CHAIR —Senator Lundy asked for ScreenSound Australia to be called even though they are not on the agenda.

Senator LUNDY —Thank you. I have a particular interest in a particular government program called the IT outsourcing program. I do not know if you were present for questions previously, but I am interested in the implications for ScreenSound's budget of both the IT outsourcing program and, more recently, a feature of this year's budget, the CTC program. I note with interest that ScreenSound Australia falls under the small agency category of the department of finance's outsourcing program and want to know some detail about that. Can you please explain to me what it means to be under that small agency program and at what stage you are at in terms of your involvement with it?

Mr Brent —The main implication for our being in the small agency program has been to give us a reasonable amount of flexibility in how we have implemented the government's outsourcing policy. We have chosen not to participate in any of the clusters but rather to undertake our own market testing program and as a result have now selected a contractor. Contract negotiations are now complete and a handover date of 2 June has been set to hand over our IT operations for outsourcing.

Senator LUNDY —This is very timely then.

Mr Brent —It is.

Senator LUNDY —Did you want to keep going?

Mr Brent —I guess the only other things I should say as a set of introductory comments, and taking into account some of the questions you asked the previous group, is that we have had a figure of something over $50,000 a year deducted from our budget against potential outsource savings.

Senator LUNDY —To date?

Mr Brent —To date. That applies this financial year and, if I am not mistaken, last financial year as well.

Senator LUNDY —So you have already lost $100,000?

Mr Brent —Correct. At this stage the exact cost comparisons between outsourcing and in-house operations is something that is a matter of debate between us and OASITO, the government's central agency for regulating the outsourcing. It is our estimation that it will actually cost us more money to outsource than to operate in-house, but in saying that I should say that we are getting a very different service from what we could provide and that makes comparisons very difficult to make. We are certainly determined to make sure that we get things from the outsourcing arrangement that we could not provide ourselves.

Senator LUNDY —Just bear with me for a minute. With regard to the small agency program, as a participant in that you do not have to go into a cluster and a cluster is not mandated for you on behalf of Finance?

Mr Brent —Correct.

Senator LUNDY —What is mandated with respect to Finance is that you must outsource. Is that your understanding?

Mr Brent —That is correct. When we commenced the process that was not entirely clear, but it has been made very clear to us that we do have to outsource, yes.

Senator LUNDY —When was that made clear to you?

Mr Brent —I could not give you the exact date, but certainly I would say that for the last nine to 12 months it has been clear to us that we must outsource.

Senator LUNDY —Given that this structure requires a process of benchmarking internal costs to assist the market testing, are you saying that you have benchmarked your internal costs?

Mr Brent —Correct.

Senator LUNDY —Do you have a figure for that?

Mr Brent —Yes.

Senator LUNDY —Then a request for tender, I presume, was prepared—

Mr Brent —Correct.

Senator LUNDY —either by yourselves or by OASITO?

Mr Brent —By ourselves in consultation with OASITO.

Senator LUNDY —You worked together to prepare that request for tender?

Mr Brent —Yes.

Senator LUNDY —When did that request for tender go out?

Mr Brent —I do not have the exact dates but it would have been late last year.

Senator LUNDY —When did tenders close?

Mr Brent —My recollection is that it was in January of this year, but again I do not have the exact dates. But that timing is roughly correct.

Senator LUNDY —Would you take that on notice to provide us with the accurate dates.

Mr Brent —Yes.

Senator LUNDY —In fact, a really neat table with a chronology of events linked to this whole contractual process would be useful.

Mr Brent —That would be very easy to provide.

Senator LUNDY —Thank you. It closed about January. At what point had you finalised your internal benchmark costs?

Mr Brent —That is a difficult question to answer precisely, but we had more or less finalised that at the time we issued the request for tender. However, the process involved substantial modification as we went on, simply because the exact nature of the tenders affected the exact way that costings were done. We were still discussing detailed costings well into the contract negotiation phase.

Senator LUNDY —So once the tenders closed in January, the tender documentation was opened. Were the bids compliant with the RFT?

Mr Brent —Most of the bids were compliant with the RFT. A couple were not compliant. Whether all the bids met all our specifications originally is a slightly different question, but we were able to negotiate what we regarded as fully compliant and satisfactory bids with at least two of the tenderers.

Senator LUNDY —In that process were you able to compare directly what they offered within their tenders with the benchmarks you had established with your in-house operation?

Mr Brent —We were subject to the qualification that direct comparisons are always difficult in those circumstances because the character and nature of the service will always be somewhat different when outsourced from that which can be provided in-house. A simple example might be moves, ads and changes—or macs, as I gather they are called. The exact definition of what is a move and what qualifies to go in the list and how they are costed varies according to the way the service is provided. Subject to those sorts of qualifications, we were able to do a rough but reasonably precise comparison.

Senator LUNDY —Okay. Ironically, given this whole process, I have had very little experience and heard little evidence about the creation of a competitively neutral environment. My recollection with the one monitored and reported competitively neutral environment was defence's commercial support. I know you may ask what that has to do with you. In the comparison of those costings of tenders and your own in-house costs, were things like potential redundancies or loss of assets in your hardware in the handover taken into account to ensure that the one-off costs associated with the transition were reflected as part of your assessment, or did you isolate the one-off costs out of your assessment on that comparison?

Mr Brent —All the costs were identified, including those one-off costs. All have been used by us in our analysis of the financial cost/financial benefit of outsourcing. All of them were used in determining which outsource bid we preferred. For instance, one of the features was our existing desktop hardware, what was to be done with it and at what price it was to be handed over to the contractor. The proposals varied quite substantially. That did affect our calculations as to which contractor we selected. That was one of those one-off costs. Others would include items such as redundancy costs and the costs of physical changes that we would have to implement to facilitate outsourcing.

Senator LUNDY —You have already said that you determined that it would cost you more to outsource than keep it in-house, given the structure of those calculations. Did you inform the Department of Finance of your assessment?

Mr Brent —Yes. The Department of Finance is doing its own calculations. I do not have its final judgment. It believes the numbers come out differently and its judgment is that it may well be a saving, albeit a very slight saving. That depends on how one costs items such as the moves, age and changes. It will in part not be entirely clear until after the contract has operated for some time.

Senator LUNDY —Why are they bothering to assess it? That is not a very fair question to ask you. Minister, can I ask you a question.

Senator Herron —I do not know that I can answer it, but I can try.

Senator LUNDY —I know, but you could possibly take it on notice for the Minister for Finance or the minister responsible for this particular agency. If it could be demonstrated that, particularly for this small agency program where agencies are not bound to participate in a cluster, it was more cost-effective and a more efficient use of taxpayers' money to allow that agency to retain their information technology in-house, why would the government or the minister not allow that to occur? Can you tell me the reasons?

Senator Herron —Ultimately, it is a decision for the minister for finance. I am happy to take that on notice. I understand the tenor of your question, but we will have to get back to you with a formal response.

Senator LUNDY —Thank you. In terms of Finance's statement, `We don't believe you, we'll do our own assessment,' my understanding is that that is not going to be done in time to impact upon your approach to the minister for finance for an exemption. Is that correct?

Mr Brent —I should make two things clear. It is not so much that they do not believe our assessment, but simply they are bringing expertise to bear that is different from ours and making some judgments that are different from ours, doing some calculations that are different and coming up with a slightly different answer. Because it is such a complex equation I would not for a moment want to suggest their calculations are wrong. I would simply be saying that our judgment is that the finances come out differently.

I would also say that there is no further debate about whether or not we outsource. It has been made clear to us that unless there is a whole of government case for not outsourcing, we should do so, and as an agency of government it is our obligation, without hesitation, to implement government policy for whole of government benefits. That is the approach that I understand the department of finance has taken in relation to IT outsourcing.

Senator LUNDY —That is my understanding too.

Mr Brent —From our perspective, our individual choices might be different were we not so constrained. But I would also make clear that it is our determination to ensure that, ultimately, outsourcing benefits our organisation, not just the whole of government interests, so that in negotiating the contract we have looked very explicitly to defined benefits that are non financial: access to resources that we otherwise would not be able to afford to access in terms of the implementation of better use of information technology and better communications.

Senator LUNDY —So you are making the most of it?

Mr Brent —We are making the most if it, exactly.

Senator LUNDY —You have got little choice. The budget this year also mandates a competitive tendering and contracting element tucked in there at the back of each of the portfolio budget statements. Have you lost any money on your budget allocation this year that can be attributed to that CTC program?

Mr Brent —No. We have been in the process of competitive tendering for services across the archive for some considerable time. We have outsourced a range of activities, from core activities to others, throughout the history of the archive. We have brought things in house; we have moved things out of house. As a result, the process of testing market for various services is something that is integral to our operations already. The competitive tendering requirements will not make a substantial difference to that, although it may well be that we retest or test some areas that have either been tested before or are yet to be tested.

Senator LUNDY —Have you publicly announced who your contractor is?

Mr Brent —For IT outsourcing?

Senator LUNDY —Yes.

Mr Brent —It is public information; I do not know that we have announced it. It is a company called Praxa, in alliance with another company.

Senator LUNDY —Which other company?

Mr Brent —I have a mental block and I cannot tell you. I will have to take that on notice.

Senator LUNDY —It is actually not important. The question I wanted to ask you was: are you confident of achieving the savings that you have already lost? Are you confident of breaking even with respect to the IT outsourcing, given that you have already lost $50,000 for last year, which I presume you have had to absorb within operational expenditure?

Mr Brent —Yes.

Senator LUNDY —For the next financial year, you have already lost $50,000.

Mr Brent —Yes.

Senator LUNDY —Are you confident of achieving $50,000 worth of savings in the next financial year with regard to this contract with Praxa?

Mr Brent —At one level I could probably say I am confident that we will not. Having said that, the benefits from outsourcing that we are looking to gain will not be directly measurable in the short term financially. We are looking to tap into efficiency gains that we can deliver out of better IT systems. In some of those the gains may be one, two or three years down the track. Some of those might be gains in terms of better service rather than cheaper service. Some of those will be in terms of new services that we were not previously able to provide. The equation is going to be much more complex than that. Certainly, in straight financial terms, I think it unlikely that we would recover the investment in the space of the next year or so.

Senator LUNDY —What are your out years budget losses in relation to IT outsourcing?

Mr Brent —The figure that has been removed from our budget, which is $57,000 to be precise, is a constant. That figure simply remains in the budget.

Senator LUNDY —You talked about a complex formula for achieving some benefit for this. Do you anticipate achieving any bottom line monetary savings at all? I have asked whether you will achieve that many and you are saying you do not think so. Are you likely to achieve any savings at all?

Mr Brent —Perhaps I can turn the question around and tell you what our assessment is. Certainly, in the short term, we will be worse off in cash terms. That is our judgment. OASITO is providing a different judgment and time will tell which of us is right. Even time may not entirely tell because it is a complex question of how you do the calculation. In our case, one of the complications, in particular, is that we have rolled voice communications and telephone into IT, which we have had to do because it is our IT unit which runs the telephone and without the IT unit we have to outsource the telephone.

Senator LUNDY —Was that a mandatory requirement in your RFT or did you opt in? My understanding is that it is an opt in thing.

Mr Brent —It was not required of us but we required it of the tenderer because in operational terms we did not have a choice. That telephone equation is a separate equation from the IT equation. Where one divides costs up between the two—us and the outsource supplier—the outsource supplier will both provide that as an integrated service. It becomes a very difficult issue to judge. Secondly, I would say that the cost of outsourcing has been significant in terms of our judgment of the comparisons, the money we have lost and the cost of the process. The savings will be longer term. Therefore, in the short term, we will not recover that cash.

Senator LUNDY —Can you put a figure on the losses to date on this?

Mr Brent —In very round terms, it is our assessment that the cost of outsourcing will be some hundred thousand dollars per annum or perhaps even more expensive than our in-house system. There is some debate about that figure and it may well be that it is much closer to a break-even figure. There is the $57,000 that has come off our budget.

Senator LUNDY —Of that $100,000 in the red, is the $57,000 incorporated in that?

Mr Brent —No, that is in addition.

Senator LUNDY —In addition?

Mr Brent —Yes.

Senator LUNDY —What you are saying to me is that you have to absorb about $150,000 worth in your operational budget each year just to get by?

Mr Brent —That is right.

Senator LUNDY —That is quite extraordinary.

Mr Brent —Having said that, the calculation is complex and I want to emphasise that OASITO are making different judgments about the impact. There is also the cost of the outsourcing process itself as a one-off cost. Some of those costs were not included in the calculation, but that is probably a minor factor in the grand scheme of things. The important point, though, is that the potential savings to the organisation in the longer term could see us saving substantially more than that if we can realise all the benefits we are looking for. Those sorts of numbers sound very high but that is two middle management staff. If we can improve business reporting, financial processes, data processing and communications with our Sydney and Melbourne offices it is probably not an unduly ambitious target to save that sort of money in the out years.

Senator LUNDY —In terms of looking for those out years, and quantifying that in some way, do you have a formula in mind about how you can weigh this up, or do you think that after the next couple of financial years it will all just not be relevant any more? What are your prospects, as a manager of this business, to manage your budget and make the relationships between the loss of this money now and the benefits of the future?

Mr Brent —Some of these issues are very difficult to put into simple financial equations, because the gains will often be very difficult to isolate in terms of those that are directly the result of the outsourcing arrangements assisting those we might have achieved otherwise. There are a lot of `what ifs' and `hypotheticals'. At the same time, I would say that if it were up to me, without the constraints of government policy, I would not have outsourced in the same way. It may well be that I could have come up with a formula that, as a one-off, suited our agency better. But whether that would have been as readily possible without the environment of a government outsourcing mandate that provided the marketplace with a number of players who were ready, willing and able to bid for our business, and whether that would have been possible in an environment where the mood and facilities that people were bringing to the marketplace was different, I cannot really say. Therefore, it is safer if I do not speculate on what would have happened had this not been government policy. Therefore, to a certain extent we simply accept the outcome and we will make sure we gain the maximum benefit from it.

Senator LUNDY —Will your ability to achieve any of your listed or notified outcomes be negatively impacted upon by the IT outsourcing, given the impact on your revenue?

Mr Brent —In short, no. We have found ways to manage the cash issues. At the end of the day, the organisation's reliance on IT is very high. The organisation's need to exploit information technology to deliver better service is very high and, therefore, this is an area where the amount of money we are talking about is relatively small compared with our overall investment and our overall expenses. The issue for us is much more focussed on making the best use of information technology rather than worrying about the last $150,000. As I say, were we doing it ourselves we would have done it differently, and that would have given us different flexibilities and opportunities, timings. We may not have outsourced in the same way and we may have outsourced to different services. But we would have done so in a different environment, and to speculate on which was the better way to go where we are going is something that I do not think we will ever be able to do in any knowledgeable way.

Senator LUNDY —Did you manage to secure any additional funding for further capital expansion for ScreenSound Australia this budget?

Mr Brent —We did, indeed. We have been able to have fully funded the depreciation on our collection, which essentially means that we no longer need to contemplate coming back to the government at regular intervals with new policy proposals to recover the value of lost capital in our collection. That has made the long-term management of the archive immeasurably more reliable, and I think that we will deliver substantially and dramatically improved results from being able to rely on financial outcomes into the future and to plan properly for the asset—principally our collection—that we manage.

Senator LUNDY —I am pleased to hear it. Those are all the questions I have for you today. Thank you.

ACTING CHAIR (Senator Tchen) —Senator Lundy, I am afraid I have lost track. Which group do you wish to question next?

Senator LUNDY —The last one we have in this arts group is the National Museum.

[2.49 p.m.]