to say that perhaps in 12 months time we will looking at figures somewhat nearer 80:20 than 70:30. They are not suddenly going to be convinced that $300 or $400 or $500 paid to you for an employee is a good investment, if they are screaming their heads off now.

Mr Halstead —I suppose our angle quite rightly is to get into the 70 per cent. We have made the public statement time and time again that we want to grow the market, and we want to grow the users that want to use the brokers, because of the points Mr Swan made. People need to appreciate the cost of recruitment, the cost of bad recruitment, and the advantages of having somebody do brokering and prescreening on their behalf, and we think we can sell those arrangements to the market. We think we can convince employers that there is value for service here, and we would hope to grow into that percentage.

Senator GEORGE CAMPBELL —That is only going to be measured with the efflux of time.

Mr Swan —Agreed.

Senator MACKAY —Is the $250 that you cite as the bottom end, in terms of the charges to businesses, the same as the amount of money you are getting from DEETYA, with regard to job brokerage, or job matching? No?

Mr Halstead —We will not comment on the contracted rate that we have with DEETYA. That is a commercial[hyphen]in[hyphen]confidence rate that we have, as any provider would have in the market.

Senator MACKAY —Right; so how is the $250 derived? Perhaps you could take me through the $250 to $2,000 span, which may be of some assistance.

Mr Halstead —In broad terms, Mr Swan has given you some indications.

Senator MACKAY —Yes.

Mr Halstead —There are a number of variables, not the least being the level of service; whether you advertise or not on behalf of the employer; the guarantees that you give, and the level of guarantee, and over what period of time: whether you guarantee for a one[hyphen], two[hyphen] or three[hyphen]month period; and the range of attention that you give the employer, in terms of
reference checking and pre[hyphen]screening. It goes to the level of service that they specify themselves. They actually pick the level of service they want. It is not a matter of imposing it. We understand that they are making a judgment about the service they want and their preparedness to pay.

Senator MACKAY —What do they get for the basic $250?

Mr Halstead —They would be assisted with reference checking; they would be assisted with interviewing, if they wanted us to interview on their behalf, and with prescreening.

Senator MACKAY —Right.

Mr Halstead —It would go up by degrees, if they wanted us to go much further than that. They may want a written report in respect of the individual candidates. They may want us to follow up the individuals that were unsuccessful and to give them feedback interviews as to why they were unsuccessful, and the nature of their application, et cetera. It is a common commercial practice that exists in the market now, and there are differentiated fees that exist in the market with some of our competitors in the mainstream business.

Senator MACKAY —In terms of the amount of time for a particular vacancy—if it was one, two or six months—is that related to the fee structure, is it, or did I misunderstand you?

Mr Halstead —It is certainly related to the level of service they want, and it is related to the amount of time we undertake on their behalf to secure the right person for the job. Given that amount of time, and the fee commensurate with that, we give certain guarantees in regard to our work.

Senator MACKAY —Okay. Say that somebody lodged a vacancy for a 12[hyphen]month period, as distinct from a six[hyphen]month period: are you saying there is a differential there?

Mr Halstead —No: it is the amount of front[hyphen]end time that we undertake on behalf of the employer. It is not the length of the vacancy that they are offering. It is the amount of activity that we undertake on their behalf in prescreening, preselecting and recruiting people that meet their requirements.

Senator MACKAY —What did you mean by those times of the one month and the two[hyphen]month—

Mr Halstead —If, within those periods, the individual proves unsuccessful, or the employer and the employee do not get on, then we will replace that individual at no cost to the employer.

Senator MACKAY —I understand. That is fine. In relation to the types of services provided within that fee structure—I appreciate that you operate within a commercial situation—what sort of service would you be able to buy for $2,000?

Mr Halstead —A premium service.

Senator MACKAY —I am sure it would be. What would it include?

Mr Halstead —Many of the things I have mentioned before. It may also include—without going into a lot of the commercial aspects—as you say, building different relationships with the employer. There may be some assessment or testing mechanisms that the employer wants us to undertake on his or her behalf, so that the cost of undertaking those tests, either in[hyphen]house or from a secondary source, would go into that level of service that we provide.

Mr Swan —It could include a specified number of people appropriate for a short list. It could even include sitting in on the interview. Some employers prefer to have an objective assessor during that interview as a sort of sanity test, or to be able to exchange views with after the
interview. It is really a range of services that are tailor made for the individual, rather than something that says one size fits all.

Senator MACKAY —Employment National is operating on a private sector model, which is why we are having this difficulty with the interface between the parliamentary process and yourselves. Employment National is not required to make a profit obviously, is it?

Mr Swan —That is not the impression I have had from the Department of Finance. They are talking about return on investment and I am talking about seeing what the debt equity ratio is first before we start going any further. I would like a little history before I put my finger in the wringer for this.

Senator MACKAY —You are saying that DoFA are saying that, as speedily as possible, start making a profit.

Mr Halstead —As Mr Swan said, there is a requirement to have a reasonable return to shareholders. That needs to be negotiated, but there is a distinct requirement for, as Mr Swan said, debt equity ratio, servicing the debt and giving dividends on the equity.

Senator MACKAY —A number of Employment National managers have indicated that they have been required to make a profit. Presumably they are looking at more prospective terms, are they?

Mr Swan —It certainly will not happen this financial year.

Senator MACKAY —I understand that, but it may well happen in the next financial year, all being well.

Mr Halstead —Like any organisation, we need to make contingencies, reserves and provisions to build our organisation. We need to make contingencies, not only for our own staff, but to develop, improve our information technology systems and look at new business opportunities. All of that requires capital and we need to build on the capital we have available to us to actually build our business.

Senator MACKAY —Do you think that, in the long term, Employment National is likely to remain in public hands?

Mr Swan —That is a question for the shareholders.

Senator MACKAY —Minister, do you think that in the long term it is likely to remain in public hands?

Senator Ellison —I cannot comment on that. I am not a shareholder. I can take it on notice.

Senator MACKAY —Yes. Is it planned that Employment National remain in public hands?

Senator CHRIS EVANS —I think it is a question of government policy rather than a shareholders' meeting question.

Senator Ellison —Let me put it this way: there is no contrary plan at the moment. That is about as far as I can take it.

Senator MACKAY —At the moment it is planned that it will remain in public hands.

Senator Ellison —Yes.

Senator MACKAY —If you give me a minute, I will find the rest of my Employment National questions. Perhaps, Senator Evans may have some questions to fill in the time.

Senator CHRIS EVANS —I am conscious that I was not here at the start and I will only take them over old ground and be criticised for not being here on time. I am very cautious because the chairman might leap at me; he looks primed. Perhaps I could fill in by asking the
department a question that maybe it has not been asked. Did any of the schools get awarded contracts in the new employment services market? Forgive me if that has already been asked and answered.

Mr Campbell —No, it was not asked, Senator. As far as I am aware, there is no school in that group.

Senator CHRIS EVANS —Were there any schools that applied?

Mr Campbell —We have not given out information on details, even by groupings, of people who were in the unsuccessful tendering group.

Senator CHRIS EVANS —You could get a job with Employment National, Mr Campbell. It seems reasonable that, as Minister Kemp put out a number of press releases exhorting schools to apply, maybe the minister will care to answer.

Senator Ellison —The policy behind it is that we do not want to advertise information about those who were unsuccessful because of obvious reasons: the embarrassment it may cause or disadvantage it might visit on them.

Senator CHRIS EVANS —I do not think there would be much commercial[hyphen]in[hyphen]confidence information with the schools, would there?

Mr Campbell —I will add to that. In recent months, there has been an expansion of the job placement program—the JPP—of which a number of schools are providers. I think there is currently a tender round for that going now. It is under program 3. But I think, to some degree, a number of schools may well have seen that, with the expansion of JPP, there was a lesser need for them to tender for the employment services market.

Senator CHRIS EVANS —So you are not expecting schools to apply in the next tender round?

Mr Campbell —I think it is too early to tell. We are only five weeks into the market. We have not released the tender. Before you came in, the secretary said that we are going through quite an extensive review of what we did, and that will include seeking comments from providers, from bidders and from potential bidders. It is too early to tell how the final construct of the RFT that we will release next year will look .

Senator CHRIS EVANS —So all you can tell me is that no schools were awarded tenders in this current round?

Mr Campbell —I have already said that to you, Senator—yes.

Senator CHRIS EVANS —You cannot tell me anything more than that? You cannot tell me whether any applied or whether they have been encouraged in the future?

Mr Campbell —As I said, we have not been releasing listings of people—even in a generic sense—who were unsuccessful. On encouragement, from the point of view of the purchaser—and we the department are the purchaser—I do not think it is really up to us to encourage particular organisations or particular classes of organisations to apply or not to apply for a tender that we are going to put out. We put it out—

Senator CHRIS EVANS —Minister Kemp was exhorting schools to apply and heralded this as a great opportunity for them late last year I think. Is that still government policy—to exhort schools to apply for tender?

Senator Ellison —There is certainly no policy to dissuade them from that. If we did publish a list of schools—not naming them; I appreciate you just want numbers—then an inference could be drawn that there were so many schools that applied but none of them got it, and it
is all fairly useless. Other schools that were thinking of doing it might then think, `Oh, well, it's not worth while applying.' For a number of reasons, that might not be a fair reflection on the school sector, and that is why it is dangerous to put these sorts of things out. The jobs pathway program is an area where schools are becoming increasingly involved, and one in which the government has a policy that they do become involved. But, similarly, we approach that with caution as well lest anyone draw misleading inferences from it.

Senator CHRIS EVANS —With respect, Minister, I think the defence argument is a nonsense, but I am not really interested in the particular schools. I am really interested in what the government is doing in policy terms. As I say, in April 1997, and I think on a couple of occasions, the minister was very keen to exhort schools to apply. I am just trying to ascertain whether that is still a push of this government or whether you have walked away from that. That is my interest, not which school applied or whether or not they had black marks against them for failing to get a tender, which, as I say, is a complete nonsense. It is not the point I am after.

Senator Ellison —I think the only way that I can answer your question is to say that we have not walked away from it.

Senator MACKAY —I want to go to the issue of the memo issued by Mr Storey to Employment National staff on the subject of public relations. Are you aware of that?

Mr Swan —Yes, we have seen it.

Mr Halstead —Indeed, Senator.

Senator MACKAY —Why did Mr Storey issue it, do you think?

Mr Halstead —He has a normal, regular communication with staff which takes the form of internal all staff circulars along the lines of that one. He does this on a regular basis. This would be one of a normal number of circulars that he would send out.

Senator MACKAY —Do you think it is fair for Mr Storey to indicate that members of the opposition are attempting to bully Employment National by raising issues? I am referring directly to the memo.

Mr Swan —I think it is a matter for his judgment, but I do not think they have been helpful.

Senator MACKAY —They may not have been helpful, but do you regard them as appropriate? Mr Storey clearly does not.

Mr Swan —That is his letter. Frankly, I do not find anything that he has said in there inappropriate, Senator.

Senator MACKAY —You do not regard any of this as inappropriate?

Mr Swan —No.

Senator MACKAY —Do you think that it is appropriate that he calls attempts by the opposition to hold Employment National as accountable as `sideshows'? He says that some segments of the media, a few members of the opposition, and the CPSU have attempted to put a negative slant on Employment National. I would dispute that, I would have to say, as, probably, one of the `few members of the opposition' he is referring to. He said that operationally, they intend to ignore these sideshows as much as they can.

Mr Swan —I think that is what they are. They are a diversion from the main game which is finding vacancies and placing people in them.

Senator MACKAY —So do you think issues of accountability, which is our role as members of the opposition, are a sideshow?

Mr Swan —Senator, that is not what I said. I said that I regard the information in the media as a sideshow. The accountability can be conducted here, or in camera, but frankly, the last time we were here, we were not asked very many questions, and from my reading of Hansard , the answers were quite unambiguous and their connection with the press release that you issued that afternoon was tenuous, at best. That is the sort of—

Senator MACKAY —Was that right?

Mr Swan —Yes.

Senator MACKAY —Can you explain that, Mr Swan?

Mr Swan —No. I think that what I have just said is perfectly clear.

Senator MACKAY —Why were they tenuous

Mr Swan —I am referring to the press release you made on 6 March.

Senator MACKAY —Yes.

Mr Swan —It misrepresented what was said on the day.

Senator MACKAY —How did it misrepresent it?

Mr Swan —Senator, I suggest you refer to pages 227, 228, 229 of the Hansard .

Senator MACKAY —No. I have read the Hansard , Mr Swan. I am asking you a question.

Mr Swan —In that case, have you got your press release with you?

Senator MACKAY —No. I have not.

Mr Swan —I can give you a copy of it.

Senator MACKAY —You are the one who is making the allegation. How is the connection tenuous?

Mr Swan —It did not reflect accurately what was said.

Senator MACKAY —How?

Mr Swan —`Public provider turns its back on the unemployed'. Wrong.

Senator MACKAY —Go on.

Mr Swan —That is enough. That is the headline.

Senator MACKAY —Go on.

CHAIR —Do not badger the witness.

Mr Swan —That is enough, Senator—`Public provider turns its back on the unemployed'. That is absolutely wrong.

Senator MACKAY —What was the point I was making in that press release, Mr Swan?

Mr Swan —There were several points in it.

Senator MACKAY —Yes.

Mr Swan —I do not propose to traverse them all. The public provider happens to be us and the assertion that we turned our back on the unemployed is manifestly wrong and it bore no resemblance to anything that we said.

Senator MACKAY —What question did I ask you, Mr Swan, that precipitated that press release?

Mr Swan —I cannot recall the precise question.

Senator MACKAY —You alluded to it earlier.

Mr Swan —You said:

presumably, when the minister said he had been contacted by some providers who may be prepared to provide free FLEX 3, he obviously was not talking about Employment National?

I said, no, and then Senator Ellison took up the point that the minister referred to FLEX 3 in the provision of free services and that he did not think that is what I had said. Frankly, there was enough in the Hansard to make this damaging to us and that is the sort of sideshow that has beat Mr Storey—

Senator MACKAY —Is that right, Mr Swan?

Mr Swan —Yes. It is. It has got nothing to do with our accountability.

Senator MACKAY —I will tell you that, as an elected parliamentarian and member of the opposition, I will put out whatever releases I like with regard to Employment National. It is not up to you to come here and lecture me about my press releases. You are here because you are accountable to the federal parliament of Australia for appropriations through the estimates process. I do not believe your comments were appropriate. Your answer was extremely clear and was, in fact, in contradiction to what the minister said, which is the point of my release.

CHAIR —No more questions on subprogram 4.1? We will move to program—

Senator MACKAY —I have more on 4.1, although not to Employment National.

CHAIR —We will continue with 4.1. I thank officers from Employment National for their forbearance.

Senator MACKAY —I want to ask about financial viability.

Senator CHRIS EVANS —Perhaps, Mr Chairman, I could ask a question. It is regarding BM8 on page 76 of the portfolio budget statement. It is headed, `Savings in the employment services market.' Can somebody explain what has happened there? I just was not clear.

Mr Campbell —A lot of this we went through this morning in general questions asked by Senator Mackay. Certainly, all the figures are now on the record about the savings against the various services.

Senator CHRIS EVANS —Did you cover the increase in the regional assistance program?

Mr Campbell —No, that was not covered this morning.

Senator CHRIS EVANS —Could you just explain to me what has happened there then? It looked very much like a labour market program. I was a bit concerned. I thought we had stopped all those.

Mr Campbell —When Senator Vanstone announced the new market arrangements in the August 1996 budget, what was set out in that was the movement to the market and the cashing out, as you have just alluded to, to most labour market programs. What her statement in August 1996 pointed out was that a small number of labour market programs will continue. One was NOOSR, which is to do with the overseas qualifications for migrants. One is the adult education migrant program where we provide funds mainly to state TAFEs, a very small program of about $4 million. With the employment strategies component of TAP, the training for Aboriginal and Torres Strait Islander people, about half of the amount of money we spent on TAP. And there is the regional program of some $20 million or $25 million.

That was foreshadowed in August 1996. What this budget measure does is take that program that was always going to be there and adds another $13 million to it.

Senator CHRIS EVANS —I have a figure here of $53.3 million of these savings that have been transferred to the regional assistance program.

Mr Campbell —That is over four years.

Senator CHRIS EVANS —I was just interested because one of the concerns I have had, and a number of senators have had, is the impact of the market in the regional areas. Senator Eggleston and myself have had particular concern about the north[hyphen]west of Western Australia. Is this an initiative to try to overcome some of the problems with the market in regional Australia?

Mr Campbell —There are two points I would like to make in that regard. First of all, the regional assistance program is a program—the name is a new name in the last two years—where we have provided assistance to regional areas that we have used over a number of years. This is using similar sorts of arrangements. We are providing assistance to regions, or to enterprises or industries within regions.

With regard to the second point, which was the north[hyphen]west of WA, there is one town, Karratha, that certainly you and Senator Eggleston have been talking about. We have put out a tender for fee for service, which was always within the structure of the market. We envisage an announcement on the outcome of that tender on fee for service in the very near future.

Senator CHRIS EVANS —Why have you done a fee for service in Karratha?

Mr Campbell —We have put out a fee for service tender in three locations, plus a slight variation in a fourth. As was said in the original paper back in August 1996, if we did not get provision of services in regions where we were currently providing services through the competitive tendering process, there were several layers of fall back—fee for service and the community service obligations.

Senator CHRIS EVANS —I understand that. I understood that you would have done that in the first round when you were doing the tenders.

Mr Campbell —No, because it was not until after we had been through the whole tender process that we were aware that in Karratha and several other locations we did not have the coverage that we had been committed to. That is why we went for fee for service at that time.

Senator CHRIS EVANS —When did you become aware that Karratha had not been covered adequately? I understood that in the department's first defence of this Karratha was covered adequately. Those were the press comments by the minister that I saw at the time. I may be mistaken because I do not have it in front of me. I thought Dr Kemp was quoted as saying—and I presume this was on departmental advice—that there were a number of services in nearby towns which adequately catered for Karratha, et cetera. This question of a fee for service tender is news to me. It was not used as part of the initial defence to the criticisms.

Mr Patterson —When contracts under the main request for tenderer were announced it became apparent that we did not have coverage in a number of locations at that time—Karratha, Torres Strait and Longreach—and entry level training services for Charleville. We then moved immediately to prepare tender documentation. In the case of Karratha we advertised for tenders on 30 April. We allowed them a certain time to put in proposals. We have a number of proposals for Karratha and we are going through the assessment process now.

Senator CHRIS EVANS —What did you ask them to tender for?

Mr Patterson —We asked them to tender for employment services similar to what we contracted for in the market. It was not to be paid on the basis of a fee per outcome but rather on a description of services that they put forward and us paying, on a quarterly basis, for the discharge of those services.

Senator CHRIS EVANS —So they are describing the services to you rather than you describing them to them?

Mr Patterson —We describe them in broad detail but they specify exactly the nature of the services that they offer. In broad terms, we invited tenderers in Karratha to bid for basic labour market services, which is essentially the job matching process, and also services for disadvantaged clients referred by Centrelink to assist them into jobs through training and other initiatives. Essentially, we allowed the providers to put forward the mix and match of assistance. They might put together proposals to get jobs for people and we asked them in the tender documentation to specify the outcomes that they were going to get.

Senator CHRIS EVANS —And a similar process has occurred in the other areas you identified?

Mr Patterson —That is correct.

Senator CHRIS EVANS —Mr Patterson, are you from the indigenous employment initiatives branch?

Mr Patterson —That is right.

Senator CHRIS EVANS —Does the reason you are answering these questions indicate that the major client group in each of these areas is indigenous people?

Mr Patterson —That is not the reason why I was given this job. Because of my client group I have taken some interest in questions of coverage and so on across the country. I have some background in those sorts of areas. I manage the fee for service arrangements, but not specifically because of Aboriginal clients.

Senator CHRIS EVANS —I assumed that maybe, because you are answering the questions, those were four areas where there might have been a high Aboriginal client group, and obviously the Torres Strait and Karratha struck me as being two potential areas where there might be a high Aboriginal client group.

Mr Campbell —Senator, I think you and I have had this debate once before about work for the dole responsibilities in my division.

Senator CHRIS EVANS —I see the staff numbers so I understand why you are wearing a lot of hats these days, Mr Campbell.

Mr Campbell —It is to do with the workload. We were managing the implementation of the market and the debriefing processes. The rest of the SES in the division were doing that so Mr Patterson and some of his staff, who were less involved in the market than some of the others, took over the management of the fee for services.

Senator CHRIS EVANS —I was interested if that was the issue; I was not pursuing it in other terms. Okay, so those four areas have got fee for service tenders. They are identified by you as being holes in the system after you had awarded the tenders. I presume you had some idea that there might be those holes prior to awarding the tenders. Is that correct?

Mr Campbell —During the tender assessment process, we gradually became aware—not at the same time—as we went through the tenders and the offers and the prices that were there, that we had several locations where services had previously been provided but where we were not going to be contracting some of our services. It was a more gradual process: there was no one particular day that we became aware of all four.

Senator CHRIS EVANS —No. I am surprised there are not more holes, in a sense, but—

Mr Sedgwick —But I take issue with the characterisation of this as `holes' in the system. And the reason is that the system had a number of complementary layers to it. The first line was the tender; but, as the RFT says, there were two others: one was fee for service and the other was CSOs.

Senator CHRIS EVANS —I accept the argument, sir. I was not trying to make a point. I was just trying to seek how you realised they matched.

Mr Sedgwick —We were just doing our review of coverage across the country, and it became clear that it was appropriate to offer fee for service in these cases.

Senator CHRIS EVANS —Do I take it then that some of the tenders covered those four areas for particular services? Might a provider have picked up some apprenticeships, say?

Mr Patterson —The Karratha area was serviced for entry level training services, the same as for Longreach and for Charleville. I am not sure of the details, but one would assume that they have got access to other services. So there is a different mix, depending on the location.

Mr Campbell —There are other services to Charleville: entry level training support services, where we did not get coverage.

Senator CHRIS EVANS —So these geographic areas have had some tender activity, but not the range of activity you ordered, and so you have only gone for fee for service for those remaining—

Mr Sedgwick —Torres Strait is a case where we had to use fee for service, because there was no alternative, but it is a fairly special case.

Senator CHRIS EVANS —Mr Campbell, to me you portray the $53 million for the regional assistance program as `business as usual'. The government seems to be announcing it with a bit more fanfare than that. Can you explain to me what that money is going to do that was not done previously?

Mr Campbell —The first point I made was that the $53 million is over four years. There is currently in the forward estimates $20 million for the regional assistance program, and for 1998[hyphen]99 there is an additional $13 million. That money is used for a variety of purposes. It is used for the incubator program we have. It is used for various employment related projects that the area consultative committees will put forward. It varies from region to region. I did not mean to leave any impression of `ho[hyphen]hum' or whatever, but what I was trying to say is that it is building on a base of a program that has been there, and that indeed was announced in its current name back in August 1996. But it does include the incubator program.

Senator CHRIS EVANS —You have not given One Nation any more funds in that regard, have you?

Mr Campbell —Sorry?

Senator CHRIS EVANS —Wasn't it One Nation that got some of those incubator funds last time, that got Senator Conroy excited?

Mr Campbell —No. There was a centre in Queensland. I think that is what you are referring to. We had stopped funding it by that time.

Senator MACKAY —How many FLEX 1 placements were made by the Job Network in May?

Mr Patterson —How many FLEX 1 placements? We need to take that on notice, Senator.

Senator MACKAY —Right. I do not understand why it is required to be taken on notice. There is a monitoring process in place in relation to placements.

Mr Patterson —I do not have the numbers here in front of me.

Senator MACKAY —Does anybody know?

Mr Patterson —No. I do not have them with me. We can get them.

Senator MACKAY —Perhaps you could. I do not want to wait three weeks for the answer, if that is at all possible. If you could get—

Mr Patterson —We will see what we can do.

Senator MACKAY —What was the placement figure for May 1997?

Mr Patterson —We would have to take that on notice. Do you mean placements by the CES?

Senator MACKAY —Yes.

Mr Patterson —I will take that on notice, but I would need to make a point about apples and oranges: they have a very different basis. A placement made by the CES was a placement into any vacancy. It could be for as little as an hour, unloading a truck down at the markets; whereas the definition under the market, of course, is that the minimum vacancy for which we will make a payment is for 15 hours over five consecutive days.

Senator MACKAY —Yes. I appreciate that. I was interested in Employment National's responses to Senator Evans with regard to the market share; I was curious as to whether it had changed. Could we go back to the issue of assistance to people who are not on benefit? Has the department done any work to identify how many people would no longer have access to the employment services market because they are not on benefit? We trawled through this last time, but with the effluxion of time we may get some more information.

Mr Rowling —The short answer is that we have done no further work.

Senator MACKAY —Have you done any work at all on the number of people who are not on benefit and would therefore not have access to the employment services market for free?

Mr Rowling —We really have no basis for calculating that. That was basically the question that was asked on notice at the last hearing, and our answer at the time indicated that we had difficulty in providing that information. We have no basis to shift from that.

Senator MACKAY —I am not sure on what basis you have difficulty, given that you have people who are registered with Centrelink for benefit who automatically are given access to the employment services market and, under the old regime, there was a situation whereby people had to register with the CES in order to get free access to services and, of course, go through the process with regard to eligibility. Are you now telling me that there has been no work done on how many people are affected by this change in policy?

Mr Rowling —Basically, no.

Senator MACKAY —Are you aware of such any work, Mr Campbell?

Mr Campbell —There are probably two points I want to make here. It is a very hard calculation to do, because at times you will see some estimates in the public arena about how many non[hyphen]allowee job seekers there are. We have never known at any point in time how many non[hyphen]allowee job seekers have been registered, because it is quite clear that people often registered with the CES and that they fell into many categories. I will put two: those who were actually looking for enhancement or a change of job, rather than being unemployed and looking for work; and another large group of young people from years 10, 11 and 12 who registered at the end of their year 10, 11 and 12. Many of them went on to do something else, but their registration stayed on the system until whenever their local CES region did what is
called `register cleansing'—you might be aware of that term. Even prior to May, there was no database that could tell you at any point in time how many job seekers were registered who were not in receipt of a social security benefit and were looking for work. There was no database that could tell you that, either.

Senator MACKAY —Okay, but it is fair to say that there is a significant number of people who will now not have access to the employment services market because they are unemployed but not on benefit.

Mr Campbell —At the risk of raising an issue that got raised last time, I will make two points. The government's policy position is quite clear, in that the Commonwealth will not fund the provision of employment services to the people we are talking about through Job Network providers. However, we are enhancing the self[hyphen]help facilities that are available in Centrelink offices. We are calling it Job Network Access, which we are providing already in some 40 Centrelink offices, and before the end of August there will be a further 150. Mr Correll might like to take you through some of the detail of what will be available for any person who is looking for a job, and not just for those who are on benefit.

Mr Correll —To date there have been 48 full Job Network access facilities deployed in Centrelink locations but it is fair to say that all Centrelink offices are providing a level of access to the Job Network. The full facilities include things like the touch screen units with access to the national vacancy database, telephone facilities, photocopiers, fax facilities and also a personal computer with software on it which allows a job seeker to prepare a resume.

Effectively a job seeker, whether they are eligible for a payment through a Job Network member having placed them in work or not, is able to walk into a Centrelink office, do a job search on a touch screen unit, take a docket from that job search and directly contact either the broker or the employer directly where it is an open vacancy. They can go to the PC, prepare their resume and fax their resume directly through to that employer from that location. It provides a range of extended facilities. Already those facilities are being used extensively in Centrelink offices where the full facilities are in place. As I indicated, the roll[hyphen]out plans are currently being finalised for the next 150 sites across Australia.

Senator MACKAY —What is the difference between that and what is being provided under job matching?

Mr Correll —Perhaps I should draw a comparison by looking back to the previous CES arrangements. Under the operation of the CES, the vast majority of job seekers found their own jobs effectively from vacancies posted on cards on boards in CES offices. About 70 to 80 per cent of jobs were filled in in the previous CES days by people self[hyphen]selecting jobs from those boards. That facility was then replaced by touch screen units, which are a more up[hyphen]to[hyphen]date and effective way of providing that. Comparing the level of service that was available to a job seeker from the previous CES arrangements with that from the new Job Network arrangements through the Centrelink office, it would have been rare for a job seeker to have been matched by the CES for a vacancy. In a great majority of cases they would have been self[hyphen]selecting against a job on a notice board or later the touch screen units. Under the new arrangements, it still represents a self[hyphen]selection situation but there are additional facilities to help the job seeker get in touch with the employer or support the process of applying for the position.

Senator MACKAY —But what is job matching?

Mr Correll —Job matching is where a third party is intervening in some way to match the skills of the individual with the requirements of the position.

Senator MACKAY —Right, so there is a difference between that and what you have described with regard to the upgraded services through Centrelink?

Mr Correll —Yes.

Senator MACKAY —And you say with the previous CES it was rare for the CES to match people with jobs?

Mr Correll —The great majority of jobs were filled through self[hyphen]service activity rather than through matching. That is right.

Senator MACKAY —But it was not rare for the CES to match people to jobs. Are you sure that is the adequate word to use?

Mr Correll —The great majority of jobs were filled through self[hyphen]service filling of positions rather than through a process of matching the positions. Where I say self[hyphen]service, that is where an individual is going to either job boards or the touch screen units and selecting the position themselves. They would then go to the counter and there would be a brief screening of that individual before any referral was made. But it still represented a self[hyphen]selection process. I would need to check the precise figures but the percentage of jobs that were filled through the CES through self[hyphen]service versus matching was in the order of 80 per cent via self[hyphen]service and 20 per cent via matching.

Senator MACKAY —Eighty per cent self[hyphen]service—I am sure that is correct. Yes.

Senator CHRIS EVANS —What are you doing in terms of providing Centrelink staff with training to answer employment queries? Is there a designated officer at a Centrelink office?

Mr Correll —As part of our service arrangement with Centrelink, we have an officer who has a role within the Centrelink office to oversight the self[hyphen]help or the Job Network access facility and they are there to be able to provide assistance to anyone who is having difficulty but I would emphasise that the major thrust here is, as the facilities would describe, self[hyphen]service, and what we are trying to do is make those facilities as self[hyphen]sufficient as we possibly can for the job seeker. That is the way they are largely being used but there is support there.

Senator CHRIS EVANS —Is that a full[hyphen]time officer in each of the Centrelink offices?

Mr Correll —No, it would not be a full[hyphen]time role in an individual office. It would be part of the duties of an officer in an individual office.

Senator CHRIS EVANS —Is there a designated officer?

Mr Correll —Yes, it would be. At the present stage within Centrelink offices there is an officer who has been responsible for maintaining an oversight over the self[hyphen]help facilities with touch screen units, and that role would be expanded slightly with the additional self[hyphen]help facilities going in.

Senator CHRIS EVANS —Is that in all the offices or only in the 48 you have referred to as having the full facilities? Mr Correll —The expanded role goes with the additional facilities. That is, as the facilities are rolled out so the role is expanded from that point.

Senator CHRIS EVANS —What does each office get? One full[hyphen]time equivalent? Is there going to be a designated person full time in that role in the expanded role or is it still going to be a part of a position under the Centrelink establishment?

Mr Correll —My understanding is that it would not be a full[hyphen]time designated role; it would be a part[hyphen]time position within the Centrelink office—a part[hyphen]time role attached to an individual in a Centrelink office.

Senator CHRIS EVANS —This would be someone who among their other duties was responsible for dealing with any queries or problems?

Mr Correll —That is the type.

Senator CHRIS EVANS —Are they receiving any training in terms of assisting people beyond the use of the machinery and resources? Where does the line stop with them? Is it limited to saying, `This is how you use the touch screen,' or `You might like to look at this, this and this as a means of helping find a job.'

Mr Correll —The way it is set up is largely to provide help in the use of the facilities and to ensure the facilities are as self[hyphen]sufficient as possible. There is also a telephone contact line if there are any technical difficulties in the use of the PC equipment and the preparation of their resume. There is a hotline facility that is also available.

Senator CHRIS EVANS —If they have a query about their entitlement to access intensive assistance or what have you, what would they do?

Mr Correll —We might invite a Centrelink member to comment on that.

Ms Hogg —I am the National Manager for Employment Services in Centrelink. The processes Mr Correll described are correct and it is really on a needs basis within the office in terms of how much resource is actually applied to assisting customers. Our staff are always available to assist customers either with the use of the machinery or to answer any inquires on their access to the whole of Job Network.

There are a couple of other support processes as well. One is that Centrelink provides a national help desk to support customers who might be using the facilities. There is a phone number that they can call while they are actually using the equipment, et cetera. If there is a problem where they do not understand how to use the equipment, et cetera or how to use the software for the resume, they can ring this number and be talked through the process as well. There is on[hyphen]site and off[hyphen]site assistance.

You were going to the question of general information about Job Network, et cetera and assistance to find work. We also have a process apart from individual interviews with customers which I am sure you are aware of. When they contact Centrelink and are looking for work, we hold information seminars where we invite our customers to talk through the whole process of income support and looking for work. Staff are available to answer any general questions that customers might have when they are coming into Centrelink and want to know about how to find a job or, indeed, how to get income support.

Senator CHRIS EVANS —I am trying to get a feel for where the service stops and for where they then go to their job network provider. I am trying to get a feel for how far Centrelink is prepared to help them, or is commissioned to help them, and where you then refer them on. I will leave it there.

Senator MACKAY —With regard to the subcontracting, one of the questions on notice indicated that approximately 10 per cent are currently being subcontracted. Is that an adequate figure?

Mr Campbell —I think, from memory, it is 35 or 36 that have some subcontract arrangements approved in their contract.

Senator MACKAY —Are these the ones that actually are required to go to DEETYA for permission to subcontract?

Mr Campbell —Yes.

Senator MACKAY —Not job agencies that can contract services or aspects?

Mr Campbell —We are talking about a large part or a substantial part of the contract. That could be either the contract in toto or part of the contract, for example, at a regional level.

Senator MACKAY —Is the information that I got on notice from the department still current—that there is only one where there has been an entire subcontracting?

Mr Campbell —No. There are three—

Senator MACKAY —There are three where there has been an entire—

Mr Campbell —Yes, but let me qualify that because, without going into names of the organisations, there is one that has subcontracted totally and there is another organisation where the way it is legally constructed—this was part of the approval process when they came—is that it is a company that then has members but not shareholders and the members then have a legal subcontracting arrangement with that company.

Senator MACKAY —Is that ISS?

Mr Campbell —Yes. The secretary talked earlier about reallocations. The third one is where, in particular, a number of providers were not offered FLEX 3 and therefore they did not accept FLEX 1. In one capital city, as part of the reallocation through the selection process and a ranking, we offered business to an organisation and they asked if they could subcontract the total of that business in two or three sites for May and June this year and then they would take over, without any subcontracting arrangements, from 1 July. In a technical sense there are three, but on 1 July there will only be two.

Senator MACKAY —The latter actually subcontracted to whom?

Mr Campbell —To an existing provider for the two[hyphen]month period.

Senator MACKAY —For May and June.

Mr Campbell —To make sure that there was coverage in those two months.

Senator MACKAY —That is three and you probably have around 32 left.

Mr Campbell —It is 35 or 36 so either 32 or 33 have some part of their business subcontracted. I think more than half of those set that out in their tender. There is only a very small number who have come in since the announcement of contracts and asked to subcontract part of their business.

Senator MACKAY —What sort of aspect of the business is being subcontracted out?

Mr Campbell —Usually it is subcontracting out business in a particular site.

Senator MACKAY —In a particular site?

Mr Campbell —Of one or more services in a particular site. That is a generalisation, and not every case would be like that. I do not profess to be able to go through chapter and verse of all 35 or 36. In the main, it is an organisation that, for example, might have a particular service in a region or a state, and in a particular one or two localities they may have asked us to agree to subcontract to another organisation.

Senator MACKAY —What type of organisation are they subcontracting to? Are they existing organisations?

Mr Campbell —Not always. In some cases they are people who have contracts, and in other cases it will be a different organisation. Let me make one point. We might have made this before but seeing how we are drilling into subcontracting I want to put this on the record.

Any approval of subcontracting is just that. We still hold, contractually, the original organisation totally responsible for the delivery of whatever services it is we are talking about. Indeed, all the tenderers put forward strategies, and part of addressing the criteria was strategies to actually implement employment services. The few agreements to subcontracting have been made on the basis that the person who is providing subcontracting will actually undertake and provide the services that were set out in the original organisation's tender.

Senator MACKAY —In the cases where the subcontract is going to agencies with existing contracts, presumably their performance indicators and how they are going would be picked up in the course of their own contract. What about in the case where it is being subcontracted to organisations which were unsuccessful or never applied through the tender process?

Mr Campbell —We will monitor their performance. In effect, the one that has the contractual commitment to us and, therefore, the one that has any contractual follow through will be the organisation with which we have signed the contract.

Senator MACKAY —You will not be monitoring the organisation to which they have subcontracted to?

Mr Campbell —I want to be careful, because I think there might have been a bit of confusion with this little issue on 6 March. Let us assume we have organisation A and that it seeks our agreement—and we grant it—to contract a particular service to B in a particular location. We will monitor what happens at B. In effect, the organisation that we have the contract with is still the first organisation. We will monitor what happens with B but we will also be monitoring that they are delivering against the strategies in the original tender. So yes we will be monitoring.

I think there was a little confusion at the estimates hearing on 6 March where I think part of the question about monitoring—I think you might have been asking the questions of one of our officers—was whether we would be monitoring an organisation that might be buying training from a third party, not a subcontracting arrangement. I am not sure that the debate was not a little confused there.

Senator MACKAY —I will come to that later, and I do understand the distinction.

Mr Campbell —We will be monitoring that those services are being delivered pursuant to the contract that we have entered into with the first organisation, which will reflect their tender.

Senator MACKAY —Excluding the ones where there has been a total contract out with the various caveats that you have provided, out of the 32[hyphen]odd subcontracts how many have gone to organisations which are not members of Job Network?

Mr Campbell —I would have to take that on notice.

Senator MACKAY —Are we talking a lot?

Mr Campbell —Not to be held to it, I would think that we might be ballpark 50 per cent, 50 per cent.

Senator MACKAY —Right, and you can cover check that?

Mr Campbell —That is an impression, because I have not looked at the figure in the context in which you have asked me, but we can take that on notice.

Senator MACKAY —All right. Just for the sake of continuing the discussion, we are talking about 50 per cent or so. What process does DEETYA have in place to monitor, with regard to the 50 per cent, work that has been subcontracted out to people who are not members of Job Network? What precisely do you do in terms of the monitoring role?

Mr Campbell —This gets caught up into our total monitoring arrangements with our contract managers in our state offices, and it is at several levels or layers. At the first level, there is the monitoring through performance statistics through our computer system. There are KPIs that are set out in the RFT, and they are reflected in the contract and they are pretty standard. There are also visits, where we visit, both randomly and on a planned selection, sites and providers to see what is going on and to check whether it is performing against the terms and conditions of the contract. We have our complaints, queries and feedback line, and we find that we get more than complaints on it. That will obviously also be a source, if you like, of information coming to us about the provision of providers. There is a whole range of issues. We have several hundred people in our state offices whose predominant role is to work with Job Network members, and to be part of the monitoring process.

Senator MACKAY —What is happening with the funding, where there is formal subcontracting? Just on your A and B analysis, do you continue to pay A?

Mr Campbell —Yes, we continue to pay A. All of the conditions that A put forward in their tender, both their undertakings, their price and their numbers, locations, et cetera, we hold to a contract. We will make payments to organisation A according to the contract. For example, if it is a FLEX 1 placement, the placement will be claimed. In most cases, the claim would be lodged by B electronically to us, but we would pay, on behalf of A, because they have the contractual arrangement. We will pay A.

When clients go into FLEX 3 and say, `Yes, we're going to enter into an agreement and there is the claim for the first payment,' it will go to A. I do not know of any circumstance where we would be making a payment to the subcontractor.

Senator MACKAY —So what is happening? If A has subcontracted out all of its FLEX 3 or its intensive assistance, and the department pays A, how do you know how much B is getting?

Mr Campbell —We do not. We are not party to, and we have not sought to be party to, the detailed financial arrangements in any subcontract. What we have gone to pains to ensure is that the conditions, the coverage and the undertaking set out in A's tender to us will be provided for under that contract. But we have not gone into the financial arrangements between those two organisations.

Senator MACKAY —So how do you know there is not the capacity under this new system for skimming?

Mr Campbell —There are two things in all of that, I suppose, and I might refer back to our debate at the very beginning this morning. We came in with an assumption, and we acknowledge that it is an assumption because that is all we can base it on. We have those savings. This is a 19-month contract. We will be issuing another tender, probably in March of next year—the final date has not been determined, but if you work backwards it has to be February or March—at which time the question of prices and the question of what competition brings to bear in the market will, I think, impact upon what people bid and what contracts get signed at the end of next year.

Senator MACKAY —How do you know that skimming is not occurring with regard to A? How do you know that A is not pocketing, say, the substantial amount of money that is provided by the government with regard to intensive assistance?

Mr Campbell —Senator, A won an extremely complex and rigorous tender which had—for everything except FLEX 3—a significant element that was price competition. We sign
contracts on price competition. As we said to you this morning, prices vary within regions and across regions. We have an average price for each service, which we gave you this morning. We will hold A to the terms and conditions of their tender, and that is quite explicit in each of the contracts. From our point of view, we have agreed to pay them that price and we do not see that it is our responsibility to enter into the details of their subcontract arrangements on the financials. What I have said is that we are making sure that A meets the terms and conditions of the contract. With respect to B, to the extent that the market judges there is some capacity in all of that they will presumably bid accordingly with their prices next year.

Senator MACKAY —Okay, so the answer is that you do not know or that you do not investigate it?

Mr Campbell —But I think that leaves the impression that the Commonwealth is saying that there is skimming there. I thought the debate we had this morning was about the savings. We are saying that we got those savings through a competitive market. There is no doubt that that competitive market will settle down and that organisations will come to their commercial arrangements. There are 35 or 36 subcontracting arrangements, of which only three are in total and only two of those are for the whole term of the contract. In less than 19 months there will be a new round of contracts and, presumably, we and the market will have learnt more about pricing and pricing practices.

Senator MACKAY —But the point I am trying to make is that you do not know whether skimming is occurring because you do not investigate what the contractual price arrangement is between A and B.

Mr Campbell —I am not sure—and this may be a question you should put to the ACCC—but if you have a competitive market and the competition has worked, and I think from all the observers we have had in this process competition has worked to date, I am not sure how you can say that skimming has occurred in that competitive market. Skimming implies that it is not a competitive market or that some other process is underlying it.

Senator MACKAY —Absolutely.

Mr Campbell —I think I am arguing that the spread of prices, the range of prices and the range of organisations that we have had means that we have a competitive market. Therefore, I do not think the term `skimming' can come in.

Senator CHRIS EVANS —Is it true that both propositions cannot be supported at this stage in the process? The fact that somebody may have entered into an agreement with a subcontractor, and whether that proves to be commercially viable or beneficial, only time will tell, I suspect. That does not detract from Senator Mackay's concern about what might have occurred. It may well be that they have all underpriced and that they will go bust. We will not know for a while, I suspect.

Mr Campbell —The point I make, and I think I have said it twice now, is that I have no doubt the providers will take into account their experience in the first market in the prices they bid in the second market.

Senator CROWLEY —I understand that A can charge B a commission for the subcontract.

Mr Campbell —It is quite conceivable that A and B have entered into a financial arrangement which means that there is some financial return to both organisations. I would not call it a commission. In each of the 35 or 36 cases there is an arrangement between the two parties. I would be surprised if there was not some financial arrangement in those contracts but they are not the contracts that we have entered into.

Senator CROWLEY —Has the department been interested to find out what type of commission rate is the going rate?

Mr Campbell —I have not heard and nobody has approached me with any information about the commission rate. I do not see that we have any contractual basis—we could seek legal advice on this—to inquire into the financial arrangements between A and B and the hypothetical case we are talking about.

Senator CROWLEY —If organisation B could have done that direct without commission, the taxpayers may be a little better off. Why should the taxpayers be funding a commission from a contractor to subcontract these services?

Mr Campbell —That is assuming that, in the circumstances we are talking about, B tendered and was cheaper or at the same price. We are talking about hypotheticals here, and I think you are presuming that, in those types of cases, B did tender and tendered at a lower price. It may well be that B tendered at a higher price and what we have here—

Senator CROWLEY —And sometimes you have let contracts at higher prices; we have evidence of that.

Mr Campbell —What we have here in at least one scenario—the scenario that I am putting forward—is B recognising that the service can be provided at a lower price.

Senator CHRIS EVANS —The point is that you did not just let the contracts based on price, did you?

Mr Campbell —No, and I said that.

Senator CHRIS EVANS —That is where it is difficult. You did not define all the parameters. I mean, people were not necessarily tendering for the same thing. One company may have been tendering for a broader range of services, for a broader geographical area—

Mr Campbell —Yes, but they could put in different prices and different appointments for different services in different regions.

Senator CHRIS EVANS —Yes, but it is not a defence that is open to you on this occasion, given the way you went about the tender process. It was not a straight price tender competitive thing.

Mr Campbell —I did not say it was.

Mr Sedgwick —It was not. Each tenderer had to be able to satisfy us against the criteria that were set down in the RFT. If they did not do that, they did not get through to that allocation stage. When we were doing the business allocation, we took into account a wide range of things, and not just price.

Senator CHRIS EVANS —We are now asking you whether you applied the same standards to the subcontractors?

Mr Sedgwick —The subcontractor has to meet all of the obligations that the original contractor specified when they bid. The original contractor is still responsible for the strategies which they identified in their RFT and the basis on which they got the tender.

Senator CHRIS EVANS —So you have no knowledge of the precise details of any of the arrangements to achieve those? Is that your evidence today?

Mr Sedgwick —No, on the contrary.

Senator CHRIS EVANS —Are you not saying that it is commercial[hyphen]in[hyphen]confidence between them? You have legal obligations still to the prime tenderer—

Mr Campbell —No, I said that we did not have details of the financial arrangements between the two parties. I think I said that at least twice. I did not say that we did not have information about what the subcontractor would be doing. We have said, and it is part of the contract and part of the correspondence between us and the original contractor, the one we have subcontracted with—it will vary from case to case, and depending on where the service is—that they have to assure us that the subcontractor will meet the terms and conditions of the delivery of that service, as set out in their tender.

Mr Sedgwick —Let us say that A wishes to subcontract to B, and that B did tender and that B's strategies were different from A's. We may well want to see evidence from A that B will deliver against A's strategies and not B's before we would agree to the subcontract. Is that clear?

Senator CROWLEY —Will you at some stage get an audit report from each of these A organisations and will you find out in their auditing how they have allocated funding to B, including any commission?

Mr Campbell —No. We are not entering into any contractual arrangements with the subcontractor.

Senator CROWLEY —No, I am talking about when A audits A's books. Will they tell you anything about how they have arranged the subcontracting?

Mr Campbell —This is not an arrangement based on acquittal of their accounts. The financial arrangements between us and the 300[hyphen]plus Job Network members is not based on them acquitting the moneys we pay to them. The moneys, except for the first payment under FLEX 3 and the first payment under FLEX 2, are all paid for job outcomes. We will audit that. We will monitor that. These are not payments, as used to be the case under the labour market programs such as skillshare or jobtrain, where the organisation had to acquit back as to what happened to those payments. In effect, we are paying on an invoice for a service that they have done for us.

Senator CROWLEY —Mr Secretary said earlier that he would be very interested to review all the tenderers against the criteria at the start, and from time to time—

Mr Sedgwick —No, I do not think I said that. I thought I said, if I have correctly picked up the reference, that we will be reviewing the whole tender process to see if there are ways available to us to make it a more efficient and clearer process all around. We will be monitoring the performance of every successful tenderer against the performance indicators that are laid down in the contract—which we will show you a version of—and we will be making payments to them on the basis of the outcomes that they achieve, typically. But we will not be going back to revisit everything, provided that they can demonstrate to us the facilities that they have promised, and that our client feedback and monitoring arrangements show that they are basically doing what they promised.

Senator CROWLEY —So, in the tendering process, when you were looking at the financial viability of an organisation, or cash flow and things of that sort, which were going to be important in letting the tender, these will not be matters that you will revisit?

Mr Sedgwick —Their financial viability was a matter that was assessed in the context of the tender. These organisations are responsible for their own future. We will not be revisiting their financial viability and deciding whether to award business to them. If they go broke they stop business and we will take steps to reallocate their business. It is up to them to manage their affairs. Is that getting at your question?

Senator CROWLEY —It just seems to me quite amazing that you would go to such lengths—as you explained to us this morning, at least in the general outline—to assure yourself that these organisations were financially viable but, once they have got the tick, all you care about is that they get six jobs at sixpence each and that that is three and six.

Mr Sedgwick —We did not guarantee anybody a living.

Senator CROWLEY —I think that sum was wrong.

Mr Sedgwick —Sorry?

Senator CROWLEY —Never mind; maybe it is not. It is right.

Mr Sedgwick —We said that it is up to them to attract the employers and that it is up to them to attract the job seekers. We did not guarantee them any level of cash flow. They have got to be able to perform in the market in order to generate the income that will keep them afloat. If somebody is not performing well, we reserve the right to allocate business to somebody who is.

Senator CHRIS EVANS —Can you guarantee them a flow of vacancies though?

Mr Sedgwick —No. It is up to them to canvass for vacancies and to deliver the service to the employers and to the job seekers which is attractive to both parties.

Senator CROWLEY —In the light of what you were saying to Senator Mackay, I am interested that you cannot assure us that there may not be some skimming. You are not presuming there is any, and neither are we, but we would like to know if there is a subcontracting arrangement that that is no more than a straight and honest deal. You are saying to us that, provided they deliver the contractual assistance for these people, then we will not worry too much about this. We are a bit concerned about the flow of precious taxpayers dollars.

Mr Sedgwick —So are we, particularly given the background of some of us. This was a competitive market. If one of these characters put a bid in that they expected would enable them to make a nice little sum, laying off the contract to somebody else who could deliver it cheaper in any substantial way, they took an enormous risk. The risk is that B tenders in their own right and B gets the business and they do not. We had over 1,000 organisations tender. We had 5,300 tenders to assess. The likelihood is that margins are reasonably fine. If there are deals being done around there, then I suspect that they are deals at the margin, and they are not large sums of money. That is just a gut feeling, but the logic of a price competitive tender, where people do not know what other people are bidding, says to me that must be the case.

Senator MACKAY —Mr Sedgwick, I agree that at the end of the 19[hyphen]month period they do run the risk of the apocryphal B being the successful tenderer, but in the 19[hyphen]month period it is a nice little earner for the apocryphal A potentially. I think that is the point that is being made here.

Mr Sedgwick —But A had to bid. A chose the price and A's price had to be low enough to win.

Senator CROWLEY —And A was in one case supposed to provide services to northern South Australia. We were on a visit there not too long ago and none of those services had been provided yet.

Senator MACKAY —A could get allocated a whole lot of FLEX 3 which it could subcontract off to B. That is not price competitive.

Mr Sedgwick —In the price competitive area particularly, the risk to me does not seem high.

Senator MACKAY —But we do not know, do we?

Mr Sedgwick —If you look at the way that a provider will go about delivering the service, they are going to purchase a lot of inputs. They will have computers and training courses and advertising and Lord knows what else. If in their business judgment it is cheaper to purchase services of that kind by running a contract with somebody whose job it is to provide IT or a communications service, then that will be the cheapest way of doing it. If someone makes a quid out of that, that is fine. The taxpayer still can be better off because the service is cheaper overall.

Senator MACKAY —Does the Ombudsman have jurisdiction over the employment services market?

Mr Sedgwick —I think the answer to that is not at the moment.

Mr Campbell —But we do have a contractual framework in place which provides a measure of cover here.

Mr McMillan —The answer is as has already been indicated by the secretary—not formally at the moment.

Senator MACKAY —But the Ombudsman has indicated that he will be investigating complaints against the employment services market.

Mr McMillan —Yes, indeed, because the Ombudsman has jurisdiction over the department and the actions that the department takes.

Senator MACKAY —Right, but at the moment you are saying that he does not have jurisdiction over the employment services market.

Mr McMillan —Not full jurisdiction. Perhaps I can take that on notice and check up what is proposed because, as you will appreciate, this department does not administer the Ombudsman Act. Can I take that on notice and see exactly what the situation is to assist you, particularly with what is proposed? I would be relying too much on recollection to say any more than that.

Senator MACKAY —Right.

Senator CHRIS EVANS —What is the current jurisdiction in relation to Employment National?

Mr Sedgwick —I do not know that off the top of my head.

Mr McMillan —Can I take that on notice as well? I would need to check up what the Ombudsman Act says in relation to a company that is wholly owned by the Commonwealth. I just cannot recollect off the top of my head.

Senator CHRIS EVANS —We have been through it at length. I think we did that in the context of having a piece of legislation governing the market the last time we went through these things in detail. Then we were assured that the Ombudsman Act would apply, as I recall.

Mr Sedgwick —We have a very high level of cooperation between us and the Ombudsman on this. We do want to make the dispute resolution and complaints procedures that we have in the code of conduct effective.

Senator MACKAY —Will you take that on notice?

Mr McMillan —Yes, Senator.

Senator MACKAY —Thank you very much for that. I would like to go to the answers to questions on notice, Nos 834 and 835, provided to me. Mr Campbell, I think you took that on notice with regard to the formula for the allocation of FLEX. I had asked a question in relation to what factors were involved in the indicative FLEX allocation of the tender documents. The interchange, as I recall, went to the nature of FLEX allocation—need versus job opportunities. It seems from the chart that you have provided, to take Job Matching FLEX 1—to use the term I have been using all day—the weighting for all allowees is 20 per cent, allowees being clearly people who are on benefit.

Mr Campbell —On social security benefit?

Senator MACKAY —Yes. Then the second column relates to vacancies filled. That is presumably vacancies filled by the CES over an indeterminate period. You have not specified what period there.

Mr Campbell —No.

Senator MACKAY —The third column is ABS employed residents. It is number of people employed by place of residence. It strikes me that, in terms of the allocation of FLEX, 80 per cent is based on employment opportunities and 20 per cent is based on need—that is, how many people there are in this category.

Mr Pratt —I would interpret that as 60 per cent based on the population of the labour market in that region and 40 per cent based on the number of vacancies which were filled.

Senator MACKAY —Right, but why is the weighting for the eligible group only 20 per cent for FLEX 1?

Mr Pratt —It is a matter of being a fairly sophisticated allocation of business based on the actual status of the labour market, so you need to mix clients who are eligible for services, as well as all those others who are in work, which gives you an indication of the size of the labour market. That is also complemented by the data there on the number of vacancies filled.

Senator MACKAY —I understand that. But surely, with allocation of FLEX 1 for people who are on benefit, there ought to be a nexus between the number of people who are eligible and in need of more than 20 per cent?

Mr Pratt —That is certainly the case with intensive assistance with FLEX 3.

Senator MACKAY —Yes, I know. I will come to that.

Mr Pratt —Job matching is a service which is largely aimed at employers, of course. It is a service where providers go out and obtain vacancies from employers in order to match job seekers to those vacancies. That is why there is a greater weighting towards the status of the labour market with job matching, as opposed to intensive assistance, which relates very much to the needs of a disadvantaged job seeker.

Senator MACKAY —So FLEX 1 is aimed at employers?

Mr Pratt —It is a service which helps employers, yes.

Senator MACKAY —I thought it was actually aimed at assisting eligible job seekers, who were on benefit, to get jobs.

Mr Pratt —Of course it does that as well. But FLEX 1 cannot exist without employers' vacancies. So the first thing that Job Network providers have to do is to obtain those vacancies.

Senator MACKAY —But we are actually talking about allocation of resources here, are we not? We are talking about allocation of dollars.

Mr Pratt —Not exactly. We are talking really about allocation of places for job matching.

Senator MACKAY —Yes. But there is a dollar.

Mr Pratt —It is different from dollars, because the vast majority of dollars with FLEX come with intensive assistance.

Senator MACKAY —I know that. I will get to FLEX 3 eventually. I appreciate that. But, with regard to FLEX 1, job agencies actually get money for placing eligible people who are eligible with regard to FLEX 1: is that right?

Mr Pratt —That is correct.

Senator MACKAY —Now you are saying to me that the amount of FLEX that was actually allocated—the job matching FLEX—is essentially for service to employers. Really the need, as far as this chart is concerned, is aimed at long[hyphen]term unemployed people.

Mr Pratt —No. That is not what I am saying.

Senator MACKAY —What are you saying? I am not clear.

Mr Pratt —I apologise if I am not being clear. In relation to job matching, clearly it is a service for job seekers, and Job Network members are paid when they place eligible job seekers in an employer's vacancy. However, they cannot do that unless of course they have obtained a vacancy and put it on the database. In allocating job matching places around the country, we had to take into account the state of the labour market—where those vacancies would be. It would be pointless, for example, to allocate a lot of job matching places in an area where there are very few vacancies, or where there are very few people who are employed—which suggests that there is a labour market.

Senator MACKAY —But wouldn't it make sense to allocate FLEX on the basis of where there are a high number of unemployed people?

Mr Pratt —More so with intensive assistance than with job matching.

Senator MACKAY —Yes. Forget intensive assistance: you have got to be long[hyphen]term unemployed to qualify for that. I think this is proving the point I was attempting to make at the last estimates, which is that it seems there is a fairly substantial factor of employment opportunity or job opportunity in relation certainly to FLEX 1 and FLEX 2—and I will come to FLEX 3 in a moment.

Mr Pratt —I am sorry. Can you repeat that, Senator? I did not hear it.

Senator MACKAY —There seems to be a fairly substantial weighting to job opportunity—that is, size of the labour market and number of vacancies—rather than how many people there are actually employed and eligible. The number of people employed and eligible is actually only 20 per cent waiting for FLEX 1.

Mr Pratt —There is a distinction between job matching and the other two services, I agree. There is a greater emphasis on the status of the labour market in terms of vacancies and size of the work force for FLEX 1. I agree with you.

Senator MACKAY —Right. But surely this is going to create, as the dries like to call it, a distortion in the statistics: if the allocation of FLEX 1 is not predicated on where the need actually is and on where the number of unemployed people actually are, and the vacancies are in fact filled because there are more job opportunities in certain areas like metro, for example, and fewer job opportunities in states like Tasmania, where I come from, then that is going to mean their take[hyphen]up is going to be much quicker and FLEX 1 positions are going to be filled much more quickly, which is going to make the statistics look very good.

Mr Pratt —I can respond to that by saying that, with job matching, we of course have considerable flexibility to move places around within the country as need dictates. If, for example, in Tasmania there were to be a great deal of placement under job matching well ahead of our estimates, then we would make more places available for job matching in Tasmania. So we can respond to that.

Senator MACKAY —No. I understand that, Mr Pratt. What I am talking about is what happens if 1,000 people suddenly become unemployed in Tasmania. I am not talking about the number of jobs that are actually filled. I am talking about the number of people who are actually unemployed. The FLEX 1 allocations do not bear, other than in that 20 per cent, any real resemblance to the number of people that are actually unemployed in a particular area.

Mr Pratt —The FLEX 1 allocations are for payments to Job Network members for placing someone in a job.

Senator MACKAY —Yes.

Mr Pratt —So they relate to a job placement, not to the actual number of clients.

Mr Campbell —Senator, can I add a point here? You have said a couple of times that you will come to FLEX 3 in a minute. Probably, given the way your questions are going, you should look at FLEX 3 at the same time, because while they are by service there really is a relationship between them.

If you have a geographic location—and I think you are hypothetically picking a region that might be well below average, in terms of employment opportunities, with a lot more unemployed people and people who are more disadvantaged—you are arguing that they are not getting enough FLEX 1 places, but the reality of life is that the relationship between what those types of regions get between FLEX 1 and FLEX 3 is that they will be getting higher than might otherwise be expected numbers of FLEX 3 places.

Senator MACKAY —But that is correlated to the long[hyphen]term unemployment rate.

Mr Campbell —No. FLEX 3 is correlated to disadvantaged job seekers, those who are likely to be long[hyphen]term: not solely the long[hyphen]term unemployed, but also those at risk.

Senator MACKAY —I appreciate that. Do you want to come to FLEX 3 now? I would not mind coming back to FLEX 1 later.

Mr Campbell —I draw the tables on pages 14 and 15 of the red book to your attention. If you have a look, there are other factors which come into it, such as the number of people employed and the number of vacancies filled. If you look at the proposition you were putting, you will see that there are regions that have the same number of FLEX 1 places but have very different FLEX 3 commencements. That, in the main, reflects the fact I have just mentioned, which is the combination of the two that is actually picked up.

I understand the point you are making, but it is the combination of the places under the two services; you just cannot look at the places under FLEX 1. That is what was tried to be done with the combination of FLEX 1 and FLEX 3. You are talking about a low weighting for allowees under FLEX 1, and that is why there is a very high weighting for allowees, particularly the long[hyphen]term unemployed, those at risk, and those under intensive assistance. When you look at regions that might have a poorer labour market than others, if you have two regions in FLEX 1 that have the same sort of labour market and have similar population bases, you will find that the region that has the relatively poorer labour market and poorer conditions will get far more FLEX 3 places.

Senator MACKAY —Yes. But the point is, surely, that we do not want to wait until people are actually eligible for FLEX 3. Surely we want to place them before they get to the FLEX 3 level. What I am saying is that with the indicative allocation of FLEX 1, which is there to actually place people before they get to the FLEX 3 level, 80 per cent of that formula is predicated on employment opportunity and not on the number of unemployed people.

Mr Campbell —Again, even within FLEX 1, the distribution between the 29 regions is like this. We have the total number of places, and we went through that this morning about the estimates: 850,000 places. What then occurs is that the formula for FLEX 1—the weighting of 20, 40 and 40—gives you those figures in table 3 on page 14.

If you take the two Tasmanian regions—you mentioned Tasmania a moment ago—they have 11,300 and 12,100. The Gippsland area or Wide Bay/Burnett that have FLEX 1 amounts similar to those for each of the Tasmanian regions—which is probably, by rule of thumb, not too unreasonable. Looking at FLEX 3, Wide Bay/Burnett gets the same, but Gippsland gets less FLEX 3. It is a very complex interplay of variables. What we were trying to do was to pick up the allowees and the number of those at risk or long[hyphen]term unemployed plus the strength of the labour market: it is a combination of FLEX 1 and FLEX 3.

Senator MACKAY —I will stick my neck out here and say that I think it is designed to make the statistics look good. The reality is that, in terms of the potential client group, if you only weight 20 per cent, and the rest of it is actually derived from the capacity to fill the vacancies, then your vacancies are going to get filled very quickly, but that does not actually reflect the success rate.

Mr Campbell —Senator, you stuck your neck out; I will stick mine out too. My area was ultimately responsible for the development of these, and there was no consideration, at any point in time, about the ease of filling vacancies. It was always done on the basis of what we are talking about here: to try, given the resources we had and the places that they would provide, to give an equitable split between the 29 labour market regions, taking into account the number of allowees in the various categories, the vacancies filled and the number of people employed. There was never, at any point in time, to my knowledge, any consideration of developing two tables that would enable people to have doctored figures or good results.

Senator MACKAY —I appreciate that that may not be your objective. Did you make the final decision on the formula?

Mr Campbell —A committee chaired by me made the final decision on these figures on pages 14 and 15, yes.

Senator MACKAY —I am not attributing personal motivation here.

Mr Campbell —I am saying it was not even a criterion or a consideration of the group who determined those figures.

Senator MACKAY —Okay, that's fine. I find it unusual that the weighting is not more than 20 per cent for the actual client group, let me put it that way, and I think probably an unintended effect may well be a quick vacancy filling.

Mr Campbell —I would make three comments. Firstly, this is the first time anybody has attempted to do this sort of weighting. Secondly, we have given milestones in every providers contract where we have reserved the right to move places around if people are underachieving milestones to those who are overachieving. Thirdly, we will be very closely reviewing and monitoring what is happening in the market. I think the combination of those three factors means that we will keep a very close handle on what is going on. I can assure you there was
never any consideration or intention to create the figures in the way that you thought might be possible.

Mr Sedgwick —There is an extra point as well, which is that if you are allocated intensive assistance FLEX 3 places, there are a number of FLEX 1 places that are allocated to you that are tied to the number of FLEX 3s that you have. It is up to the Job Network member to determine whether they put a FLEX 3 client or a FLEX 1 client into their—

Senator MACKAY —What do you mean `tied to'?

Mr Sedgwick —All providers of FLEX 3 and FLEX 2 were required to offer FLEX 1. When a number of places were offered to a FLEX 3 provider they were also given a number of FLEX 1 places. It is up to them whether they use them for FLEX 3 clients or FLEX 1 clients.

Senator MACKAY —Let us just come briefly to intensive assistance. Why was there a 20 per cent weighting at all? Why is it not totally predicated on need of a client group?

Mr Pratt —Sorry, I was busy doing some calculating. Could I have the question again.

Senator MACKAY —Sure. With regard to intensive assistance, why was there any provision made for job opportunities at all? Why was it not totally based on need?

Mr Pratt —If you take the reverse of the argument I was running before, you need to have some vacancies or some labour market available for the intensive assistance places to be of much use to the job seeker. Looking at an extreme example—and we have never done this—if you were to put a large number of very expensive intensive assistance places in a location where you might have quite a few job seekers but virtually no vacancies, you might find you are wasting the time of those job seekers and the taxpayer's dollar. You would be better off using other services to assist that client group.

Senator MACKAY —For example, what?

Mr Pratt —For example, some of the programs available for Aboriginal job seekers, or the fee for service arrangements we are looking at, the regional assistance program, those sorts of options.

Senator MACKAY —So the extrapolation of what you are saying is that if you have got a very poor performing labour market with a whole lot of long-term unemployed people eligible for intensive assistance and the labour market is very badly performing, then 20 per cent of the weighting with regard to the formula would take into account the fact that it is a badly performing labour market. Ergo, they would get less intensive assistance.

Mr Pratt —You might use that to allocate other resources. You would put your intensive assistance where you could make better use of it. It does not say you would not put intensive assistance resources in that area.

Senator MACKAY —I am just saying it is a factor. It is a cyclical argument. You have a poor performing labour market with a very high unemployment rate with regard to eligible long-term unemployed people and they are penalised because they are in a poor performing labour market to the tune of 20 per cent.

Mr Pratt —I would prefer to look at it as a way of making sure that we are putting the resources which will best assist job seekers in the locations where we can make the best use of our money. You would not agree that we need to take into account the status of the labour market in allocating resources?

Senator MACKAY —What I am saying is that FLEX 3, as you have indicated, is not an infinite source. It is not an infinite source of funds. In fact, it is a very small amount of money
if you look at it in relation to long[hyphen]term unemployed people. What I am saying is that if you were to provide more FLEX 3 in depressed areas, even if it is a poor performing labour market, you at least give people the opportunity of getting placed. At the moment a ceiling is being imposed. That is my point.

Mr Sedgwick —As you have pointed out, the relativity between the weight to allowees and the weight to vacancies is markedly in favour of allowees. It is basically driven by the number of allowees. The other one is very small.

Senator MACKAY —I appreciate that but I do not understand, or there may be a difference of opinion, bluntly. I think it should be 100 per cent based on the eligible client group; otherwise you do get in a cyclical situation.

Mr Sedgwick —Because it is clearly dominated by the allowee population, at the margin it says that there is a small preference in favour of an area that has got more vacancies rather than less. It is really marginal.

Senator MACKAY —It is not for FLEX 1 or 2.

Mr Sedgwick —Yes, but I think we have been through that.

Senator MACKAY —Yes, that's right.

Mr Sedgwick —It is a different kind of market.

Senator MACKAY —Why was this form not provided before? I actually asked for this, I think, last time and the time before. I think Senator Evans might have asked a number of questions in relation to how FLEX was allocated. We did suspect it was job opportunities.

Mr Campbell —I am not aware that we had been asked for this information before the last Senate hearings. Of course, after being asked for it on 6 March we have provided it, as requested. I am not aware that we were asked for it before.

Senator MACKAY —I remember at the time you and I had an interchange about it. I asserted that job opportunities were a factor and you did not disabuse me of that. You did not correct me.

Senator CROWLEY —Mr Sedgwick, we had evidence given to us at an inquiry in Melbourne on 7 May 1998 that caused us concern at the time, and I wondered whether I could run this past you. This was at a regional unemployment investigation and one of the witnesses in Melbourne, in Footscray, said this. Senator Mackay had made the comment to a previous witness:

So clearly price competitiveness, which is the pattern that is emerging, was the primary factor.

Mr Welsh said:

We would assume so.

The next witness said:

Could I just comment on this: we actually won FLEX 1 and 2 tenders, and our prices were substantially over the going rate in the western suburbs because we were dealing with a specialist group of clients—so are YES West. Talking to our colleagues in the industry, there is absolutely no rhyme or reason for the decisions that were given. We had people with $1 million behind them who were told they were financially unviable. We had $250,000 and we were fine financially. In our tender we got FLEX 1 and 2 and refused it, but we had been doing FLEX 3, and they knocked us back.

Senator Mackay said:

You were offered FLEX 1 and 2, even though you were substantially over the going rate, whatever that is? It varies from area to area, from what I can determine.

Ms Milthorpe said:

We were offered it at $230 and I know another of my colleagues got it at $190—in the same suburb.

Would you please comment?

Mr Sedgwick —I would not want to comment on the facts, because I just do not know whether they are right or not. But, in a way, you are proving exactly what we have been saying all day, which is that, in allocating business in this tender, we took into account a range of things and not just price. In determining financial viability, we took into account a range of things, including the risk to the Commonwealth. We would be less concerned about an organisation that was just getting FLEX 1 money, which is relatively small and only paid when you place someone in a job, than we might be with, say, ELTs, where there was a relatively larger proportion of up[hyphen]front money and a longer term relationship between the client and the provider. So, without wishing to comment on the particular facts, I think that illustrates quite nicely what we have been trying to say now for weeks about how we took into account a wide range of matters when we made a business allocation judgment, and not just price.

Senator CROWLEY —Please help me. What else would have decided you to allocate at $230 when down the road you were allocating at $190?

Mr Sedgwick —We allocated business at a wide range of prices. We need to go back over a fair amount of old ground here. When we assessed an individual tender, we did it in several stages. We looked at its financial viability and at its suitability against the selection criteria. If it was judged as suitable on both bases—and we have told you that there is a process of quality assurance and reassessment that is involved in order to get to that point—the tenderer was then considered in price rank order for the price competitive services—say, FLEX 1, for the sake of it. So we had in front of us a list in price order showing the different tenders that had been put forward by each tenderer—because they were allowed to put in more than one bid. We took into account the geographic spread and the volume of business that they offered in terms of both the minimum and the maximum that they wanted, because we wanted to make sure that we had enough competition in the market. If someone with a low price wanted too much of the business, we might well have passed them over to go to somebody else. We had a look to see whether we had an appropriate coverage of specialist services in a region, and we did some very sophisticated analyses that allowed us to choose between different volumes of business and different prices and coverages across a region. That is exactly how the thing was done. It was a very sophisticated process.

The fact that somebody may have bid $250 and somebody else may have bid $150 is fine. In assessing those bids, we would look first at the ones who bid $150, and if we could meet our needs in terms of coverage and competition and all those other things at a price of $150, we stopped, and those who were bidding $250 missed out. If we did our allocation at $150, $170 and $180 and we had some holes—to use Senator Evans's term from earlier on—some attribute of the market that we wanted to address, and somebody else offering a higher price was able to meet that need, then we made a value for money call. If we were prepared to pay the price in order to get the coverage, then we offered them the business. That is how it was done.

Senator CROWLEY —Can you understand why folk out there are very, very confused?

Mr Sedgwick —No, because if you go back and consider the criteria that were laid down in the RFT, we said all of that. Frankly, Senator, you would expect no less of us. In this forum and in others—many times—we have been asked: was price the only criterion? Each time we have said no. Each time we have said, `You have to be able to pass a suitability test' we then
did some allocations taking into account the criteria that had been laid down about competition, coverage and all the rest. You would expect no less of us. Out of that, we did get a range of prices, but we also got the coverage that we were looking for.

Senator CROWLEY —And you have a lot of very confused people. If you are not aware of it, Mr Secretary, let me tell you that they are very confused. They meet in the main street of Footscray and they have a little chat. We know that nobody is supposed to chat and I am not saying anybody does chat. It is just that it is amazing how this information goes around. It must be a kind of ESP.

Mr Sedgwick —One of the very interesting things here is that it is also important for us to recall that we will need to do this tender process again. Next time around people will have to make the same kinds of judgments that they made this time: what do we offer? The critical thing here is that any tenderer is not assessed in absolute terms. Any tenderer is assessed relative to the other competition at a lower price, in the case of FLEX 1, or a better quality score, in the case of FLEX 3. If we had somebody else who offered a desirable set of attributes at a lower price, or at a higher quality score, in the case of FLEX 3, then they got the business and the other person did not. Next time around they will have to make the same judgments and so will we.

Senator CROWLEY —This woman said to us, `We were offered FLEX 1 and FLEX 2 at $230, whereas another colleague in the same suburb was awarded FLEX 1 and FLEX 2 at $190.'

Mr Sedgwick —Clearly the taxpayer is better off by $40 per head.

Senator CROWLEY —Why would you award it for $230? You actually awarded it for $230.

Mr Sedgwick —Again, because this was a market clearing exercise. We were seeking to achieve a certain level of business—the ones that were laid down in the RFT—augmented by some additional places that the government agreed to late in the process. We were looking for a level of business, a level of coverage, a level of competition and a value for money call. We took all of those things into account.

Mr Pratt —In addition to Mr Sedgwick's comments, there is another reason why that could have occurred in that area and it relates to the fact that anyone supplying FLEX 2 or FLEX 3 had to also provide FLEX 1. You will recall that this was a rule in the tender process. The provider which was offering FLEX 1 at a cheaper price may well have been a very competitive FLEX 1 provider in that location in its own right. The provider which was charging $230 for FLEX 1 may have only got FLEX 1 business which was paid at the highest non[hyphen]specialist rate in that region for FLEX 1 places which were tied, in the vernacular, to the FLEX 2 places they got. These were quite clearly explained in the request for tender documentation.

Senator CHRIS EVANS —Do you concede there were a lot of people who wished to tender who did not want to tender for FLEX 1?

Mr Pratt —Yes.

Senator CHRIS EVANS —There were a lot of organisations who saw themselves having a niche. That was one of the complaints about the tenders, as I understand. There were a lot of organisations who saw themselves having a niche market or particular skills or particular experience who did not want to actually tender for that FLEX 1.

Mr Sedgwick —They could tender for FLEX 3 and only accept the FLEX 1 places. How they managed that FLEX 1 clientele was up to them.

Senator CROWLEY —They tendered for FLEX 3 and they were offered very expensive FLEX 1 and FLEX 2 which they rejected. This is a monument to creative accounting.

Mr Sedgwick —If they were offered very expensive FLEX 1 and FLEX 2 it was because they tendered for it.

Senator CHRIS EVANS —Yes, but they were required to tender for FLEX 1, weren't they?

Mr Sedgwick —$230 is not all that expensive.

Senator CHRIS EVANS —A whole range of organisations expressed the view that they did not want to do the FLEX 1 work but you made it a condition of the tender.

Mr Sedgwick —We made it a condition of the tender that if you tendered for FLEX 3 you had to be prepared to accept a corresponding—there is a formula that is in the RFT—amount of FLEX 1 business which you could choose to discharge in respect of your FLEX 3 clientele if you so wished. Similarly, if you tendered for FLEX 2 you were required to take a certain number of tied FLEX 1 places. There was no compulsion on anybody to tender for FLEX 1 in its own right.

Senator CHRIS EVANS —That is what I am saying. There was a range of organisations who saw themselves having a niche market in the FLEX 2 or FLEX 3 area who did not want to take on that sort of work and did not see it as part of their philosophy or in tune with their organisation's goals, mission statement or what have you. I think that is one of the problems that came out of the tendering process. That might be behind some of this evidence, in a sense—that people felt they had a particular service which was of value and that they might have been quite competitive at but they were required to tender for other services as well which may not have fitted their mission statement or their view of the world.

Mr Sedgwick —They were not required to tender for FLEX 1; they could have been prepared to accept the tied price for FLEX 1.

Mr Pratt —The request for tender document makes it very clear that if a FLEX 3 or a FLEX 2 provider wishes to limit their services to those clients they can limit their FLEX 1 services to those clients.

Senator CHRIS EVANS —I understand that.

Mr Sedgwick —It has just been pointed out to me that they were required to tender for FLEX 1 so I will retract that statement.

Senator CROWLEY —I have to say, though, that the evidence of this witness finishes up with heaps of praise from our Liberal Senate colleague from Victoria who was able to remind us just how very good this organisation has been and wishes them well and hopes that they succeed. This is not an organisation out of the blue. It is an organisation that has a splendid reputation and I might say are people who really know what they are talking about in terms of trying to assist people into employment but who found themselves completely flummoxed by how the tender process was being allocated. I think it is a matter of real confusion out there, Mr Secretary, and I think that it is important that you know that. It may be absolutely logical, looking at all the criteria and doing all of those things, but try telling the folk out there why it costs $190 down the road but $230 up the road.

Mr Sedgwick —As I said to you a bit earlier on, if there are avenues that are available to us to make it easier to understand or easier to access, then we are all ears. But I have to say that what we did was in line with what we said we would do in the RFT.

Senator CROWLEY —It will be interesting to see how the review goes.

CHAIR —Any other questions on 4.1?

Senator CHRIS EVANS —I asked Mr McMillan to stay at the table because we were talking about the subcontracting and we went off those. Mr Campbell was helping us with some evidence about the subcontract arrangements. I want to be clear in my own mind what the legal liability involved is here. You have contracted with the prime contractor and they then subcontracted all or part of that work to another entity. You have no claim, I gather, on the subcontractor. Your claim or legal relationship is only with the contractor. Is that right?

Mr McMillan —Yes, the situation is as Mr Campbell was summarising but perhaps I can refer you to clause 3 of the employment services contract 1998[hyphen]99 which gives the provider's obligations. Clause 3.6 provides for subcontracting. The first point about 3.6, as Mr Campbell has already indicated, is the necessity for the department to agree with the subcontracting arrangements. Then the clause goes on:

If DEETYA agrees that the provider can subcontract the performance of all or part of the services, the provider will still be responsible for the provisions of services under this contract.

That is, as Mr Campbell said, really the reference in the contract to which he was referring back, in effect.

Senator CHRIS EVANS —What, Mr Campbell, potential legal liability issues arise? Most of the funds are provided on completion, are they not, but there are some up[hyphen]front payments involved?

Mr Campbell —There are for FLEX 2 and a number of the services.

Senator CHRIS EVANS —Yes.

Mr McMillan —In the event that it became apparent that the services were not being performed in accordance with the contract, then we would take appropriate action under the contract in relation to unsatisfactory performance against the provider because they are the ones who are responsible—that is to say the head contractor rather than the subcontractor.

Senator CHRIS EVANS —Yes. If the subcontractor was to go into liquidation, declare bankrupt or what have you, you would feel you were adequately protected by being able to, if necessary, I suppose, as a last resort, sue the original contractor. Is that how it works?

Mr McMillan —Ultimately, although strictly speaking the way in which we would really address any performance issues is as has already been indicated. There are officers who are responsible for the management of each contract. They would need to ensure that as soon as we were aware of any problem, there was a contact with the head contractor with a view to identifying the problem and seeing what was proposed to address it. Then we would really need to go through the processes which might very well ultimately result in the termination of the contract and, in the event that the contract had to be terminated and there was a liability, we would be proceeding.

Senator CHRIS EVANS —I am trying to get it clear in my mind what sort of liability would be incurred. There is obviously expenditure of Commonwealth funds. I suppose other people might be enrolled in training courses, et cetera which might require payment by the subcontractor to the training provider.

Mr McMillan —It is possible that there might be something but if it became apparent that the subcontractor was having some difficulty, then in a sense one would really need to look at what the result is. The result that the department wants is the provision of the services so it might very well be that the department would cease dealing with that particular arrangement and make alternative arrangements with some other contractor.

Mr Sedgwick —It is a bit hard to speculate on these things because it is the kind of thing that you handle on a case by case basis. We would always be looking to try to minimise any impact on individuals and to getting them reassigned or whatever.

Senator CHRIS EVANS —Yes. I am trying to go to what the potential liability of the Commonwealth is or what the exposure might be in some of these subcontract arrangements.

Mr Sedgwick —The amount of up[hyphen]front payments, apart from ELTs, is relatively small but the bulk of the money comes on placement.

Senator CHRIS EVANS —Yes. The only other costs would be probably to meet training costs or other things entered into on behalf of the client which might need to be completed and had not been paid for.

Mr Sedgwick —That is what I mean by the need to assess on a case by case basis how we would handle that.

Senator CHRIS EVANS —It is not necessarily the case that the original contractor is still providing any employment services at all, is it? Was that your evidence before, Mr Campbell? You had a discussion with Senator MacKay about those who contracted out. I gather some of those persons who were primary contractors had dispersed any employment services business. Is that right or not?

Mr Campbell —Only with three of the 35 or 36. One of those was only for a two[hyphen]month period. With one of the three, that is actually the way they have constructed the legal entity.

Senator CHRIS EVANS —The majority of them have given up part of their tender.

Mr Campbell —And it has usually been on a location basis.

Senator CHRIS EVANS —And have any of the tenderers actually handed back tenders? Have they given up their rights to—

Mr Campbell —When we wrote out to providers on 19 January, we sent out contracts that in every case were consistent with the tender that that particular organisation had lodged. We sent it out to over 300. A number of organisations as a result of that came back. In particular, the vast bulk of those that came back and said that they did not wish to proceed any further were those that we have talked about a couple of times this afternoon. They bid for FLEX 1, 2 and 3 and did not get FLEX 3. We then reallocated business using exactly the same principles we used leading up to 19 January that the secretary has outlined in some detail. Most of that reallocation occurred prior to 1 May. There have been a couple of very small changes or reallocations since 1 May but the vast bulk occurred in February and March.

Senator CHRIS EVANS —Have any of the major tenderers expressed the view that they were having difficulty coping—I should not use that term. Have any of the major tenderers sought to hand back particular regions or substantial parts of their work?

Mr Campbell —At various times during that period January through April, we pointed out to a number of inquirers—and it could have been small or large—that if you are being offered this it is consistent with your tender and, as the tender said, we are not entering into negotiation for you to say, `Well, I only want this bit.' So there may well have been some organisations who came back to us and said, `Well, we really like what you are offering us here but can we just have that region and not the other region.' In every case our answer was, `No, the offer we have made you is totally and utterly consistent with the tender you lodged and, if you wish to reject part of it, you reject it all.'

Senator CHRIS EVANS —On what basis were they coming back to you? Did they think that it might be a bit too hard?

Mr Campbell —The reasons varied. On the issue that Senator Crowley was reading about a little while ago, often the reasons that we were given might not have been the real reason anyway. They varied. Sometimes it might have been internal dealings within their organisation, if they were covering more than one region, and in other cases it may have been that they were reconsidering their business strategy. As I said, in any contract that we sent out, to any provider who came back and said, `I want part of that, but not all of it,' we said, `No, you either take it all or none.'

Senator CHRIS EVANS —I was just interested in whether there was any pattern where they had identified an area where tenders had decided that this was not going to work.

Mr Sedgwick —No, it was more just that we are all learning in this process. Sometimes when a tenderer had a look at what they had actually got and it was not exactly what they wanted, they would try us on to see if they could get a better deal. We kept saying to them, `A tender is a tender is a tender. You have been assessed in accordance with the rules; you have been assessed in accordance with your own tender. Choose. You're either in or you're out.' That is not unusual in things like this.

Mr Campbell —There was also no pattern geographically. There was no discernible pattern by type of organisation—big, small or geographic.

Senator CHRIS EVANS —I just wondered whether some people suddenly discovered that the Northern Territory was a bloody long way away and it was all looking too hard. The other aspect of that is: do you have any concerns that any of those people who came back to you will not be able to meet their tender obligations? Have you had any occasions where they are going to struggle to meet those obligations? I know it is early days, but given that they raise an issue with you, was that a warning signal that there was a problem here?

Mr Sedgwick —I think you are right. It is too early to tell. The thing though that needs to be borne in mind is that the levels of business in the competitive areas and the prices that were let were ones which, in their business judgment, they were prepared to put forward in the RFT. We have no reason for believing that those figures are any less relevant now than they were when they put them in, particularly since they have accepted the bid. We will just see how it goes.

I think I have said it many times now. This is not a market where there are any guarantees. The providers have to be able to satisfy both job seekers and employers at one and the same time, and they have got to get out and perform. That will be the secret. If they can manage their costs and perform in a way that meets the needs of the people whom they are meant to be servicing, they will do okay.

Senator CROWLEY —Can you tell us how many contracts have been handed back after acceptance?

Mr Campbell —I would have to take that on notice, Senator.

Mr Sedgwick —It would be very small, I think.

Senator CROWLEY —Mr Campbell, I understood you to say there were some who nominally got the tick from you and then said, `Oh, that's not what we really wanted. We've got FLEX 1 and FLEX 2, but we wanted FLEX 3.' That was before the start[hyphen]up date. In particular, if you have any contracts handed back after acceptance, can you make that dividing line if there have been any after that?

Mr Campbell —After 1 May?

Senator CROWLEY —Yes. You have explained, more or less, in answer to questions to Senator Evans, how you have filled those gaps, but do you have a strategy or protocol for such events?

Mr Campbell —Up until now we have been operating under the rules of the tender and the procedures set out in the tender. We have been following those to the letter.

Senator CROWLEY —But if somebody has accepted a contract and then rings up and says, `No, we're not going ahead with it,' you have a gap to fill. Do you have a protocol for filling that gap?

Mr Campbell —That is what I am saying. Up until now, where that has occurred, we have used all the procedures and processes that are outlined in the tender and which the secretary has outlined, both here today and on 6 March.

Senator CROWLEY —Does that mean you would ring up people who have been unsuccessful bidders?

Mr Campbell —We would not ring. We would do it far more formally than that. It does depend on what you mean by unsuccessful. As we have pointed out on a number of occasions, in the case of the price competitive services, the process of tender assessment through compliance, financial viabilities and assessment against the selection criteria meant at the end of that we had a ranking of price.

If after the contracts had been offered, the provider had said no, we then went back to that ranking which took into account not only price but all the other factors, plus their minimum[hyphen]maximum range that they bid for, because the tender allowed for minimum[hyphen]maximum ranges, and their locations. In any allocation that has been made subsequent to the first round that went out on 19 January, they have followed exactly the same letters, processes and procedures as we followed up to the period of 19 January.

Mr Sedgwick —In that context, the options that we have had are to allocate some additional business to somebody who is not yet at their maximum—because they bid a price and a range of business—to bring in somebody new or, if it is a small amount, we may not reallocate at this stage. We might wait until down the track.

Senator CROWLEY —How quickly can the department respond to a gap caused by the handing back of a contract?

Mr Campbell —We have on each occasion responded very quickly.

Senator CROWLEY —`Very quickly' meaning?

Mr Campbell —A number of days by the time we make our decision and write to the new provider.

Senator CROWLEY —How do you know when a contract has been handed back? Do they ring you up or do they do it more formally?

Mr Campbell —They have done it in a variety of ways, but we have on each occasion asked for formal notification from them.

Senator CROWLEY —I could understand that, but they could ring first and say—

Mr Campbell —At times they might have mentioned it to the contract manager—in early February—but we have always insisted upon formal notification and a return of the relevant contracts.

Senator CROWLEY —If a job seeker is inconvenienced in any way by a contract being handed back, will this be taken into account in terms of their further eligibility?

Mr Campbell —I think you are referring to a job seeker who has been referred to a provider who then subsequently hands back a contract. I do not think that has happened.

Senator CROWLEY —If it were to?

Mr Campbell —There is provision in our agreement with Centrelink for the transfer of job seekers from one provider to another. I do not know the full details.

Senator CROWLEY —Do you have an asterix that you can put on them so that they are not disadvantaged.

Mr Pratt —Senator, if it ever happens, those job seekers will be a priority for referral to another service provider.

Senator CROWLEY —I think that is fine. I understand that. Can you assure us that they would not in any way be disadvantaged?

Mr Pratt —In the sense of having access to a service, they would go to the top of the list for reallocation to another service provider.

Senator CROWLEY —Certainly they have already been disadvantaged though. They were in a service and are now not in one, so there is going to be time as they move across. I am particularly concerned about, for example, if they moved across a time barrier and lost a month or something and became a new category of unemployed people. Would this come against them?

Mr Pratt —No, Senator.

Mr Campbell —That cannot happen. If they are with a provider who hands back their contract, that does not mean that they lose any time eligibility. As Mr Pratt said, they go to the top of the list. Very quickly within that region, Centrelink will be contacting them and giving them a choice of the available providers.

Senator CROWLEY —I just want to ask a few more questions about this tendering process. How did Workskill, an organisation reported to be in a perilous financial position, get a $10 million contract?

Mr Campbell —Senator, we said earlier today that it was not appropriate to talk about individual providers. A number of providers were offered contracts. I can say no more about those that were past the financial viability model parameters which we set. There can be claims. I suppose at times we have suffered in the last month where claims in newspapers or claims on talkback radio have sometimes been far from the truth. While I am not going to talk in any detail about the organisation that you have just mentioned, I would indicate that it is operating and has been operating since 1 May. Prior to that it did operate as a contracted case manager and with labour market programs from the department.

Mr Sedgwick —Senator, I have to say to you that the temptation on our part to tell you exactly what happened is extremely strong because very often what you hear and what we have seen do not line up. We must defend this process.

Senator Ellison —Stick to your policy, Mr Sedgwick.

Senator MACKAY —This is the problem with commercial[hyphen]in[hyphen]confidence, Minister.

Senator Ellison —Absolutely.

Senator MACKAY —You do not get to correct the record either.

Mr Sedgwick —No. Well, that is life.

Senator CROWLEY —I think this is actually a misunderstanding of commercial[hyphen]in[hyphen]confidence. I have sought a lot of information about this precisely because of these estimates. I think that a lot of things called commercial[hyphen]in[hyphen]confidence are not properly that. I certainly believe that, if misinformation is out there that is damaging or disadvantageous, it would be perfectly reasonable to try and right the record.

Mr Campbell —But, Senator, that is available to the organisation. There has been a case in another state recently where newspaper articles were run about the financial viability of a particular organisation. That organisation then wrote to the newspaper and that letter was published putting their facts forward. But that is up to that organisation, not up to us.

Mr Sedgwick —But we are very keen to defend the integrity of process, not just for this time, but for next time as well.

Senator CROWLEY —So are you saying that words like `perilous financial position' were incorrect?

Mr Sedgwick —I am not going to comment on the circumstances of any individual. I am just going to say that, if somebody got a contract from us, they passed the financial viability tests. You can draw your own conclusions.

Senator CROWLEY —A few other passes in the department of recent months and years, Mr Secretary, should give you great anxiety, and certainly give us great anxiety. I am glad you asked me to trust you. I will try and find the trust, but you do understand that I come with a very suspicious nature.

Mr Sedgwick —So do I.

Senator CROWLEY —Well taught is my past experience in this department. I shall not mention ships again, Senator.

Mr Sedgwick —That is why we did put in place an extraordinarily thorough system of checks and balances and probity advisers, and God only knows what else, to give us the level of assurance that we all wanted.

Senator CROWLEY —I do not know. This seems to me something I am going to pursue because, as my colleagues have said, we have to approve the appropriation bills before everything is finalised. I think some of these questions might need to be pursued in the Senate if we cannot find what we think is satisfactory information.

I now ask you: how on earth did a firm like Hospitality Horizons, a firm who received a two[hyphen]year ban in 1995 for `repeatedly offering inadequate training programs', receive a contract in the latest tender round?

Mr Sedgwick —Again, we will not comment on the circumstances of an individual. In the process of assessing the suitability of a tenderer, we took into account the performance of the tenderer against similar lines of business, if they were an existing provider, or sought references in respect of related lines of business, if they were new. In the case of an organisation like Hospitality Horizons, which operates in a number of regions across the country, you could expect that we would have formed a view on their performance that reflected not simply what may have happened in the region at one point of time but a broader view of what the provider was able to deliver across all of those regions in which they operated. There was no percentage profit on our part to give a tender to an operation that had not performed. You can reasonably infer from that that their performance elsewhere was good enough to get them through.

Senator CROWLEY —I understand the contract has been re[hyphen]negotiated, Mr Secretary. Can you detail the re[hyphen]negotiation process for us?

Mr Sedgwick —The work of Hospitality Horizons has been being assigned to another contractor—in this case, Job Futures. What happens in those circumstances is that Job Futures undertakes all of the obligations that Hospitality Horizons entered into at the time when they put their RFT bid in. They are accountable for the delivery of the services and the facilities at the price that Hospitality Horizons was awarded.

Senator CROWLEY —What does `assigned' mean? Do you mean you have asked Hospitality Horizons to subcontract it to Job Futures or has the department subcontracted it?

Mr Sedgwick —No, Hospitality Horizons and Job Futures came to us and said they would like to enter into an arrangement in which Job Futures took over all of the obligations of Hospitality Horizons.

Senator CROWLEY —Where is A in this game? Are you still going to be paying Hospitality Horizons for everything to be delivered?

Mr Sedgwick —No, in this case it all flows straight to Job Futures.

Senator CROWLEY —So is Hospitality Horizons no longer in the picture?

Mr Campbell —That is right, and there is provision in the contract for assignment.

Senator CROWLEY —How was the inability of Hospitality Horizons to meet their obligations brought to the attention of the department?

Mr Campbell —There were a number of discussions with Hospitality Horizons during the month of March and in early April, between some people from our national contracting area and the contract manager who was looking after them in Sydney. Hospitality Horizons advised us of certain facts, which are confidential, but at the end of that they and Job Futures proposed to the department that the contract be assigned to Job Futures. Pursuant to clause 3.5 or 3[hyphen]5 in the contract, the Commonwealth agreed to that assignment.

Senator CROWLEY —Was there any loss to the department in getting out of Hospitality Horizons?

Mr Sedgwick —Not to the department.

Mr Campbell —No money had been paid to Hospitality Horizons.

Senator CROWLEY —Who is the loss to?

Mr Sedgwick —No[hyphen]one that I can see, frankly.

Senator CROWLEY —It is just the qualification you put on your answer, Mr Secretary.

Mr Sedgwick —No. There was certainly no loss to the taxpayer, if that is the point of your question.

Senator CROWLEY —It is my first concern, yes.

Mr Sedgwick —Clearly no money had been paid over. I would argue that this was also an arrangement which gave us the best shot of ensuring that there was no loss to job seekers either.

Senator CROWLEY —I am still not clear how this was brought to your attention. Did the department, in negotiating with Hospitality Horizons, find that they were actually unable to deliver?

Mr Campbell —There was no one moment of a blinding revelation. There were a number of discussions between Hospitality Horizons and our national contract people. There were a number of conversations and discussions between Hospitality Horizons and the contract manager in Sydney. As those conversations unfolded a number of facts were put forward by Hospitality Horizons. At the end of that process of discussions, Hospitality Horizons and Job Futures put forward a proposition to the department that the contract be assigned in its totality to Job Futures.

Senator CROWLEY —We have had a lot today, Mr Campbell. Somewhere between those words is the answer to my question.

Mr Campbell —Senator, perhaps I can add one more point. The equity backing arrangements for Hospitality Horizons changed after the awarding of the contract. That happened for them and it could have happened for other organisations. That is one of the reasons that unfolded.

Senator CROWLEY —Whose decision was it that the contract be renegotiated?

Mr Campbell —The contract was not renegotiated, Senator. The contract was assigned.

Senator CROWLEY —Whose decision was it that it be reassigned?

Mr Sedgwick —It was mine.

Senator CROWLEY —On what grounds?

Mr Sedgwick —On the grounds that we had the capacity to deliver exactly what had been tendered for by Hospitality Horizons because all of the obligations were being taken over by Job Futures on terms that were advantageous to both the job seekers and the Commonwealth.

Senator CROWLEY —Are there any other contracts being renegotiated or assigned at the moment?

Mr Sedgwick —There are none being assigned that I am aware of.

Mr Campbell —There are none that have been `re[hyphen]negotiated', to use your term, Senator, and there have been none where assignment has been sought. Therefore, there are no other assignments.

Senator CROWLEY —When we were in northern South Australia at the end of April, Hospitality Horizons was supposed to be delivering job services for the cities of the northern Spencer Gulf. Can you tell me whether Job Futures has now got all that in place?

Mr Campbell —My understanding is that Job Futures has not yet got all their infrastructure in place for all of the services being assigned through the Hospitality Horizons contract.

Senator CROWLEY —So what does happen to people who are looking for job assistance in Port August, Port Pirie and Whyalla?

Mr Campbell —I do not have the detail here but I am sure somebody sitting behind me does. There are other providers at those sites that you have just mentioned. They are available for job seekers to go to them and Job Futures have assured us that they will have their infrastructure up as soon as possible, but there are other providers in those locations.

Senator CROWLEY —I may have this wrong, so you might assist me, but we were told on a visit to a Victorian town a couple of weeks ago of a lady there who, knowing that the CES office had closed, was looking for some assistance and found a number to ring. She dialled the number. `Hello,' says a voice, `How can I help you?' She said, `Can you tell me where's my nearest office that I can get some assistance with a job?' The voice down the telephone said, `Well, where are you?' She said, `I'm in X in Victoria.' `Oh', said the voice down the telephone, `Where's that?' The person making the inquiry said, `Well, where are
you?' The voice down the telephone said, `I'm in Perth and I'm here to help you' and did not know where X in Victoria was.

It is fun to smile at it, but there were nods all around the community that this is another monumental fiasco. People are ringing up and being told, `We're here to help you but we don't know where you are'. What steps are we going to take to make sure that that lady is not going to be met with that kind of assistance in the future?

Senator CHRIS EVANS —Was this a plot by Senator Ellison to locate all the phone inquiries—

Senator CROWLEY —He has the telephone, except the ones in Bendigo that are a long way from Port Augusta.

Senator CHRIS EVANS —This will go down well in WA: it is the only place it will go down well.

Senator CROWLEY —Let us hope they know where places in Western Australia are! They will all have to do map reading first. How are you going to deal with this?

Mr Sedgwick —I guess we can answer this at a lot of different levels. This sounds to me like an arrangement that has been entered into by a nationally operating entity, by the sounds of that, to take advantage of time zones and various other things, maybe even some very sophisticated telephone routing technology to enable an individual to get service when they might otherwise have got an answering machine or, worse, an unanswered call.

It is extraordinarily difficult for us sitting in Canberra to be on the end of those phone lines and sort any of that out. I would imagine, though, that the issues that that kind of thing reveals are the kinds of things that get resolved reasonably quickly, as the new systems work themselves through.

Senator CROWLEY —I hate to disabuse you of that, Mr Secretary, but if you ring your colleagues in the Department of Social Security they will tell you that not only is it not getting fixed but also they are devoted to expanding it. Just for the fun of it, why don't you ring up the Department of Social Security's only number in the phone book and see what happens to you?

Mr Sedgwick —Are we talking about Centrelink or DSS?

Senator CROWLEY —DSS, but Centrelink is another one. You can also do this if you want to book a Comcar. It might work for aeroplanes, but it is useless for a lot of the things that it is being used for. People have been saying to us that they desperately, desperately want local provision of information, and that it is no longer being provided to them. They do not want advice from Sydney on how to get a job in Port Augusta. They want local providers and they want people who know what services are there. When they ring up, they do not want to find themselves talking to Perth, with the greatest respect, Senator Ellison.

Mr Sedgwick —I guess there is an issue about whether you would get advice from Sydney about how to find a job in Port Augusta. I do not know. These things will eventually sort their way through but, as I understood a lot of what providers intend, it is more likely that, if the service is required in Port Augusta and they have an office there, there will be some arrangement made for that to be provided rather than to deal with something as complicated as that over the phone. We will keep a close eye on our information line.

Senator CROWLEY —Please do, Mr Sedgwick. The evidence is that it is not a happy lot out there.

CHAIR —Before we go back to Senator Mackay, I remind senators that we have been on program 4.1 for eight hours. Senator Mackay has put a target of possibly finishing that by 6.30 p.m. To help meet that target, I encourage people to put any questions on notice that are able to be put on notice so that we can at least meet that target.

Senator MACKAY —Realistically, we might put it back for half an hour.

CHAIR —Again, I encourage you, as this has been going on for eight hours, to put any questions that you can on notice so that we can try and meet that target.

Senator MACKAY —Has the department had any representations from Mr Arthur Dent, with regard to complaints against DEETYA?

Mr Campbell —Not that I am aware of or any officer here is aware of, Senator.

Senator MACKAY —Is anybody aware at all of Mr Dent and his complaints?

Senator Ellison —That name rings a bell; perhaps you could give us—

Senator MACKAY —He may have made representations personally. Could people have a think about that and get back to me in relation to that and I might pursue it a bit further.

Mr Sedgwick —Could you let me know what the complaint is?

Senator MACKAY —He made a series of complaints about DEETYA.

Mr Sedgwick —Then you had better let me see them.

Senator MACKAY —Yes. I will get the information to you. I want to clear up some questions with regard to the probity contract. Mr Sedgwick, you indicated that the department spent a small fortune on Blake Dawson Waldron and the probity process. How much was it?

Mr Sedgwick —It was actually a small fortune. I do not recall the number, but we were quite pleased, actually.

Mr Campbell —The contract is not yet complete. It finishes up this month and I think the last bill comes in by third week in June so I cannot give you an exact figure. If I give you a ballpark figure, we could come back to you. Blake Dawson Waldron have been contracted to us since December 1996 to assist with the process of tendering probity. Over that time, the amount of money paid to Blake Dawson Waldron, to the end of this month, will be $1 million to $1.1 million. That will be in our annual report but that is about the figure.

Senator MACKAY —How was Blake Dawson Waldron chosen? Was it through the normal tender process?

Mr Campbell —It went out to tender. There was an open tender, advertised in the national press.

Senator MACKAY —Have you done an estimated cost of the entire probity process?

Mr Campbell —Blake Dawson Waldron also provided us with other assistance, other than what you might call probity. They have assisted us with performance management issues, and a number of other elements. I do not have a figure in front of me so that we could split up their payment into probity. We might be able to do that but it is not one that comes to mind because there were a number of components to their contract. It was quite a comprehensive contract.

Senator MACKAY —But DEETYA engaged another private contractor, Recall Total Information Management—

Mr Campbell —Sorry, you used probity in the—

Senator MACKAY —In the broad.

Mr Campbell —We did the tender assessment process to secure some space. We secured three floors of a building in the city here which was not part of our main stream in that block in Mort Street—it is in the next block. We put in a secure LAN with a firewall around it so that information could not travel out. We also put in a self[hyphen]contained registry to maintain all the tenders, all of the documentation and make sure that papers were on file at the right time, et cetera. Recall ran the registry for us.

Senator MACKAY —And how much was that contract worth.

Mr Campbell —I do not have the amount; I will take it on notice.

Senator MACKAY —Here, again, other than the areas we have traversed, I would like a cost of the entire probity process, including aspects such as the functions performed by Recall Total Information Management.

Mr Sedgwick —That sounds like we should interpret that as the cost of managing the tender.

Senator MACKAY —Yes. Do you have any idea how much that was?

Mr Sedgwick —No, not at this stage. We can get the numbers.

Mr Campbell —We are actually preparing an answer to that question. It was asked by a member in the other house of our minister.

Senator MACKAY —To move on to—and I think this was Mr Pratt—the exiting of 50[hyphen]pluses. With regard to question on notice 819, the department has indicated that there were 113,162 job seekers aged 50 years or over in receipt of newstart allowance. Many of these job seekers would be eligible for case management. Can you indicate how many were eligible for case management and how many were exited?

Mr Pratt —I am sad to say, Senator, that I can no longer help you on that matter. It is no longer my responsibility and I did not provide that answer to you.

Senator MACKAY —Is that Mr Rowling?

Mr Rowling —We do not know the answer and we will get it for you.

Senator MACKAY —You do not have any idea how many people aged 50 years or more were exited?

Mr Rowling —Not immediately, no. We would have to take that one on notice.

Senator MACKAY —Did you provide answer 821, Mr Rowling? That is with regard to the number of job seekers who have been in case management for more than 39 weeks.

Mr Rowling —Yes.

Mr Campbell —Senator, can I come back to your follow[hyphen]up question to 819 so that I understand what your question is. I now have 819 here. Is your question: how many of the job seekers over 50 years exited in a particular time frame? Exited from what?

Senator MACKAY —It goes to this, and I am quoting directly from the second paragraph:

As at 31 March 1998 there were . . .

I will not go through that figure again. It is getting late in the day. The paragraph continues:

. . . aged 50 years or more in receipt of Newstart allowance. Many of these job seekers would be eligible for case management.

What I wanted to know was how many were eligible for case management and were exited.

Mr Campbell —No, they were eligible. How many were in case management and then exited?

Senator MACKAY —Yes.

Mr Campbell —We will have to look at that because there are many reasons for exiting, of course.

Senator MACKAY —No, but you will recall that dialogue we had last time.

Mr Campbell —I do recall.

Senator MACKAY —That is the context in which I am asking the question. Just going back to the 54,880 job seekers who have been in case management for more than 39 weeks as of 31 March 1998, how many of those were exited and how many were transferred over to a new provider?

Mr Rowling —We would have to take that one on notice as well. I would want to go and have a look.

Senator MACKAY —I would have thought you might have that information actually, in that there was an option to those job seekers as to whether they wished to continue.

Mr Campbell —Mr Rowling is right. We will have to take that—there is a figure, but we would want to double[hyphen]check it with Centrelink because they still do that I think in the period of May up until August. They still have the capacity to seek to transfer up until August.

Senator MACKAY —We can look at it from—

Mr Campbell —We will give you a figure as at a particular date.

Senator MACKAY —A snapshot from today perhaps. I have here a letter which was sent out—and I am not sure to how many people; I will ask though. It was sent out prior to 1 May and indicates inter alia that the new Job Network is up and running, et cetera, that Centrelink will be the gateway and talks about touch screens and so on. It says:

If you are still registered for work with the CES at 1 May 1998 your records can be transferred to Employment National to enable them to match you to suitable vacancies. If you want your records transferred to Employment National please mark the box below and return this letter by 18 May in the reply paid envelope.

Is everybody familiar with that?

Mr Correll —Yes, very familiar with that.

Senator MACKAY —It has a little box that you tick and a computer thing down the bottom. It says, `If you do not reply to this letter and you are not in receipt of Centrelink income support your records will lapse.' Who did that letter go to?

Mr Correll —It went to all job seekers on the former CES register that were not eligible to receive a payment for a placement outcome under the new market arrangements.

Senator MACKAY —How many of those were there.

Mr Correll —That is I think a point I would have to check on. I do not have that precisely in front of me.

Senator MACKAY —How many of these letters were sent out? That would give us a clue as to how many we are talking about.

Mr Correll —There were several hundred thousand.

Mr Sedgwick —There is a point which needs to be made here, and I think Mr Campbell made it earlier, which is that register cleansing had not been done for a long time, so this letter
was as much about finding out who wanted to have their name left on the register as anything else. We cannot infer anything about an issue we were addressing earlier.

Senator MACKAY —No, this is a straight line of questioning here. We sent out several hundred thousand—we are not sure we are going get that information. How many did you get back?

Mr Correll —We have received responses from around 60,000 job seekers.

Senator MACKAY —Okay, you have received responses from around 60,000 but you are not sure how many you sent out?

Mr Correll —I do not have the precise number in front of me but it is some hundreds of thousands I believe went out. I would need to just check the precise number but, as Mr Sedgwick has indicated, care has to be exercised because there are a large number of inactive job seekers.

Senator MACKAY —I understand. I am just curious that you know how many you got back but you are not completely aware of how many DEETYA sent out.

Mr Correll —It is only because that information has recently come back to me through our mail house service that I am familiar with that precise number.

Senator MACKAY —I see. Perhaps you could get that information to us. Is it difficult to find?

Mr Correll —I do not think so.

Senator MACKAY —With regard to that letter, why was Employment National cited as the preferred agency to have records transferred?

Mr Correll —I think we have to understand the group of job seekers involved. The group of job seekers here were job seekers who were either already in employment or alternatively not eligible for receipt of any sort of allowance. They previously had not been obligated to use the services of the CES but had chosen to use the services of the CES.

We had basically three objectives in sending out that letter. One was to inform that group of job seekers about the changes. The second thing was to determine if the job seeker was still interested and active in the labour market. Because there had not been a huge amount of register maintenance work going on we believed that a very large proportion of those job seekers were no longer active job seekers in reality. The third reason was, if they continued to be active job seekers, to give them the opportunity for continuity of service by having them reply to the letter. In other words the onus was on that individual then to give a response to the letter to enable their record to transfer to Employment National. Employment National had indicated preparedness to provide continuity of service to that group of job seekers. We could not claim in our letter that other service providers would be prepared to provide that sort of service to that group. There was no basis on which the department could do that. In addition there was no question of any commercial competitive advantage involved because this was the group that was ineligible for any payment from the department and the major issue here was establishing that there was a level of continuity of service available for that group of job seekers.

Senator MACKAY —Employment National gets a database of 60,000.

Mr Correll —That is a group of job seekers who had previously elected for the services of the CES and then had specifically chosen for their record to be transferred across to
Employment National. There was no problem with any of those job seekers choosing to approach other Job Network members.

Senator MACKAY —With respect, they were not given the option in this correspondence. It was, `Yes, I would like my records transferred to Employment National.'

Mr Correll —Only because we could not hold out that all other Job Network members would be in a position to provide services to those job seekers. Remember those job seekers were not the ones that would attract any payment to any placement.

Senator MACKAY —I understand all of that. Did you ask any other job agencies? Or did you only ask in terms of continuity?

Mr Correll —No, we did not. Employment National had earlier indicated to us their preparedness to provide continuity of service.

Mr Sedgwick —And, Senator, for those players that were already in the market and already had their own database, they too were able to offer continuity of service to their clientele.

Senator MACKAY —I would suggest that that actually proves my point about why they were not asked as well in terms of this information.

Mr Sedgwick —Why did we not ask Drake?

Senator MACKAY —For example.

Mr Sedgwick —If they wanted to have their own people staying on their records?

Senator MACKAY —No, if they wanted the information with regard to 60,000 job seekers. I appreciate that none of them were eligible, but still a database of 60,000 I am sure they would have been extremely keen to get their hands on. Whether they used it or not is another thing.

Mr Sedgwick —Every one of those 60,000—indeed every one of those who did not answer—has the right to walk into any Job Network member at any time.

Senator MACKAY —But their information had been transferred to Employment National. It had already happened.

Mr Sedgwick —It matters not. This is the non[hyphen]allowee population that we are talking about here. Let me take the case of job matching. If you are a job matching client you can go into as many Job Network members offering job matching in your location as you like and give them your details.

For the first five of the providers that you go to, we will make available at your instruction an electronic file. But you can go to as many others as you like and register with them. It is just the same thing. This is simply saying that if you are not eligible and you want to go to a Job Network member, go right ahead. In the case of former clients of the CES, we were offering a cost[hyphen]effective option that said that we can, with your permission and only with your permission, transfer your details to Employment National. But there was nothing to stop them from going anywhere.

Senator MACKAY —No, but it is a matter of proactivity, is it not? The bottom line is that Employment National now presumably has that database available to it and none of the other successful agencies were asked. That is my point. It is not a level playing field.

Mr Sedgwick —All of the other agencies had their databases. Drake has Drake's database.

Senator MACKAY —Yes, they have their own database, but they do not have the old CES's database.

Mr Sedgwick —They can stand in the market and they can advertise themselves as being willing to take all comers.

Senator MACKAY —The point I am making is that Employment National is the only one given the opportunity by the department to get the transfer in terms of these 60,000 records. That is all.

Mr Sedgwick —Yes, I think you can argue that Employment National had the same opportunity as Drake in respect of its own clientele.

Senator MACKAY —How did they have the same opportunity as Drake?

Mr Sedgwick —Because Drake had access to Drake's clientele.

Senator MACKAY —Yes, but Drake did not have access to the CES's database.

Mr Sedgwick —No, but Employment National did not have access to Drake's either.

Senator MACKAY —The letter was sent out: `Do you want your records transferred'—you know what I am saying—`to Employment National?'

Mr Sedgwick —Yes, I do.

Senator MACKAY —People tick back and 60,000 people say yes, so Employment National now has 60,000 records that Drake did not have the opportunity to get.

Mr Sedgwick —No, but by the same token Employment National did not have access to Drake's 60,000 records either.

Senator MACKAY —But why would they? I am talking about a move from a public CES situation. This is—

Mr Correll —You must remember that this group of job seekers were not job seekers obligated to utilise the services of the CES previously. This was a group—

Senator MACKAY —No, they registered with the service.

Mr Correll —They could have chosen to use the services of the CES or the services of a private employment agency at those times.

Mr Sedgwick —And these were not job seekers for whom we would pay.

Senator MACKAY —No, I know that. I have already said that I know that. Do not worry, I will not ask questions with regard to that. I am just interested in the fixation, that is all. Okay, we have established that. Has there been any account taken of unemployed people who will miss out, with regard to unemployment benefit, because of the new youth allowance criteria? Has there been any work done on that?

Mr Campbell —I am not an expert on the youth allowance, but eligibility for our services has a number of criteria. It is not only for allowees but also for youth under 20. In addition to all our allowees, eligibility is for young people aged between 15 and 20 who are registered with Centrelink as unemployed: they are eligible for the Commonwealth funded employment service, irrespective of whether they are on benefit.

Senator MACKAY —But how many will be able to access that?

Mr Campbell —Under the terms of FLEX 1, they all access it.

Senator MACKAY —All right. What I am getting at is that there are a number of young people who, as a result of the introduction of a common youth allowance, will no longer be on unemployment benefit—right?

Mr Campbell —And the point I have made is that, as long as they register with Centrelink as being unemployed and they are 20 or under—and, I am reminded, are not in full[hyphen]time education or training—they are eligible.

Senator MACKAY —I see. That is fine. Newly arrived migrants currently have to wait two years before they can receive benefit. Does this preclude them from accessing the employment services market?

Mr Campbell —Our prime criterion is being on benefit. If an individual, as a result of some other factor or other decision, is not on benefit, then, apart from the exceptions we have just talked about, they are not eligible for Commonwealth funded employment services.

Senator MACKAY —So the two[hyphen]year waiting period is affecting them consequentially in that way?

Mr Pratt —Senator, they do get access to the Job Network access facilities and a range of continuing labour market programs, like the advanced English for migrants program and the national overseas skills recognition program.

Senator MACKAY —Yes, I understand that. Has any work been done on how many migrants this is likely to affect, prospectively?

Mr Pratt —I am not aware of any work.

Senator MACKAY —Anybody else? No. What is the department doing to monitor the physical access to employment services for people with disabilities?

Mr Rowling —I assume you are referring to some reports that there might be some access difficulties for people with disabilities.

Senator MACKAY —There have been some reports, yes, but it is more of a general question.

Mr Rowling —In response to the general issue, we have been having some discussions with the Human Rights and Equal Opportunity Commission. Basically, under the contracts, the providers are required to comply with the disability discrimination act, but it appears that not all of them are fully aware of their responsibilities in that regard. After some discussions with the Human Rights and Equal Opportunity Commission, we have agreed in principle to work together to inform Job Network members about their obligations under the act and to provide sources of information to the members about access to premises and facilities and to identify best practice examples to circulate to Job Network members. As a last resort, if Job Network members do not meet their obligations, there remains the option to take action under the contract.

Senator CROWLEY —Who could take action under the contract?

Mr Rowling —DEETYA could take action under the contract.

Senator CHRIS EVANS —Are you saying that if a Job Network agency has rented first[hyphen]floor premises which do not have disabled access—which I gather is one of the criteria—you will require them to provide that access?

Mr Rowling —They are required to under the act.

Senator CHRIS EVANS —Yes. But, given that they have leased premises at some exorbitant rental, in ignorance of this and—

Mr Rowling —It cannot be in ignorance, because it is firmly set out in the contract.

Senator CHRIS EVANS —I am not meaning to defend them: I am just trying to ascertain what this means in practice. Senator West has raised a number of issues in the Senate about some in regional New South Wales: would the minister be aware of them? I do not think he had the detail with him at the time. There are some regional centres where these are problems. You talked about bringing the guidelines to their attention and giving them information kits. I think the point of Senator Mackay's question is what you are going to do about it if, in fact, there is a problem that mere information will not solve. Are you saying you would terminate the contract, if they refuse to provide the access required?

Mr Rowling —If they refuse to comply with the act, yes.

Senator CROWLEY —At what stage are you able to `take action', as I think your words were?

Mr Rowling —I am not sure I understand the point of the question.

Senator CROWLEY —The whole reason we interrupted you at all is when you said it was possible to take action under the contract. And I asked who would, and you said the department would. How can a department that lets the contract then take action against them?

Mr Sedgwick —You would expect that the usual procedures would be followed in a case like this; so, if there is an issue that has been brought to the attention of HREOC, for example, you would expect that the provider and HREOC would be using their good offices to try and find some accommodation that would remove any failure to comply with the act. I would presume, though, that in the worst case, if we cannot remove an apparent lack of compliance, we would have to have some serious dialogue—recognising that, at the end of the day, compliance with the act is a condition of the contract.

Mr Campbell —To add to that, in all cases it is case by case, but we are approaching this in a partnership sense, acknowledging the very real needs of the client and the newness of some of the providers in the market, and we would try to work with the provider and HREOC to find a very quick solution that suited everybody and was within the letter of the act.

Senator CROWLEY —Mr Secretary, you have said today that I cannot ask you about any specific examples and I cannot put a name on it and ask you if things have gone wrong or whatever. But can I ask you this: over this whole tendering process, in general, have there been any balls[hyphen]ups? Do I take that laughter to mean yes?

Mr Sedgwick —No.

CHAIR —No. I think that would be a good point to adjourn on. We will resume on 4.1 after tea.

Proceedings suspended from 6.28 p.m. to 7.36 p.m.

CHAIR —We will resume subprogram 4.1.

Senator MACKAY —Has DEETYA set any monthly ceiling figures for Centrelink referrals to agencies?

Mr Campbell —To individual agencies? Yes, let us talk about FLEX 3. The computer system on which they have access has the individual contractor capacity for each provider site, so they know the maximum being assisted by a provider at any point in time.

Senator MACKAY —Is there an aggregated ceiling per month for Centrelink, either by region or Australia[hyphen]wide?

Mr Campbell —That probably gets more to the target, I think, of referrals.

Senator MACKAY —Yes.

Mr Campbell —At the moment, the only ones we have formally given them, because of the way the agreement with us works, are on a financial year basis. Their target for the end of May was 95,000 referrals, and they got very close to that. Their target for the end of June is an additional 30,000, which would bring a total of 125,000 referrals. The targets for the subsequent months in 1998[hyphen]99 are the subject of an agreement which will be agreed before 1 July.

Senator MACKAY —Just to take, say, Tasmania as an example, is there a ceiling for FLEX 3 referrals month by month—for May and, say, for June?

Mr Campbell —There would be a target of referrals for May and June for each of the Centrelink areas which, of course, do not correspond one to one to our tendering regions. As I said, there would be a contractor capacity limited on the system for every individual provider.

Senator MACKAY —Do you know what the target for May and June was with regard to Tasmania?

Mr Rowling —Around about 5,000 for the two months.

Senator MACKAY —What was it for May and what was it for June? Do you have those figures?

Mr Rowling —I do not have it split up for May and June.

Senator MACKAY —Okay; so it is a 5,000 target, for the two months in Tasmania, for intensive assistance?

Mr Rowling —That appears to be the number, yes.

Senator MACKAY —Would you be able to provide me on notice the targets for May and June for each of the Centrelink areas, for FLEX 3?

Mr Rowling —Yes.

Senator MACKAY —Just taking that Tasmanian figure of the order of 5,000 for May[hyphen]June, how was that target derived?

Mr Rowling —That target was derived based on the contracted capacity, and flowed out of the tender process.

Senator MACKAY —Is there a formula that is used to determine it?

Mr Rowling —Yes; it is the same formula you were discussing before in relation to contracted capacity.

Senator MACKAY —But that is in the broad, though; in terms of the monthly targets for FLEX 3—

Mr Rowling —Basically we work backwards from there, in terms of working out targets for achieving contracted capacity.

Senator MACKAY —So how have you done that in relation to the formula we discussed earlier?

Mr Rowling —Basically pro rata, except that for the first month we provided a little extra, taking into account the fact that providers would need a flow; plus we had an expectation of a significant number of transfers from case management to intensive assistance.

Senator MACKAY —Can you also take on notice the prospective targets for the months for the remainder of the contract period, by Centrelink area?

Mr Rowling —We are probably going to negotiate on a quarterly basis, rather than a monthly basis, but we can take it on notice.

Senator MACKAY —Whatever you have got. Presumably you have the first quarter.

Mr Campbell —But surely those figures would not be final until some time at the beginning of July.

Senator MACKAY —Okay; why do I not ask for what you have got so far? And, in terms of prospective targets, see what you can do.

Mr Campbell —We will see what we can give you.

Senator MACKAY —Thanks. Dr Kemp said in June that Centrelink will be referring about 131,000 people. Is that correct?

Mr Rowling —It is 125,000, I think.

Mr Campbell —That is cumulative. That starts with the May base.

Senator MACKAY —So what was the minister referring to?

Mr Campbell —He was referring to the summation of the 95,000 May target and the 30,000 target for June that I mentioned in an earlier answer.

Senator MACKAY —As I understand it—and I stand to be corrected—he says that the June target was 125,000; but Dr Kemp has said that the Centrelink referral will actually be 131,000. Does that sound right?

Mr Campbell —That is a newspaper report, which is paraphrasing. What I understand that the minister said is that the target for the end of June is 125,000. That, as we said, includes the May figure of 95,000.

Senator MACKAY —I see. So what Dr Kemp was referring to was an aggregated May[hyphen]June figure?

Mr Campbell —Yes. And the 131,000—at the point that he was asked that question, which was about 10 days ago—was the number of people who had been assessed against the JSCI.

Senator MACKAY —Right: but not commenced?

Mr Campbell —But not all of them had commenced. Some of them had, but not all.

Senator MACKAY —Okay. But it still stands that that is his target, if you like, to the end of June.

Mr Campbell —I think the formal target with Centrelink is 125,000; but there may well be capacity for Centrelink to refer some more, depending on their other work pressures, because they have actually assessed a number of job seekers against the JSCI in excess of 125,000. That is what the minister was saying.

Senator MACKAY —All right; so there might be extra capacity of approximately 6,000. I understand that. That 125,000 figure was a May[hyphen]June target.

Mr Campbell —That is right.

Senator MACKAY —What was the May target, and what was the—

Mr Campbell —It was 95,000 in May, and the 30,000 I mentioned earlier was the June addition; so it is cumulative.

Senator MACKAY —I understand. Can I turn briefly to the contract and a couple of questions with regard to some of the contract provisions? I will refer you to clause B3.3 of the contract where it says that, subject to part D of the contract, DEETYA will not pay the
provider any FLEX 1 outcomes which exceed the contracted number for any milestone period. Can you advise me what the purpose of that clause is?

Mr Campbell —For FLEX 1 there is a contract number which is consistent with what the organisations tender. We have then split it up into milestone periods set out in the contract and have built in a 10 per cent leeway on either side. We have said that we will be monitoring that; and, if there is a shortfall more or less than 10 per cent, we will reserve the right to actually reallocate places.

Senator MACKAY —Is this, inter alia, an attempt to look at the question of potential churning through?

Mr Campbell —No. It is more an attempt to look at which providers are being more successful in placing, in a relative sense.

Senator MACKAY —It is not about the issue of the potential for churning. Can I refer you to clause D5.1, which says that, subject to this clause, DEETYA will pay the provider FLEX 1 fees in accordance with part B of the contract for FLEX 1 outcomes achieved for eligible job seekers seeking FLEX 3 services. It says that clause 3.3 of part B does not apply to eligible job seekers receiving FLEX 3 services.

Mr Campbell —Could you give me the numbers again?

Senator MACKAY —It is D5.1. It says that DEETYA will pay the provider FLEX 1 fees in accordance with part B, or FLEX 1 outcomes achieved for eligible job seekers receiving FLEX 3 services. I am at a bit of a loss as to what that means.

Mr Campbell —What that basically says is that when FLEX 3 clients get placed in a job, all other things being equal, the provider gets a FLEX 1 payment at the beginning.

Senator MACKAY —There is the FLEX 3 payment which is set out in the tender documentation?

Mr Campbell —Yes. For a FLEX 3 client, the provider potentially—and I emphasise `potentially'—gets the initial up[hyphen]front payment, upon the client and the provider agreeing to enter into an agreement. That is set out in the contract. If they place them in a job, the first payment they are eligible for is the FLEX 1 payment, and they have a contract with us for a FLEX 1 price. If they are still in that job or another job 13 weeks later, and if it is a primary or secondary outcome, they get the 13[hyphen]week outcome payment; and if they are still in that job, or a job, 26 weeks later, they get the 26[hyphen]week payment.

Senator MACKAY —So for every FLEX 3 person who is placed, the agency will also get a FLEX 1 payment?

Mr Campbell —If they place them in a vacancy that they have on the national vacancy database, yes.

Senator MACKAY —Yes, I understand.

Mr Sedgwick —If they place them in the vacancy and they claim it.

Senator MACKAY —And they claim it. I understand. But there is that capacity—

Mr Campbell —And that is what that clause does.

Senator MACKAY —That is fine. Centrelink, as I understand it, has been conducting a survey with a job seeker questionnaire.

Mr Campbell —It is a job seeker classification.

Senator MACKAY —Yes, to assist with the JSCI; that is right. Could somebody tell me a little bit about that?

Mr Rowling —Yes. The Job Seeker Classification Instrument is an instrument that has been developed to provide the basis for being able to assess job seekers, so that we can make decisions about their levels of disadvantage and target the most disadvantaged job seekers to FLEX 3. It has a number of characteristics in it.

Senator MACKAY —Could I have a copy of that?

Mr Rowling —Yes.

Senator MACKAY —It has been alleged, as you probably know from media reports, that it includes questions on criminal record, literacy, diction, et cetera. If I could get a copy of that, I could determine whether that is the case or not. Centrelink claimed that it is used to identify an appropriate level of training. I assume that means FLEX 3 or the categorisation within the FLEX 3 band.

Mr Rowling —That is basically how it is used. In certain instances, is to be used for referral to FLEX 2.

Mr Campbell —It may help if I take one minute to give you a bit of background as to how it was developed. That will help you when you get a copy of it. We will also give you a copy of a very comprehensive paper that formed the basis of the community consultations on the instrument.

Under the old arrangements of case management, we had two instruments. We had a job seeker instrument, which asked a number of questions when clients registered with the then CES, which then formed an assessment of their relative need, their relative difficulty in gaining employment. As a second layer in that process of case management, we had a thing called a client classification instrument, which then classified people into initially four categories. Then we broke it down to two, which does what the JSCI now does, or is a combination of those two instruments. For a given cohort of job seekers, it determines the relative difficulty that an individual is going to have in seeking employment.

The JSCI is based upon two earlier instruments that were used in the last five years, plus some quite significant longitudinal surveys of about 60,000 job seekers. In developing the current instrument, the department last year and earlier this year went through extensive consultations with providers, peak industry groups and community organisations to seek their views on the instrument we have.

While generalisations can always be a little difficult, it is true to say that most of those who were consulted and had input into the instrument—and that included case managers and peak industry groups—said at the time that they thought this was a very good instrument and a great improvement on the earlier instruments. That is just by way of background to it with consultations. We will get you a copy of it. It has just been drawn to my attention that, in answer 560 of last November, we provided the secretariat with an answer that gave a short paper, `Factors affecting long[hyphen]term unemployment—the results of the JSCI survey'. You already have that, but we will get you the instrument and the final paper that was part of the community consultation.

Senator MACKAY —Thank you. I understand that Centrelink has given assurances that the information collected will be confidential and only for the use of Centrelink in terms of the JSCI. Is that correct?

Mr Rowling —There are privacy conditions in relation to elements of the JSCI. The scores in relation to the JSCI can be made available to the provider with the authority of the job seeker.

Senator MACKAY —What do you mean by `score'? Are we talking numerical scores here against a set of criteria?

Mr Rowling —Against a set of classification requirements. Basically the characteristics that they use in the job seeker classification instrument include characteristics that we know lead to significant disadvantage in the labour market, such as low levels of education, long period of unemployment or out of the work force, living in areas where there are not many jobs, et cetera. It takes all those into account in factoring all those together and basically then computes a score.

Senator MACKAY —So it is only with the permission of the client that that information is passed on to the relevant job agency. There are no exceptions to that rule.

Mr Rowling —As far as I am aware.

Mr Campbell —We have published the bandwidths of scores, so they would know if a client was a particular category of 3.1, 3.2 or 3.3.

Senator MACKAY —That is all they will know though?

Mr Campbell —That is right.

Mr Pratt —Just to follow[hyphen]up on your question there, the provider automatically gets some of the information collected through the JSCI when the job seeker chooses them. It goes with their record. It is the non[hyphen]sensitive information which the job seeker has passed on to the provider. The sensitive personal information will not go to the provider or anyone else without the job seeker's written consent.

Senator MACKAY —In what circumstance would written consent occur? In what circumstance could you see Centrelink writing to a client and saying, `Do you mind if we pass this on?'

Mr Rowling —It actually works the other way. When the client goes to the provider, they have to authorise the provider to get access to that information. It is not Centrelink writing to the provider.

Senator MACKAY —They have to give written assent?

Mr Rowling —I think they have to actually sign a release, but I would need to check.

Mr Pratt —Yes, they do. They have to do it.

Senator MACKAY —They have to sign a release. Is it made explicit in terms of the release documentation precisely what information is being released?

Mr Pratt —Yes, it is. The questionnaire itself highlights this information and advises clients of their privacy rights and the obligations on Centrelink in using that information, or not using it, depending on the job seeker's preferences.

Senator MACKAY —Can I have a copy of the written assent form? It is part of the questionnaire, is it?

Mr Rowling —Yes.

Senator MACKAY —On this hotline number again, this is for the complaints mechanism. Is there only the one hotline or are there two hotlines? How many hotlines do we have?

Mr Pratt —We have a number of telephone lines with different purposes, Senator. There is a job network information line which is open to many people in the general community. There is a teleservicing line which is used by employers to lodge vacancies on the national vacancy database. In addition, we have a customer service line that is an 1800 number, the details of which are made available to job seekers through Centrelink and with their job network member and through the various pamphlets that are provided to job seekers.

Essentially, if a job seeker has a problem or a query or wants to provide some feedback, they can contact DEETYA on that and have the issue investigated or an answer provided. Naturally we encourage job seekers and Job Network members to resolve any issues they might have together. I imagine that in the future in the vast majority of cases that is how any issues will be resolved. If that issue is not resolved to the job seeker's satisfaction, they can ring our customer service line and talk to a DEETYA officer who will then investigate their concerns.

Senator MACKAY —How many calls have you had to the customer service line?

Mr Pratt —Just over 1,000 so far. That is since 1 May.

Senator MACKAY —What are the nature of the calls in general?

Mr Pratt —The vast majority of calls are queries, just people seeking information about Job Network and things like that.

Senator MACKAY —Like where is the nearest Employment National office?

Mr Pratt —The queries range widely and are very diverse.

Senator MACKAY —If somebody rings up the 1800 number, how many staff handle that 1800 number?

Mr Pratt —Staff who work alongside our contract managers in each state office in every state in the country look after that line. I would say that nationally we would probably have 20 to 30 staff available for that service.

Senator MACKAY —To staff the 1800 customer service line?

Mr Pratt —Yes, if a job seeker rings for New South Wales, he or she will get put through to the New South Wales customer service line. He or she will not go to Perth, for example.

Senator MACKAY —Presumably all these 1,000 calls that were either complaints or in the majority of cases queries were resolved on the spot. Were they?

Mr Pratt —Yes. Over 80 per cent were resolved on the spot or within a few days.

Senator MACKAY —What happens to the other 20 per cent?

Mr Pratt —Those are then investigated by the customer service officers. It may be that they have to talk to a Job Network member or have to contact Centrelink. In a number of cases, the queries we are getting at the moment relate to transitional issues with the labour market programs that are finishing up.

Senator MACKAY —Are people having difficulty getting through to the 1800 number?

Mr Pratt —No.

Senator MACKAY —There is a provider called Heavy Engineering Manufacturing Association, which is listed as providing job matching services in Sydney, Melbourne and Adelaide. As far as I can determine, there is no address for these sites other than their Canberra address.

Mr Pratt —That is correct, Senator.

Senator MACKAY —Where is the location of their sites in the cities of Sydney, Melbourne and Adelaide?

Mr Pratt —I am sure I will be corrected if I have the wrong understanding, but I understand that this provider is a very specialised one which looks at job matching for a particular industry and it is located in Canberra.

Senator MACKAY —That is a reasonable explanation. So even though their sites are cited as Sydney, Melbourne, Adelaide, in fact, they are in Canberra. They do not have a physical location there.

Mr Pratt —It offers a service in those locations, but from Canberra.

Senator MACKAY —So they are actually not sited in Sydney, Melbourne, Adelaide. They are sited in Canberra.

Mr Pratt —It is a very small contractor.

Senator MACKAY —I understand.

CHAIR —Senator, half an hour has now passed.

Senator MACKAY —Yes. I have almost finished. How is the community support program going? There was a tender advertisement for $45 million in December 1997. Is that up and running?

Mr Pratt —Yes, Senator. Centrelink conducted the tender for this program. Two hundred and sixty organisations tendered and 76 have been contracted. They are contracted to deliver CSP from 229 sites around Australia.

Senator MACKAY —When did that commence?

Mr Pratt —It has now started.

Senator MACKAY —But when did it start?

Mr Pratt —It started from 1 May with the market.

Senator MACKAY —Okay. The advertisement in December said it is intended to assist 25,500 people, but I think the PBS says 13,500. What is the reason for the disparity?

Mr Pratt —The 25,500 relates to the numbers we estimate will be assisted over four years. The 13,500 relates to the contract period of 19 months.

Senator MACKAY —That is fine. Have the results of the tendering round been released yet?

Mr Pratt —Yes.

Senator MACKAY —Could you provide me with a copy?

Mr Pratt —Certainly, Senator.

Senator MACKAY —I go to my sundry questions on notice. With regard to question No. 831, I got a response from the department which indicated that there was an industry reference group. I asked who was on it and whom it reports to. There is a list of people there. I just wonder who these people are.

Mr Campbell —Professor David Round was the part[hyphen]time chairman of ESRA for all of 1997, and I think he is also a part[hyphen]time commissioner of the ACCC and holds a post at an Adelaide university, but I am not sure whether it is Adelaide or Flinders. Captain David Eldridge is an officer of the Salvation Army, and the other four individuals at the time of their appointment were all members of particular contracted case managers organisations.

Senator MACKAY —Can you tell me which ones?

Mr Campbell —Mr Paul Tyrrell was and is with Centrecare. Mr Phil Connell was with Bensons, but has left that organisation and is now with Work Directions. Ms Leonie Green is with Ms Leonie Green and Associates, and Elliott McAdam is with Julalikari. It is an indigenous organisation in the Northern Territory.

Senator MACKAY —When was the industry reference group membership appointed?

Mr Campbell —The then minister announced it, I think, on 4 August 1997. It was announced on the day that the tender was released.

Senator MACKAY —Right; 4 August. And that group reports to the minister for employment as required.

Mr Campbell —That is right.

Senator MACKAY —Are the service providers' information guide and the contact managers' handbook ready yet?

Mr Campbell —The service providers' information guide has now been renamed the members' information guide, so it is now MIG, and we have sent that to the committee secretariat. The other handbook you refer to is one that we have not yet completed the finalisation of. It is our internal document for contract management, but I think one of my colleagues at the last hearing undertook to give it to the committee when we finalised it. It is not final yet.

Senator MACKAY —Yes. How far away is that?

Mr Campbell —I hope it will be finalised by the end of this month. There are drafts around, but I hope it will be finalised by the end of the month.

Senator MACKAY —And you will provide that to the committee?

Mr Campbell —Yes, to the committee secretariat.

Senator CHRIS EVANS —I apologise if this was covered this morning and, if so, I will hold my breath and read the Hansard , but I wanted to have explained to me where the relationship with Centrelink and the costs associated with the services they provide are reflected in the budget statements, in the sense that they are providing a fee for service. I have not picked up exactly how that is represented.

Mr Correll —It appears on page 21, under item 6, other services—09 payments for the delivery of jobseeker student and youth services—and the figures are shown there for the estimated outcome for 1997[hyphen]98 and the 1998[hyphen]99 budgeted figure. Those were the figures that were referred to in discussions this morning.

Senator CHRIS EVANS —So I understand that you will pay Centrelink $126 million for services related to employment services this financial year. Is that reading it correctly?

Mr Correll —That is for next financial year, 1998[hyphen]99.

Senator CHRIS EVANS —Yes. That represents the amount of money you pay Centrelink for their employment assistance programs.

Mr Correll —Correct.

Senator CHRIS EVANS —And the other items are other services they provide to you, are they?

Mr Correll —That is correct.

Senator CHRIS EVANS —So is that 09 the totality, then? First of all, are those payments all to Centrelink, and is that the totality of payments to Centrelink?

Mr Correll —My understand is yes to both of those questions.

Senator CHRIS EVANS —And can you tell me how those figures are calculated? I do not mean the precise figures, but how do you strike a rate for services between government departments? With some difficulty, no doubt.

Mr Sedgwick —With great skill. There are a couple of things. The bulk of this money represents inheritance. It represents the amount that was passed over at the time that certain functions were transferred into Centrelink because that is what it cost us to do them. In terms of the student assistance, that number comes off dramatically because the youth allowance is transferred to the Department of Social Security, so it is they who now have the relationship with Centrelink.

Having established this base number as an inheritance, you would then imagine that there would be a full and frank dialogue coming up to the time of the renewal of the service level agreements about what is being paid for what, and that process I am certain will go on and will continue to go on through the course of the year.

As we get better at being able to measure unit prices and unit costs, then we will have a firmer basis on which to have the dialogue than we do now, which is dominated by the fact that we simply passed over an amount of money that represented the cost that we were incurring in doing those functions at a particular time.

Senator CHRIS EVANS —So this represented the cost that it used to represent to you to provide that initial job—

Mr Sedgwick —Initially, in respect of 1997[hyphen]98, it looks to me as though there is an efficiency target which is built into 1998[hyphen]99, but there are some ons and offs that are hidden under that number.

Senator CHRIS EVANS —But, effectively, it is what you thought it used to cost you to provide the initial—what is the phrase we use now—job network access?

Mr Campbell —It is registration, application of the classification instrument and then referral on to providers. So it includes the registration that the CES used to do.

Mr Sedgwick —And, for example, there is a dialogue that is going on about ons and offs where the ons would reflect the fact that job network access will cost a certain amount of money, and we are funding that partly directly by providing goods in kind and partly by providing some cash, and on the other side the new market should be less resource intensive in some respects for Centrelink than used to be the equivalent registration function in the CES. So there is a dialogue happening there.

Senator CHRIS EVANS —Do you envisage that relationship being ongoing? Centrelink now handle that work. What is the logic in you continuing to pay for it? You are no longer that sort of department.

Mr Sedgwick —The logic is that Centrelink is a first or, in some cases, a one[hyphen]stop shop. It was created to improve the user friendliness of the service which is provided by government. We, DEETYA, are responsible for certain policies which are implemented by a number of others on our behalf. So we have a purchaser[hyphen]provider kind of a relationship with Centrelink in respect of the registration process and the assessment process and the job network access functions. We have relationships with the providers about the delivery of intensive assessments or job matching or job search training. It is effectively a purchaser[hyphen]provider architecture in
which the employment policy issues are held here and the funds to implement those policies are appropriated through us and then passed through to the ultimate provider, whether they be Centrelink or a job network member, a school, or whatever.

Senator CHRIS EVANS —Do you see that continuing, Mr Sedgwick, or do you think in time that will fade away as the original rationale disappears?

Mr Sedgwick —Logically, there is no reason why it should fade away. We would always want to remind Centrelink that it was a decision of the government to do it this way, and that, if certain service level standards are not achieved, then it is open to the government to do it another way.

Senator CHRIS EVANS —You did not actually open that section of your work for competition? You gave all of that work to Centrelink?

Mr Sedgwick —Yes.

Senator CHRIS EVANS —So you do not have a benchmark really to work against, do you?

Mr Sedgwick —That is one of the reasons why we are very keen to get better costing data—and, I have to be honest, even better costing data than we used to have when we did the functions ourselves.

Senator CHRIS EVANS —You are very honest about the failings of CES this time around. In previous estimates, we have not been nearly as frank about some of these things, Mr Sedgwick. It is remarkable.

Mr Sedgwick —I think, Senator, that what you are hearing is a manifestation of a part of the cultural change which this kind of an architecture forces on you. As soon as you go through an exercise like this, then it does put some incentives on you to be very clear about what it costs. On Centrelink's side, Centrelink does not want to find that they are being hit with all kinds of impositions from us that they do not have the resources to deal with; and, on our side, we want to make sure that we get what we pay for. So there is an incentive to be transparent about costings that simply was not there two years ago. That is all it is.

Senator MACKAY —I have asked for a lot of information over the course of today. I wonder if any of that is available now.

Mr Sedgwick —We have been here, Senator.

Senator MACKAY —I understand that. Perhaps tomorrow we could troll that. Finally, the department was going to get back to me on who the seven advertising agencies were that they had approached.

Mr Sedgwick —I do not know, and I am afraid there is no[hyphen]one here who could answer that question.

Senator MACKAY —Could you get that information to me by tomorrow?

Mr Sedgwick —We will do our best.

Senator MACKAY —Finally, we have sought advice with regard to the information on the CEO of Employment National and his salary. We were advised that there is absolutely no precedent at all for that information not to be provided to the estimates committee. We have sought advice from a number of sources. I just indicate to you, Minister, that we will be following that up in another place.

[8.16 p.m.]