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Contracting out government services [Rebroadcast on 5 January 1997]

BERYL DOWNES: 'Dear Meals on Wheels Recipient: You will be aware that Bayside Council has put the Meals on Wheels supply and delivery out to tender. The contract has been won by Masterfresh Pty. Ltd ....'

ANN ARNOLD: Local Councils are on the brink of a transformation. Around Australia councils are in various stages of contracting their services. It's a street level version of the trend towards smaller government, and the involvement of the private sector in what has traditionally been government business.

The idea of private companies running local maternal and child health centres or looking after the parks, divides people like few other ideological issues.

A system of competitive tendering means that councils compete against external bidders for the right to do their work. But there are questions about whether this does create the healthy competition it's meant to, and even about the other main purpose - that it's cheaper in the long run.

It's all happening under the umbrella of the National Competition Policy, which after being introduced by the Keating government last year, signifies a radically changing Australia.

SIMON DOMBERGER: One thing is clear: the issue now is no longer whether competition yields benefit.

ANN ARNOLD: Professor Simon Domberger teaches management at the University of Sydney.

SIMON DOMBERGER: We've now moved from a position of what should we do, to the position of how should we do it in order to guarantee benefits? Although because this is an ideologically and politically charged issue, there will always be a debate, quite a hot debate, which I quite enjoy incidentally.

ANN ARNOLD: He is a keen advocate of contracting. So too, is the Victorian Minister for Local Government, Rob Maclellan.

ROB MACLELLAN: All the Governments in Australia - State, Territories and National Government - all signed up under the Keating government to a Competition Policy. Now that Competition Policy is now the law and we've all got to obey it. Now the fact that Victoria is ahead in implementing a national, continental policy, is no surprise; we're ahead in just about every field.

ANN ARNOLD: But the Lord Mayor of Brisbane, Jim Soorley, disputes the notion that the National Competition Policy demands councils to tender their services.

JIM SOORLEY: That is simply not true, and if the Victorian Minister's saying that, he's being quite deceitful, and that's simply an ideologue in Victoria justifying his own position and trying to hide under the National Competition Policy.

ANN ARNOLD: What the policy talks about is 'competitive neutrality', which leaves some room for interpretation.

JIM SOORLEY: Under the National Competition Policy, there is a need to ensure that councils' operations are transparent and open to competition so you can't be subsidising them secretly. But there is no compulsion under the National Competition Policy to insist on compulsory, competitive tendering.

ANN ARNOLD: Brisbane Lord Mayor, Jim Soorley.

So competitive tendering is still a choice - everywhere but Victoria, where the State Government made it compulsory two years ago.

But while there's ideological division about its virtues, there's no neat party political pattern.

Sydney City Council, dominated by Independents, is about to launch most of its activities onto the market as part of its efficiency drive in the lead-up to the Olympics, while former Federal Liberal Minister, Ian Macphee, who's now an adviser to the Graduate School of Government at Monash University, sees wholesale tendering of Local Government as fundamentally wrong.

IAN MACPHEE: Government is for the people, consultation with the people is crucial for it to be government by the people, and if it's government of all the people then all the people have got to feel that it's relevant to their needs and they have a say in the way it's delivered. And I don't think you'll do that by having a shell of a council with a variety of small enterprises to whom services are contracted out every few years and up for review every few years. You've got to have a continuity of quality and care.

ANN ARNOLD: Although councils can bid for and win back their own work through competitive tendering, they do risk losing the bulk of their activities.

Graeme Hodge has just completed a study of international contracting for Monash University.

GRAEME HODGE: There's a very large ideology, if you like. The ideology is that good government is small government, and good government is one that does the minimum but allows the private sector to get on with things. The interesting thing in this area is that even through journals such as the Harvard Business Review, people are now saying what civilised communities need is strong government and a strong business sector. We need a good balance between the two.

ANN ARNOLD: Graeme Hodge.

But the debate about what role we want government to play is a debate we're not having, according to Mick Paddon, from the University of New South Wales.

MICK PADDON: I think there is an issue for public debate about whether people think that government should be doing things or managing contracts. I mean, if I were advising someone to take up a career in Britain around the Public Service over the last five years, I'd tell them to get into contract management. There are more ads in the paper at weekends for contract managers than any other aspect of the Public Service.

ANN ARNOLD: Few areas highlight the cultural change more graphically than Meals on Wheels, which in Victoria is run by the councils.

BERYL DOWNES: Well I didn't like it at all. I couldn't even drink the soup. I used to throw it out every day. It was like water. My daughter said it was consomme. Whether it was or not, I don't know, but it wasn't what I'd call soup.

ANN ARNOLD: Beryl Downes had always had volunteers bringing her meals, under the supervision of Bayside Council, which is the Sandringham-Brighton area of Melbourne. But the council, seeking a more streamlined efficiency, tendered the service. The volunteers were dismissed and a company called Masterfresh was installed.

Then it was Beryl's turn.

BERYL DOWNES: I did sack them last week. I rang up and said I didn't want it any more. I had a lot of peas and carrots, and I couldn't stand the sight of them in the end, and I don't like throwing out food, which I was doing. The sweets were all right. I had nothing against that at all. Some people might like them, I'm not saying that at all, but I didn't like them. So that's it.

ANN ARNOLD: So maybe the food side of it just depends on your taste a bit, doesn't it?

BERYL DOWNES: Yes, I would say so.

ANN ARNOLD: What about the other side of the service-the delivery and what the people do when they come here? Is there a difference in the way that these ones deliver the meals?

BERYL DOWNES: Well, when I got them at Sandringham, I knew some of the people. They were elderly like myself, and I knew some of them. I belong to the Hyatt Senior Citizens, and one of the ladies there used to come to my place, but these people, I don't know them at all. And I'd just put the bin out and they'd put it in and that was it.

ANN ARNOLD: Beryl Downes.

Not all councils in Victoria are tendering their Meals on Wheels, but Ian Macphee, whose former Federal Electorate covers Bayside Council, doesn't like the shift it represents.

IAN MACPHEE: Government is not business, but you can use business principles to guide and measure the performance of some of the services of government, but if we lose sight of the fact that many of the people whom we're serving are expensive and we'll have to subsidise or cross-subsidise the service because those people can't work on a user-pays basis because of their health or their age or their state of impecuniousness-once we start to recognise that, then we see that government is not as easily equated with business as some of the ideologues seem to think.

ANN ARNOLD: Ian Macphee's position highlights the divisions in today's Liberal Party.

The Kennett government is adamant that the policy it introduced - Compulsory Competitive Tendering or CCT - is the right way to go for local councils. It's based on a similar English system, part of the UK's massive push to privatisation, although there, CCT hasn't gone into the community service areas like it has in Victoria.

Victorian Local Government Minister, Rob Maclellan.

ROB MACLELLAN: I want to stress to you - because this is a national audience - that CCT in Victoria has overwhelmingly produced better services, cheaper costs, better work practices, better rewarded workers, and a better outcome for all concerned.

ANN ARNOLD: The belief is there'll be savings of about 20 per cent in council operating costs and that CCT will force out any sluggishness remaining in Local Government.

But as the effects of CCT become clearer, more controversies are springing up. Last month, a meeting was organised so that the private sector could air its concerns to the Minister.

Businesses are accusing the councils of manipulating the tendering system. The councils themselves are questioning the efficiency of reorganising their work so quickly. And new research challenges the prevailing wisdom about the savings to be made.

But it's worth first taking a look at what CCT offers. Minister, Rob Maclellan.

ROB MACLELLAN: We're just pioneering the way, and I suppose it's no surprise to us that we get a lot of interest and a lot of visits and a lot of requests for information from other States and Territories, seeking information about how we're doing it and how they should do it when their turn comes. And their turn is coming.

ANN ARNOLD: Could you explain again how, when you're telling those other States how successful it is, what evidence you're able to give them about improved efficiency directly as a result of CCT, not the other reforms.

ROB MACLELLAN: Oh, I just have to put them in touch with one of the really good councils which has more than achieved its say 50 per cent target already, or is close to it, and which has had phenomenal savings far exceeding the cost of going through the process of CCT, and is lashing out with an increased capital works program, new programs, new services, as well as rate reductions.

ANN ARNOLD: What's a good council who's done that?

ROB MACLELLAN: Their eyes would pop if they got into one of those councils and had a frank and informative discussion about how successful some of them have been; and they are both rural councils, urban councils and metropolitan ones, and I think that we can easily provide them with that information. So if any of your council listeners want to be put in touch with a sort of matching council which is doing well in Victoria, we'd be only too happy to identify one to them.

ANN ARNOLD: Could you identify some of them now?

ROB MACLELLAN: No. Well, I could but I'm not going to.

ANN ARNOLD: Why not?

ROB MACLELLAN: Because I don't think that this is an advertising program. I mean, we're on ABC.

ANN ARNOLD: But you were just advertising your State's policies.

ROB MACLELLAN: No, no, I was informing your listeners of how successful we have been with CCT in Victoria, and we have.

ANN ARNOLD: But if we're talking about facts rather than promotion, I'm asking you for some specific evidence that shows that either the quality of service has been improved or that savings have been made.

ROB MACLELLAN: Well, I think if you'd like an area identified in which you might pursue the question most usefully, you would look at the maintenance of parks and gardens. The people that used to deliver it are delivering it now under contract, whether they're the in-house team or an external team, at a vastly better and more flexible workforce practice and price.

ANN ARNOLD: Rob Maclellan.

Under competitive tendering, council departments such as parks and gardens or street cleaning, can form themselves into in-house teams to bid for a tender against external companies.

There is a council which is considered highly successful with this system, and that's Melbourne City.

Melbourne City Council launched into competitive tendering even before the State Government enforced it. The council says its services now under contract - and there are 35 of them - are operating 20 per cent cheaper than they were before.

ALAN GOSTELOW: We've got somebody over here. Part of the contract is with street furniture, to make sure that that's clean. You know, you get a lot of dust settling, particularly from the tramlines and some of those sorts of things.

We're now standing in the Bourke Street Mall, and this is one of perhaps the most populous areas during the day in Melbourne, along with Swanston Street Walk. So what now happens is that they would be cleaning these more frequently, right?

ANN ARNOLD: Alan Gostelow is the Chief Executive Officer of Citywide Service Solutions, which has the cleaning contract for part of the CBD. The company is owned by the council and is comprised of former Council departments: road repairs, rubbish collection and the like. All its contracts have been fought for and won against external companies.

RECEPTION: Good morning, Citywide. Natalie speaking. I'll just transfer you to Customer Service-one moment.

ANN ARNOLD: The corporate headquarters for Citywide Service Solutions is on one floor of a council-owned office block in Bourke Street. The company leases the space from the council.

It's the nub of an expanding empire. As well as Melbourne City contracts, Citywide is winning tenders with other councils in the suburbs.

UNIDENTIFIED: Yes, all right. Yes, okay. Well, Melton have finally given us a draft of the capital program, so we now have to look at the timings to deliver that and how we're going to deploy our resources for all of those ....

ANN ARNOLD: This is a team meeting at Citywide, called to discuss how best to operate a new contract won from Melton Shire on the outskirts of Melbourne.

One of the arguments for contracting is that staff have more incentive to be flexible, in order to win a contract and then to renew it. That means keeping costs down.

UNIDENTIFIED: ... spoke about that at one stage.

UNIDENTIFIED: That's possible. It's possible we can offer overtime to staff in other regions and utilise equipment on a seven-day cycle, plus the opportunities. It's because we're moving into the summer period, we can use a longer day, so we can work from about 6a.m. through to 6p.m.

UNIDENTIFIED: Or 8 p.m.

UNIDENTIFIED: Because some of the mowing usually gets done till 8o'clock because it's still light, so that shouldn't be a problem.

UNIDENTIFIED: Split shifts?

UNIDENTIFIED: Yes, okay. Split shifts sounds good.

ANN ARNOLD: All up, Melbourne City Council estimates it's saved $20million through contracting, and believes its standard of service hasn't lowered. But it didn't happen bloodlessly. About 400people have lost jobs, and remaining staff have often had to reduce their take-home pay or conditions in order to win contracts.

Peter Donald is Melbourne City Council's Senior Manager responsible for tendering.

PETER DONALD: One of the features of this organisation in the past had been that it always weakened under threat of industrial action. The feature of the organisation since 1989-90 is that it has not weakened in its intentions to reform the organisation and change it. And getting to a point where our staff were going to be competitive, or if they weren't competitive, then somebody else was going to be doing their work.

ANN ARNOLD: So far, it is the council in-house teams, including Citywide, who've won the majority of Melbourne City contracts. Of the ones that have gone out to the private sector, the biggest winners have been two multinational companies.

Berkley Challenge, which cleans half the city, is a division of PO. The other company is Serco, which looks after three of the five parks regions.

Mick Paddon, from the University of New South Wales, says companies like these specialise in winning government work.

MICK PADDON: The company called Serco, which basically grew up around the contracting out of services in the UK-initially in the Department of Defence in the UK but now it's doing everything from running bus services-it even offered the South Australian Government that it would run, or administer, the public education system. So the British international companies are certainly in Australia and they're certainly actively promoting contracting out.

It's probably not correct to even talk of them as being French and English companies these days, because their characteristics are they operate around the world and the sense in which they belong to any one country is now problematic. We're talking about transnational multinational companies operating in every continent and operating across a wide range of services.

ANN ARNOLD: Mick Paddon, from the Public Sector Research Centre at the University of New South Wales.

So what does the existence of these companies mean for competition? According to Dexter Whitfield, who's with the Centre for Public Services in Sheffield in the UK, they diminish competition.

DEXTER WHITFIELD: What has happened in Britain, it hasn't stimulated competition; it's, in effect, reduced competition. Competitive tendering has gone on since the start of 1980 and then more specifically in 1989. What we've had is less and less competition.

ANN ARNOLD: Why is that?

DEXTER WHITFIELD: Transnational companies now dominate each of the major sectors. I mean a handful of firms now control the major contracts. Like refuse collection, seven firms now have 68 per cent of the market.

ANN ARNOLD: In Victoria, many of the smaller companies are fed up with contracts going occasionally to big companies, but mostly to the council teams. Since it's the councils themselves who assess the tenders, accusations of biased decision-making and unfair practice are flying around.

The local private sector had been gearing itself up to share in the billions of dollars worth of council business, but now some of the keenest ones are threatening to drop out of the competition altogether.

When CCT was introduced, Geoff Bell thought his family company, Leisure Management and Marketing, was perfectly placed to take on some of the big council-owned recreational centres.

Despite nine bids, he hasn't been successful, and is bitter about the $5000 or more it takes to prepare each tender. The council bidders, he says, can spend months in preparation using council resources. But when Geoff Bell wants some basic commercial information, he can't get it.

GEOFF BELL: Now, if the council either isn't able to or won't provide that information, then it makes it impossible to put in a tender, particularly given the period of time which is allowed for, which is often the minimum recommended three weeks.

ANN ARNOLD: It's difficult for them, isn't it, because they're not wanting to give away too much information because they want to retain their competitive advantage? And some would argue that, in business, you make the most of every advantage that you have.

GEOFF BELL: Certainly, but I go back to the point I raised earlier, that unless you're prepared to have the tender process at least reasonably balanced, then what you're saying to the private sector is we've got a tendering system but we don't want you to actually ever be able to put in a competitive tender.

ANN ARNOLD: The resentment between the private sector and Local Government is brewing.

One of the bigger tenderers, Spotless Services - the catering and cleaning company owned by the international Spotless Group - has been one of the most angry. Its Chairman, Brian Blythe, wouldn't talk to Background Briefing, but in a newspaper business story in July, he said the tendering system was not an honest game. Twenty-one of the 22 tenders he'd gone for went in-house.

One contract Spotless did win, however, was quickly lost. It was appointed by Kingston Council to prepare the food for Meals on Wheels, but after four weeks, the council sacked Spotless, citing concerns about the quality and quantity of food.

Both business and government observers though, worry that councils don't have to reveal every aspect of their commercial decision making.

Graeme Hodge, whose study of contracting was done for the Monash Graduate School of Government.

GRAEME HODGE: The public seems to expect different things from the private sector and the public sector. What they expect from a government is openness and access to information and perhaps no secrets, if you like; you know, it's our tax dollars that's being used and we want to know what's going on here.

What we all expect from the private sector is decisions to be made behind closed doors, secrets to be held because it's a commercial advantage. But the community's going to have to decide in the next couple of years what we really value more. You know, are we prepared to have governments keeping secrets from us because they're 'commercial in confidence' or do we expect what we've traditionally got which is perhaps more openness and more access to information.

ANN ARNOLD: It could be that the current pattern of who's winning the tenders is set to change, that's if England's experience is anything to go by.

Professor Simon Domberger, from Sydney University, specialises in contracting, as both an academic and a consultant.

SIMON DOMBERGER: The first round of contracts following the 1988 Local Government Act, was overwhelmingly won by the in-house teams. The second round, the proportion of contracts won by value went down to something like 60 per cent. So now the split in the market is 60:40 in the UK in favour of in-house teams. That means still that 60 per cent of services are being provided by local authorities.

At the same time, a lot of the smaller players who are bidding for work, have found it more difficult to sustain their performance, and there have been mergers and acquisitions, and there has been a concentration in the marketplace, with a few large firms winning an increasing number of contracts.

That is not unexpected and is not entirely undesirable because there are economies: economies of scale in management, managing large teams of people in terms of managing information systems that are required. So a certain amount of concentration in the marketplace, in the private sector, is to be tolerated. And the fact that there is a certain culling process within the market is just a healthy feature of the free enterprise economy.

ANN ARNOLD: Many councils argue it's legitimate to use every competitive advantage they have to hang on to their work, because there is so much to lose, especially in rural areas.

Loddon Shire is in the north of Victoria. Chris Gillard is its chief executive officer, and he says losing just one contract to a bidder from another area, could have devastating results.

CHRIS GILLARD: As an example the town of Serpentine has 150 people and 40 of those people rely on council income directly for a livelihood. There's a hotel, there's two service stations and a milk bar. If the council was to lose its work to Bendigo, which is only 25 minutes away, there's a town that would shut. There's a local football club that's won three out of the last four premierships; there's a number of elderly people living in elderly persons' accommodation - those people would have to realistically look at leaving the area.

ANN ARNOLD: There's little local competition, so Loddon and a couple of neighbouring shires have commissioned a study into the impacts of CCT on their region. They're concerned that the state-wide economic philosophy which drives CCT might simply not work for them.

CHRIS GILLARD: A simple example, perhaps easy to understand: a shoe shop. We currently buy gumboots and footwear for our staff. We might pay $30 a pair for gumboots which if we went to a major supplier in Melbourne we might be able to buy for $18. Now that small amount of business might have a major impact on a very small store in a struggling town that's just lost its bank, its post office, its police station and any of its government services that it might have had.

ANN ARNOLD: It's a trade-off though, isn't it, because presumably the ratepayers get better value for their money if you're buying the cheaper gumboots from Melbourne?

CHRIS GILLARD: It's a real trade-off, and it's fair to say that there's a very mixed view in the community. Some people believe that local employment is a very important issue because they've got children and they're really tired of their children having to leave the area to have a chance of a job. Others believe that going down the private sector path is long overdue and that it provides them with cheaper rates.

ANN ARNOLD: Chris Gillard, from Loddon Shire in Northern Victoria.

But does competitive tendering bring cheaper rates? In Victoria, there's been massive restructuring right across Local Government, making it difficult to assess CCT alone.

Councils have been amalgamated, reducing 122 to 78. As well, all elected councillors were sacked and government-appointed administrators put in charge.

Few dispute the savings amalgamation has brought, but so that constituents could benefit, the Government forced all councils to pass on the savings through a 20 per cent rate cut.

This all happened independently of CCT. But it often gets the credit for saving money.

Minister Rob Maclellan.

ROB MACLELLAN: The bad examples illustrate how we need to do better, but, overall, we're doing extremely well. And the Auditor-General, in his previous audit, concluded that there have been great savings for ratepayers, improved services, better and more cost-effective delivery of services as a result of CCT.

ANN ARNOLD: Isn't it the case that he was talking about those savings as a result of general Local Government reform from amalgamations and from rate-capping, and that the results of CCT were not yet in.

ROB MACLELLAN: The rate reductions came from a combination of Local Government reform, plus the benefits of CCT, and there's a mixture there, and much of the benefit and most of the continuing benefit is coming from CCT.

ANN ARNOLD: But the Minister wasn't quite right. What the Victorian Auditor-General says in his report for the last financial year, is that yes, a saving of $323-million was expected from the Local Government budget. That would result mainly from economies of scale. 'However,' the report says, 'the savings do not include efficiency gains expected from other reforms, particularly the CCT initiative introduced by the Government.'

The Office of Local Government which advises the Minister, simply says on the savings question: The jury's still out; it's too early to know either way.

Melbourne City Council does claim for itself a saving of 20 per cent, but there's a reason for that.

Peter Donald, the council's CCT Manager, says that before it began, there'd been several years of intensive workplace reform.

PETER DONALD: When people look at the City of Melbourne model, they're not necessarily just going to be able to go away and copy it and achieve exactly the same, because you can't necessarily turn back the clock and reform an organisation as we had done in those years of '90-'93.

ANN ARNOLD: And they can't start now because they have to meet their quotas on CCT?

PETER DONALD: That's absolutely correct. So in many cases, whilst competitive tendering will reduce operating costs for councils, Ipersonally do not believe that it will reduce to the level of cost reduction that we have been able to achieve, because they've missed that opportunity to reform. And you've got to lay the responsibility for that at the feet of the councils and the management that were there at the time. When the rest of Australia was going through micro-economic reform, Local Government wasn't, and in many respects you could say that Local Government, in Victoria at least, got the legislation it deserved.

ANN ARNOLD: Peter Donald, from Melbourne City Council.

Some councils are turning themselves into knots, trying to meet the Government's deadlines. Each council has to have tendered 50 per cent of its expenditure by next year. For some, depending on their internal economies, that means most of their services.

It's not clear yet what inefficiencies are occurring as a result of too much happening at once, but that's a problem largely specific to Victoria.

Professor Simon Domberger expects that, generally, the gains will be great.

SIMON DOMBERGER: The rule of thumb seems to have become 20 per cent. Many studies, including our own, suggest that 20 per cent is the global average, but there are differences, depending on circumstances, depending on the degree of competition, how efficient the service was to start with. So 20 per cent has to be treated with caution, but it is an indicative figure that seems to be quite robust.

ANN ARNOLD: Simon Domberger's work through Sydney University's Graduate School of Business, has been the main Australian reference on contracting, but its conclusion that 20 per cent savings should be made at Local Government level, is largely based on the experience of garbage collection services.

Graeme Hodge's study of international contracting, published two months ago for Monash University, found much less than 20 per cent savings in garbage collection and no apparent gain in other areas.

An analysis in Britain by the Sheffield Centre for Public Services found that when you look at the impact on the national economy, such as increased unemployment, then the British Government is paying dearly for it.

This is all being argued about, but meanwhile the national spread of competitive tendering is widening, and it's inescapably an industrial relations issue.

Brisbane Lord Mayor, Jim Soorley.

JIM SOORLEY: If you want to cut working conditions in this country, cut working conditions and be honest about it. Don't say you're going to do it through a process of Compulsory Competitive Tendering when that's really what you're on about.

ANN ARNOLD: Brisbane Council has just negotiated an enterprise bargain agreement with a strong emphasis on efficiency and productivity.

JIM SOORLEY: Pay increases are now dependent on measured productivity gains, and bonuses and so on will be negotiated according to those principles. We were able to get rid of a fairly archaic sick leave process where people were just taking sickies and not being sick. Now a reduction in absenteeism through sick leave is locked into our EBA agreement and is one of the factors determining the next pay increase.

ANN ARNOLD: What do you think it was that made staff willing to make some concessions in their conditions?

JIM SOORLEY: Well, I think staff realised that in Brisbane we are trying to be fair. We're saying to them, 'Look, we've got to get efficient; we've got to get better customer service oriented; we've got to get better quality' and they're the three things that we focus in on. So we've got to work together in this, otherwise, you know, it will be the Victorian solution, where, you know, literally thousands of people lose their jobs.

ANN ARNOLD: The 'Victorian solution' has clearly upped the ante when it comes to industrial relations elsewhere.

Brisbane City Council believe its meeting its other competitive requirements by corporatising some of its bigger operations.

Brisbane is actually the richest council in Australia. It covers the entire metropolitan area, and runs the public bus system among other enterprises.

JIM SOORLEY: We have established Brisbane Water as a corporation, with a board, and it will run as a business. And we will ensure that there is no cross-subsidisation that is not clearly identified and transparent, and we will be fulfilling our requirements under the National Competition Policy in this manner.

ANN ARNOLD: What about the requirement to make sure that all the other operations of your council are in fact competitive? How do you know that they are?

JIM SOORLEY: Well, we're going through a process of bench marking, and it's interesting. In Victoria, you're found to be guilty before you do anything else. How does the Victorian Minister know that his councils are not competitive in some areas? He doesn't. He's just said: Well I don't trust you; I don't like you; I don't believe in Local Government; this is how you will operate.

So we are going through a process of bench marking, and we know that our water operation is pretty good; we know that our sewerage operation is not quite as good, so therefore you have to focus and target and get some efficiencies there. We know that Brisbane Transport, through our bench marking, is the second most efficient public sector transport business in the country.

ANN ARNOLD: Brisbane Lord Mayor, Jim Soorley.

The new boss at Sydney City Council, Greg Maddock, doesn't agree that bench marking - a comparative analysis of your operations - is sufficient. He's joined the council from Victoria, where he led one of the wealthiest suburban councils - Stonnington - through CCT.

He acknowledges the results there, in terms of savings, were mixed. But his brief at Sydney, as its chief executive officer, is to find $50 million from within the council, before the Olympics, to fund city improvements, and competitive tendering, he hopes, will be the key to it.

GREG MADDOCK: The only way you really prove how good you are or bad you are, is by going up against the competition. Lots and lots of unions, lots and lots of managers, lots and lots of people tell me that they are best practice, that they are where the action is, they are right at the forefront. Basically, until those people have been market tested against what the market will offer, they cannot prove that statement.

ANN ARNOLD: Greg Maddock doesn't believe Victoria's compulsory policy has worked because of its rigidity and the speed with which it has to be implemented, but he predicts Local Government everywhere might be forced by the Federal Government to introduce competitive tendering.

Professor Simon Domberger agrees, and he says that if the result is most Local Government business ending up in the private sector, that's all right.

SIMON DOMBERGER: There is really an irrational paranoia about this notion of losing expertise and losing infrastructure. It is not lost. It is simply placed in the marketplace where indeed it is enhanced and continually upgraded to provide services for a large number of consuming agencies, and it lives on. It simply does not die.

ANN ARNOLD: You're saying it might be lost to the council but it's not lost to the consumers.

SIMON DOMBERGER: It's not lost to the consumers, it's not lost to the community, and it's actually transferred to a place where it's really being kept shipshape because the providers out there in the marketplace in order to win contracts, they have to keep their infrastructure intact. And they have to, indeed, upgrade it and stay up there with best practice - incentives that are very often absent from a monopoly provider of services that resides comfortably within council.

So I would say to councillors and Local Government managers who get concerned about this: Don't be concerned, there's no loss, it's just a transfer. The worry is one of monopoly, not ownership.

ANN ARNOLD: What role is there then, for Local Government? The Victorian Minister, Rob Maclellan, acknowledges that people's feeling about localism are strong.

ROB MACLELLAN: Passionate.

ANN ARNOLD: You share the passion?

ROB MACLELLAN: Oh, I don't share the passion, but then I'm a sort of ratepayer in more than one municipality sort of thing, so I mean which one do I owe my allegiance to? Is it where I live? Is it where I work? Is it where I have my recreation? You know, I'm perhaps more modern in the sense that I feel a citizen of the world, I don't feel a citizen of some particular patch. My interests are broader than a patch, and I think many people are, and I think the future will show that more and more people feel that way.

That doesn't mean that you're not aware of the desirability of having Local Government. I think there should be Local Government and I'm sure we'll always have Local Government.

UNIDENTIFIED: Explore Victoria's unspoiled coastline along the Great Ocean Road-the magnificent surf coast from Torquay to Anglesea, Aireys Inlet to Lorne, and inland to Winchelsea. The surf coast is home to some of Victoria's best beaches, like the internationally-famous Bell's Beach. Some of the best fishing ....

ANN ARNOLD: Torquay is the centre for the Surfcoast Shire, home to Australia's surfing industry. It's that industry and the Surfcoast Shire Council, which keep the local economy alive in the shadow of nearby Geelong.

But the council is on the brink of losing that role.

Above a shopping arcade in the commercial centre of Torquay is a new suite of offices called Surflink. This is the company created by the council to bid for council work, and it's intentionally been placed in the heart of the community.

ANN ARNOLD: Surflink comprises the bulk of council responsibilities - homecare, parks and gardens, roads and more. At least, it hopes to. The tendering process is just about to begin.

In a corner of the office stands a surfboard with the company name emblazoned on it, but the atmosphere wasn't casual on the afternoon I visited.

The first six tender submissions were due in, and the manager of Surflink, Mike Courtney, was white-knuckled.

MIKE COURTNEY: Well our first tender is the Homecare tender, that's 32 staff. Those people are mainly female workers who provide cleaning services. They also provide very intensive care to people who suffer from dementia and severe disabilities. So they are really local people providing very important community service in our local community.

ANN ARNOLD: To pay for its office space, Surflink runs offices for out-of-town professionals. It also provides a secretarial service for locals to help pay its way, and hopes to win contracts from other councils as well as from Surfcoast Shire. The idea is to make an expanding contribution to the local economy.

MIKE COURTNEY: Essentially though, if we lose a couple of those contracts, it'll be pull the stumps up and go and do something else, for all of us.

ANN ARNOLD: What would that mean for this community because, presumably, if a private contractor got some of them, then they could hire the staff for example, in theory.

MIKE COURTNEY: Yes. There's no guarantee of that.

ANN ARNOLD: What would be the loss then, if this organisation ended up collapsing?

MIKE COURTNEY: The value-adding to the local economy which is a major objective of this business unit. I mean to put it simply, the private sector would not be all that interested in adding that to its services.

ANN ARNOLD: Do you have any sympathy with businesses who are complaining about the number -well, in fact, it's the majority of contracts that are actually going to the in-house bids, and they're starting to get quite angry that they're not being successful and they believe the system's stacked against them. And it does sound like this council is pretty determined, for various reasons, to hang on to the work. Do you have sympathy with them?

MIKE COURTNEY: Well, I don't know if sympathy's the right word. Imean, in a sense the private sector called for this legislation because it had a claim that Local Government was a terribly inefficient bureaucracy. And interestingly, when Local Government turns around and wants to join the private sector, there's some claim of corruption or - well, probably that's a bit strong - there's some claim that everything's not above board.

ANN ARNOLD: Mike Courtney.

The notion of Local Government joining the private sector raises some identity problems. Over at the council offices in a paddock at the back of town, CEO, Peter Anderson, acknowledges that forming a company like Surflink or even just business units within the council is problematic.

PETER ANDERSON: That raises a whole lot of issues. I mean, that raises the issue of what should the charter be for those business units? Is it going to be extensive or restricted? What is the interaction or what is the role of the councillors-elected councillors-in that sort of arrangement? I mean who is the board of directors?

On one hand it has to let it be quite autonomous and explore new markets and do a whole lot of risk-taking, but at the end of the day, if it takes the wrong risks or ends up in the wrong area, then the councils are going to be ultimately liable for it. So there's a few things to be sorted out, and I'm sure that between the people in Local Government and the State Government, many of these issues are going to have to come on the table in the next 12 months.

RICHARD SINCLAIR: My name is Richard Sinclair. I'm the supervisor of maintenance of roads and drainage within the Surfcoast Shire, the whole Surfcoast Shire which is approximately 1600 square kilometres. Tenders are going to the papers in about three to four weeks for the maintenance contract of the whole Shire, and I'm quietly confident that we will be successful in the winning of that tender.

Some of my staff under me are very apprehensive about the changes, and they're not too sure how secure their jobs are, so naturally they're very concerned.

ANN ARNOLD: And how is the concern that some of them are feeling - how is that evident?

RICHARD SINCLAIR: Oh, frustrations, a few emotions, there's a few emotional people, they're showing some emotions, and they're having days off with stress, which has been in some cases very concerning because these two or three particular guys are very badly stressed out, and they're currently off with what appears to be heart problems, so those sorts of things concern me. Because they're not old people; they're only people in their mid-40s.

Maybe the stress might be associated with other things behind the scene, but with the changes and what we're going through and sort of waiting, and having to wait another probably six to eight weeks to see whether they have got a job, it adds more burden.

A lot of rural people off the land. The rural industry was pretty down and so they've taken employment with the country Shires, and where they're living is in the country, and it means that if they don't get a job, that the land is still not very prosperous. It means-where do they go? Do they sell up? That's probably the biggest side of it, that if they don't get the jobs, that they'll have to relocate to more of an urban area, and that's not the environment that they're familiar with. We'll just see what happens then.