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Employment, Education and Training References - Senate Standing Committee - Reports - Sale of Bond University - Report


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Senate

Employment, Education and Training References Committee

Report of the inquiry into th e sale of Bond U niversity

November 1995

Senate

Employment, Education and Training References Committee

Report of the inquiry into the sale of Bond University

November 1995

© C o m m o n w e alth of A ustralia

ISBN 0 642 23586 4

This document was produced from camera-ready copy prepared by the Secretariat of the Senate Employment, Education and Training References Committee. The report was printed by the Senate Printing Unit, Parliament House, Canberra.

Senate Employment, Education An d Training References Committee

Chair: Senator John Tierney (LP) NSW

Deputy Chair: Senator Kay Denman (ALP) Tas

Senator Robert Bell (Dem) Tas Senator Kim Carr (ALP) Vic Senator John Herron (LP) QLD Senator Michael Forshaw (ALP) NSW

Senator Baden Teague (LP) SA Senator Judith Troeth (LP) Vic

Secretariat

Mr Brenton Holmes, Secretary Ms Roxane Le Guen, Principal Research Officer Ms Jan Connaughton, Senior Research Officer Ms Elizabeth Kwan, Senior Research Officer

Ms Pamela Corrigan, Research Officer Ms Julie Hunter, Executive Assistant

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Terms of Reference

On the 18th of October 1995, the Senate referred to the Senate Employment, Education and Training References Committee the following matter for inquiry and report:

Whether the sale of Bond University, as one of a very small number of non-Government universities in Australia, to the University of Queensland, a public institution, would be in the national interest and, in particular, whether it would lead to a reduction in diversity and choice in Australian

tertiary education.

Table of Contents

Recommendations

Introduction 1

Chart showing connections between various companies and Bond University 2

Preliminary considerations 5

University of Queensland's position 10

Bond University's position 11

In the N ational interest ? 14

Safety of public funds and assets 15

Cross-subsidisation 23

Threat to government policy of no up-front fees for Australian undergraduates 26

Independence of Bond U niversity- 31

Q u e s t i o n s o f c o n t r o l

Conclusion 47

A ppendix O ne W itnesses at P ublic H earings

A ppe n d ix T w o Submissions to the inquiry

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Table of Contents

Recommendations

Introduction 1

Chart showing connections between various companies and Bond University 2

Preliminary considerations 5

University of Queensland's position 10

Bond University's position 11

In the N ational interest ? 14

Safety of public funds and assets 15

Cross-subsidisation 23

Threat to government policy of no up-front fees for Australian undergraduates 26

Independence of Bond U niversity- 31

Q u e s t i o n s o f c o n t r o l

Conclusion 47

Appendix O ne Witnesses at P ublic H earings

A ppe n d ix T w o Submissions to the inquiry

M inority Report By Senators Carr, D enman and Forshaw See back of the report

Supplementary Report By Senator Teague See back of the report

List of Recommendations

Recommendation 1

The Committee recommends that the Senate and the Commonwealth Government encourage and facilitate a broad public debate on issues arising at the interface between the public and private activities o f universities, on the role o f the non-government sector in the provision o f higher education, and the implications o f these matters for higher education, policy and funding.

Recommendation 2

The Committee recommends that, in the national interest, the purchase of the Bond University campus by the University o f Queensland should not proceed.

Recommendation 3

The Committee recommends that public universities should be disqualified from participating in any re­ tendering or other future selling process for the Bond University campus.

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Senator John Tierney Chair

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Report of the inquiry into the sale of Bond University

Introduction

Bond University was established in 1987 by an Act of the Queensland Parliament , the Bond University Act 1987. Under this Act, Bond University Limited, a company limited by guarantee was created, the objects of which were 'the establishment, maintenance, promotion and operation of a university in Queensland under the name and style "Bond University".'1

The Board of Directors of the Company form the University Council2 which governs the academic and administrative operations of the university. Both the University Company and the University Council are entitled to use the name Bond University in the performance of their functions.3

Bond University as such is not, and never has been, for sale. What is for sale are the land and buildings which house and surround it, the registered owners of which are Limgold Pty Ltd and Nista Pty Ltd. At the time of Bond University's establishment, Limgold shares were, held equally between the Australian Bond Brewing Investments Pty Ltd and the Japanese EIE International Corporation. Nista Pty Ltd is wholly owned by

Limgold.

In May 1989 Bond University opened its doors to students. In the six years since then it has produced over 2,000 graduates and established an excellent academic reputation.

It is an outstanding performing university4

With Bond University and its record to date, my view is that it has been a credible academic institution that has observed high academic standards, has good staff and is delivering good programs.5

The Bond University Act 1987-1989 The Bond University Act 1987-1989 The Bond University Act 1987-1989 Transcript of Evidence, Brisbane p i 6 (Sir Llewellyn Edwards) Transcript of Evidence, Canberra p97 (Prof Penington) 5

Report o f the inquiry into the sale o f Bond University

CHART SHOWING CONNECTIONS BETWEEN VARIOUS COMPANIES AND BOND UNIVERSITY LTD

THE LONG-TERM CREDIT BANK OF JAPAN, Limited (creditors ofEIE)

BOND BREWING INVESTMENTS 1 EIE INTERNATIONAL * (involved until Jan 1992) '? ■ CORPORATION 1

I LIMGOLD PTY LTD

Subordinated Debt approximately $94 million

NIST A PTY LTD |

τ

August 1993 LTCB/J appoints receivers and managers to Limgold Pty Ltd and Nista Pty Ltd

LAND & BUILDINGS

occupants of part of I

KPMG (receivers)

: ◄---------

T

— 1995 receivers call for tenders for purchase of these

BOND UNIVERSITY LIMITED

)

Above chart confirmed by KPMG

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Report of tire inquiry into tlie sale o f Bond University

But the students at Bond University do feel very privileged to gain the specialised attention that they get, but they pay for it. If you pay for a BMW, you expect a BMW. That is what we get at Bond

University.6

We want to continue the university in the vein that it is going at the moment, and we want to get it going from strength to strength and make it Australia's first private university, make it Australia's most successful private university, and truly make it the Harvard University of the south. In fact, hopefully they will soon be calling Harvard maybe the Bond University of the north.7

Notwithstanding its successes, Bond has from the outset been plagued with financial difficulties. Although it was never intended that the university itself would make a profit, its location as the centrepiece within what was essentially a massive commercial property development designed very much to make a profit has meant that the fate of Bond University has been closely linked with the fortunes of its financial backers.

Within months of the university taking in its first students, Bond Corporation Holdings, in difficulties itself, stopped contributing financially to BUL. Although EIE continued to meet the university's running costs, from 1991 this was at a reduced level. Early in 1992, EIE acquired all shares in Limgold. By the end of the year, the University was $95 million in debt.

In August 1993, EIE's creditors, The Long Term Credit Bank of Japan Limited withdrew support from EIE and placed Limgold and Nista in the hands of receivers, KMPG It is important to note that BUL itself was not placed in receivership.8

According to the receivers, Bond University was given a lengthy period of exclusive first opportunity to negotiate the purchase of the land and buildings before they were offered for sale more widely. BUL made two offers to purchase during this period, but in the receivers' opinion they were not commercially acceptable9

Transcript of Evidence, Brisbane p78 (Mr Cox) Transcript of Evidence, Brisbane p92 (Mr Nelson) Submission No 116, Vol 2, p 47 (KPMG Chartered Accountants) Submission No 116, Vol 2, p 49 (KPMG Chartered Accountants)

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Report of the inquiry into the sale o f Bond University

Bond was also accorded preferred registrant status when the receivers put the land and buildings up for sale on the open market. Other bidders included the UTS Foundation, Monash University, Griffith University , the University of Queensland and Bond University Limited (BUL) backed by News Ltd, BHP, ICM Australia and Pratt Industries.

On 13 October 1995 the receivers announced they had entered into a legally binding contract of sale with the University of Queensland, conditional on certain matters being fulfilled. The bid is reputed to be for around $109 million dollars and arrangements are thought to have been made to purchase the $95m subordinated debt, (a deed of subordination had been drawn up in 1990 between Limgold and the University company10 ) for around $5 million dollars. The purchase was apparently to be financed by a loan raised by UQ, without resort to public funds or guarantees against public assets, and to involve a property development company. Conditions set by the University of Queensland included the gaining of approval for the purchase from the Queensland State Treasury, and the successful negotiation of an agreement with BUL.

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Australia, Senate 1995, Debates, 25 October 1995, p 2461

Report of the inquiry into the sale o f Bond University

Preliminary considerations

The terms of reference for this inquiry , while specifically tied to the purchase of Bond University by the University of Queensland, related to broader questions of whether the transaction was in the national interest and affected diversity in the higher education sector. Such questions themselves have implications for the future development of higher education policy. Bond University is one of only two extant private universities in Australia outside the Unified National System and its possible sale to a public university has created considerable consternation among some sections of the community.

Much of the anxiety about the proposed sale is to be found among ex students, staff and other supporters of Bond who demonstrate strong attachment to the university and enormous pride in its achievements in the few short years for which it has been operating.

Bond University has always prided itself on being innovative and different..... It also brought back something, and I speak from experience at the public level, that has been lacking for many years: QUALITY ,QUALITY, QUALITY. No apologies were made for expecting excellence and Bond students were told never to compromise.11

It is of no doubt to anyone closely involved with Bond that its success during its short history has been phenomenal. Bond has been publicly recognised as providing the finest Accounting and law courses in Australia by various public bodies including the Society of CPA's, it has won the annual entrepreneurial management competition held in the United states, competing against the likes of Harvard, Wharton and Kellogg business schools and has competed proudly and independently in the annual Australian University Games against universities from all over Australia with student populations 10 and 20 times itself.12

I believe that the degree and experience I gained at Bond University is of the highest standard in Australia.13

Submission No 4, Vol 1, p 5 (Mr Dunn) Submission No 6,Vol 1, p 9 (Mr Baxby) Submission No 35, Vol 1, p 63 (Ms O'Brien)

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Report o f the inquiry into the sale o f Bond University

Bond University is seen by many as offering something different in the tertiary education market. In this view, its potential purchase by a public university represents a significant loss - particularly in terms of diversity in that market. As a private university, Bond is seen to be free from both the demands and the constraints imposed on public universities by government policy.

In the plethora of submissions the Committee received from Bond supporters, a number of features are identified over and over again as distinguishing it from the public universities. These include its admission criteria, its small classes , its student-as-customer focus, its innovativeness , flexibility and ability to respond quickly to changes in the private sector market for which its graduates are headed, the quality of its staff and the commercial orientation of its courses. The Bond University alternative, it is pointed out, exists in many other countries. Moreover, even within Australia, the non-government education option is available in the secondary school system.

Takeover by a public University would be equivalent to a State Secondary School taking over a private Secondary School or to a public Hospital taking over a private Hospital. Ability to choose private facilities is a salient feature of our community life.14

Essentially, Bond is different, it is claimed, because of its private ethos. No-one wants to see Bond lose the qualities which contribute to its reputation. It is argued that the extent to which its distinctive characteristics stem from, and rely on, the private enterprise ethos is critical to the debate. The question then remains: how compatible is the maintenance of a private ethos with ownership by a public university? Moreover, will ownership of the Bond campus give control of Bond to UQ?

In broad terms the implications of the Bond campus sale for diversity in higher education was put to the Committee by one witness in the following way:

[The] only real difference between Bond University and the University of Queensland,[is] in terms of how they are governed. Bond University is under the control of Bond University Council, a body which is self perpetuating and which has never had any

14 Submission, No 65, Vol 1, p!19 (Councillor Bell)

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Report of the inquiry into ttie sale of Bond University

government appointee members. The University of Queensland is under the control of the Senate of the University and this is a body which has many of its members appointed by the government.... This being the case, it is difficult on the face of the evidence, to sav that Australia has any measurable diversity in tertiary education. I do believe that we do have some diversity and that this diversity is a reflection of the diversity of educational ideologies. Quite clearly, government influenced universities have a different educational ideology from that which is possible in non-government universities. Your Committee needs to determine the diversity of educational ideologies and whether or not those ideologies which are possible in non-government universities are worth preserving.15

Also relevant to a discussion of diversity are issues to do with competition. If Bond is found to represent a real alternative within the same educational market, and hence to be in competition with UQ, should any moves that are likely to diminish the qualities which make it an alternative be considered to be in contradiction to current competition policy?

Whether or not the sale of Bond to a public university amounts to a reduction in diversity and choice is part of the more general question of whether the sale is in the national interest. Central to this question is the issue of cost , in particular cost to the public purse. Although the establishment of Bond University as the first significant private university in Australia has generated some debate, this has tended to focus on specific issues such as access of Bond students to Austudy funds. As long as Bond has operated without recourse to the public purse, its advent into the tertiary scene has been accepted, if not welcomed by some of the players. Implicit in this acceptance is a recognition, in principle at least, of the right of private universities to exist.

The potential purchase of Bond by a public university, in its ostensible blurring of the divide between public and private operations, could be perceived as a significant threat to public money. Key questions that need to be answered include:

• how can a public university fund such a purchase without use of public funds,

Submission, No 7, Vol 1, p ll (Mr Leslie)

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Report o f the inquiry into the sale of Bond University

• are all funds under the control of public universities in some sense public funds, • are public assets being placed at risk through their use as securities and if not, what securities are been given?

Apart from the initial purchase there are issues related to the indirect use of public funds though non cash subsidies and opportunity costs. In terms of the on-going operations of the university, there are questions related to cross subsidisation and whether it would be inevitable and detectable. What accountability mechanisms are proposed and how adequate are these? Is it possible to completely separate financial dealings related to private and public operations and for these arrangements to be transparent?

Specific answers can be found to most of these questions, certainly as they relate to this particular sale. Whether the Commonwealth has the right to ask them has been challenged by some. It has been claimed that the sale is merely a commercial transaction, a real estate investment by a University which has many other investments, a 'glorified land deal'. If the Commonwealth can be satisfied that the national interest is not being compromised through the use of public funds then there is nothing more at stake. On this account, the Commonwealth should not be involved.

An alternative view recognises this sale is a 'test case' with significant implications for 'education in Australia and Asia for decades to com e'.16 The Committee concurs with this view. With only two private universities in Australia, and the other having the security of major church support, it is very likely that the present sale of a campus housing an operational university will be a one-off event. (This, of course, does not preclude the possibility that a multi-campus public university may wish to privatise an existing campus, or seek to establish an independent, private university on a new campus).

But it is an event occurring in the context of considerable change in the culture of higher education, characterised in particular by a movement toward its commercialisation. The last decade has seen the introduction of fees for many post-graduate courses, the opening of the universities to full fee paying overseas students, the expansion of HECS and a

Submission, No 63, Vol 1, p 117 (Mr Shepherd)

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Report oftlie inquiry into the sale o f Bond University

general encouragement for universities to diversify their funding sources.

In the absence from higher education policy of detailed guidelines on commercialisation of university activities , many of the developments that are taking place are doing so in an ad hoc fashion. This has allowed for some abuse of even those areas of policy which are clearly defined, such as the prohibition on the charging of fees for undergraduate study by Australian students. For example, there have been a number of instances where corporate arms of universities, unable themselves to confer degrees for courses, have used the practice of credit transfer to

get around this impediment.

Bond University, as a degree granting institution in its own right, might conceivably allow any public university which might control it a less circuitous route to 'fees for degrees'. On this view, its possible sale to a public university represents for many a much greater threat to a policy of 'no up front fees for undergraduates' than credit transfer practices between public universities and their private arms.

The purchase of the Bond campus by a public university - and resulting formal links between UQ and Bond University itself - has the potential, it may be argued, to accelerate the change in the culture of higher education. While there is general agreement that these broader issues related to higher educational policy should be explored in a wider inquiry than is presently underway, it is the Committee's view that the precedent-setting capacity of the sale in question warrants the Commonwealth's attention. It is a view shared by others.

There is a certain place [for Commonwealth attention] when we are talking about education as being the product that is being commercialised. Where education becomes something which is important to society and important to the knowledge that that

society uses and builds upon itself, certainly the government, as a body that has the national interest at heart, should be directly concerned with the way in which that commercialisation is occurring.17

[We] would certainly say that the Commonwealth, given its stated goals in the education system and how it should run, does also have

Transcript of Evidence, Canberra p 168 (Ms Black)

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Report of the inquiry into the sale o f Bond University

a responsibility to consider the long-term impact which a situation like [the Bond sale] would have on the goals. We consider the impact to be significant and therefore we think the Commonwealth and the Senate do have a role.18

University of Queensland's position

It is considered by some that the UQ bid is essentially an investment exercise, involving the purchase of assets which will enhance the capital base of the university. But UQ insists that its purchase of Bond University campus is not just a commercial transaction - not just a

'glorified land deal'.

It could well be said that [the UQ bid] is a land purchase and a land banking by [UQ]. But as I indicated, it is not only land security for a number of purposes which I have outlined but also, and I cannot stress this enough, guaranteeing the future of Bond University by ultimately removing their liabilities and putting them into a financial position where they can afford to pay rent.19

As for the other matters, yes, we believe in this private university; you might think that is altruism but we do. We are interested in the education system in this nation as being the best in the world. We would like to see a private university of this nature expand. ...As well, of course, there are other facilities such as a research park in which we are interested, which would again bring impetus to that university through research staff that could go into buildings we could build on that area...Thirdly, there would be spare land in 20, 30, 40 or 50 years time that could be considered by the university for other purposes.

Prof. Wilson ... Obviously, our interests are not totally altruistic. With respect to Bond University it is, but there are other potential developments that could be run jointly between us because we are not competitors in terms of overseas marketing and so forth. There is the potential of some of our private activities, such as the teaching of English as a second language, which with the Bond Institute would be the largest in the country.

Mr Porter,.. Perhaps another bit of evidence that might convince you [of UQ's god intentions] is the long history of the University of

Transcript of Evidence, Canberra p 173 (Mr Graham) Transcript of Evidence, Canberra p25 (Sir Llewellyn Edwards)

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Report of the inquin/ into the sale o f Bond University

Queensland in fostering higher education in other institutions. We mentioned them in our submission,the Northern Terri ton- University, James Cook University of North Queensland, Central Queensland University and the University of Southern Queensland.20

Clearly this sale represents more than any mere land deal to UQ. The Committee does not question the sincerity of UQ's account of why it wants Bond University. Nor does the Committee doubt UQ's desire to see Bond University go from strength to strength. It makes perfect sense from any landlord's point of view to have a healthy tenant. The Committee acknowledges the altruistic claims pressed strongly by UQ. The Committee suggests a reasonable test of this altruism may lie in its degree of readiness to allow Bond University to buy back from UQ the land and buildings. The Committee understands that such a consideration has already been made by UQ's Senate.

What is more at issue here is the question of UQ's commitment to Bond University remaining independent and private. The answer to this is bound up with the question of the control of Bond University Limited (BUL). All of these matters are explored more fully below.

Bond University's position

Bond University's attitude towards the UQ bid must be understood in the context of its recent history, and of the current educational and financial position as BUL sees it. Bond's present Executive Chancellor, Professor Harry Messel, set out the position as follows:

First I would like to say that, despite what you heard this morning, Bond University will not go broke. It is viable. It will remain viable. ...From the financial documents which I have tabled for you, you will see what has happened. In 1989 there was a loss of $21.6 million.

In 1990 there was a loss of $41.9 million. In 1991 there was a loss of $20.4 million. In 1992 there was a loss in excess of $2 million....Then came January 1 1993, when the little bags of money stopped coming from Tokyo. Zilch; from the $95 million over those four years to zero....

Transcript of Evidence, Canberra p 15 (Sir Llewellyn Edwards, Mr Wilson, Mr Porter)

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Report o f the inquiry into the sale of Bond University

Lo and behold, at the end of 1993 we ended up with a surplus of $2.3 million....I was able to do it because I had some very wonderful staff at Bond University....We had to make real sacrifices.

In 1994 [BUL] ended up with a surplus of $6.4 million, more than enough to meet an equitable rent on the land....The university realises it is a matter of life and death for us and we made certain that we could pay rent if it was asked of us, if we were given the lease....

I can tell you that financially 1995 is a very good year. Don't you worry about us going broke because that is not going to happen....

So here we are, dear God, trying to negotiate with an elephant and we are a mouse. We are a strong mouse. We are a well-off mouse. Why don't you just please leave us alone? If we do have to get into bed with you, please move over a bit.21

As explained in the introduction, BUL itself tendered for the land and buildings in which it was housed. While BUL has entered negotiations with UQ, its preference is still very much to own the campus in its own right.

Let me say from the outset, from Bond University's point of view, that we prefer to own the land and buildings by ourselves. That is the ultimate solution. We made what we felt was a very good and reasonable bid for the land and buildings with the corporate support of BHP, News Ltd, ICM and Pratt. We were staggered when we had a bid come in,which was in our view far in excess of what should have been paid,by a public institution. We said, 'Hey, there is no way we can bid against the government.1 Everybody quickly said, 'Well, it is not the government, it's a public university.' So, we lost the bid. We had to decide on our next choice.22

The next choice clearly involves making an acceptable deal writh the University of Queensland. It appears the bottom line for BUL is that if they cannot own the property themselves, they want to ensure that they remain independent.

Transcript of Evidence, Brisbane p42 (Prof Messel) Transcript of Evidence, Brisbane p42 (Prof Messel)

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Report of the inquiry into the sale of Bond Universihj

We want to preserve that point of being private, independent and in control of our own destiny. We do not want to be a subsidiary of the University of Queensland or anybody else.23

The issue of independence and control is inextricably linked to the composition of the board and it is believed that agreement on this is one of the main sticking points preventing agreement from being reached between the two parties. The issue of independence and control is explored fully below.

Transcript of Evidence, Brisbane p54 (Prof Farrar)

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Report o f the inquiry into the sale o f Bond University

In the N ational interest ?

In order to address the question of whether the sale of the Bond campus to UQ is in the national interest, it is necessary first to determine what constitutes the "national interest" in higher education. This is not an entirely straightforward task.

It seems generally agreed that it is in the national interest to maintain a higher education sector characterised by the presence of universities carrying out high quality research and teaching across a broad range of endeavour, which are accessible and which invigorate Australia's economic and cultural life. At present, the government seeks to pursue the national interest through an almost exclusively public system of higher education institutions - and it comes with a substantial price tag, funded in the main by the taxpayer.

The first question which arises, then, is where do private providers sit in relation to promoting the national interest as described above. There is an argument that private provision will attract (finite) government education resources away from public provision, thereby implying a dilution of the system against the national interest. On the other hand, however, the development of a truly private sector in higher education could significantly add to the sum total of resources devoted to higher education, and thereby enhance the system in the national interest.

It has been found in other countries that public support can encourage the investment of private money in the system. For example, in the United States a significant portion of universities are private. While their viability has been dependent on public subsidy, such public support has resulted inThe university system being 50% larger than it would have been without that support. In this light, public subsidy can be seen as an investment in an overall improved higher education provision.

There seems to be general, if not universal, in principle acceptance of the right of private universities to exist, but less consensus as to the University of Queensland's right to purchase assets such as the Bond University campus. It seems generally the case, though, that any acceptance of the UQ bid must rest unequivocally on a number of conditions. These conditions lie generally in the realm of the public interest, and take several specific forms. Foremost amongst these is the

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Report of tlw inquiry into the sale o f Bond University

proviso that no public funds be used, directly or indirectly, in the purchase of the asset, nor in the subsequent operation of the private university.

Safety of public funds and assets

The requirement that there should be no risk to public funds or assets arising from the UQ bid was a fundamental assertion by all of the interested parties.

Basically, the National Tertiary Education Union] NTEU has no in-principle objection to the University of Queensland or any organisation in the public or private sectors purchasing the Bond

University campus. Our only problems would be, as a union representing academic staff members, that no public moneys be used for that and the University of Queensland funding not in any way be affected by it. If the two bodies can be kept separate, it is really in a

sense not something that we wish to interfere with.24

When the prospect of a sale of Bond was first raised, the

Commonwealth advised public universities interested that it would provide no direct financial assistance for the purchase of any assets associated with Bond University. It made clear that it did not have the power under The Higher Education Funding Act 1988(HEFA) to prevent that purchase and stated 'that it would not oppose the purchase and operation of Bond University by a public university provided that there was no cross subsidisation of private activities with public funds.25

Two assumptions underpin the Commonwealth's position: firstly, that a public university may have access to private money and assets and secondly, that it is possible to separate the financial aspects of the public and private operations of a university. With respect to the first assumption, it has been put to the Committee that any funds or assets of a public university are public funds.

As UQ is a "public" corporation, it follows that all assets of UQ are "public" assets. UQ is therefore prohibited from using any of its own cash reserves or otherwise available funds to finance this purchase, as these would be "public money".

Transcript of Evidence, Brisbane, p60 (Dr Chiswell) Submission No 115, Vol 2,p 44 (DEBT)

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Report o f the inquiry into the sale o f Bond University

It inevitably follows that UQ is prohibited from pledging public property as security for any loan funds to be used in the purchase. To argue otherwise would be to say that, although UQ could not use any credit balance for the purchase, it was quite free to negotiate an overdraft for that purpose.

The prohibitions on the use of public funds for the purpose also carry the clear implication that no public funds can be used to service any borrowings associated with the transaction, otherwise the prohibition would be meaningless. It would seem inevitable to follow that , if it is to comply with the reported directions of the respective Treasurers, UQ must intend to finance this purchase with loan funds secured only by the subject land and serviced by income generated solely by that land.26

The Committee accepts this witness's assessment of the prohibitions on the use of public money that flow from the Commonwealth's directive. However, the assumption that all assets of a public university are public assets is a moot point. As one witness explained:

Public universities are public institutions, that is not in doubt,and therefore all their resources in a sense are public resources. However, they are not arms of government in the sense of publicly controlled and fully government funded institutions, and that is an important difference. When I say that I do not believe that public funding should be used for the purchase of a private institution, what I am referring to is Commonwealth government funding, and matters or funds derived therefrom. Public universities in Australia are established, as you know, under state acts of parliament, and they are independent corporations which have a right to raise money and receive donations and so on. So major public universities do have substantial financial resources which have never come from the Commonwealth public outlays.27

The Committee is less confident about the degree to which the public and private operations of a university can be successfully separated, and is mindful that any blurring of the divide between the public and the private interface renders more likely practices such as cross subsidisation. An increase in credit transfer from fee-paying courses to public undergraduate programs is a further aspect of this blurring of the private-public divide in universities.

Submission No 74, Vol 1, p i 54 (The Council of Bond University) Transcript of Evidence, Canberra p96 (Prof Penington)

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Report of the inquiry into the sale of Bond University

One witness conceded that there may be difficulties in separating out the public from the private funds but explained that such separation is, nevertheless, possible.

It is true that the way they are handled in most institutions makes it not all together easy to distinguish the origin of the various reserve funds or bequest funds and the like which are held....Grey areas... would be cashflow earnings... gained from investment of moneys received from Commonwealth and then maybe sequestered with other privately sourced fundings.

There may be difficulties, in the accounting sense, with separating those out, depending on the institution concerned. In my own institution we can separate those out quite clearly in a way that would satisfy an auditor. Whether that would be true of all public universities I do not know.

...I have no idea whether [a separate company structure] is intended by the University of Queensland in its present arrangements put forward as appropriate for Bond University, but a device of that kind could quite clearly define the assets which are being used and the cash flows entailed and so on.28

In assessing the extent to which public money is at risk in the University of Queensland's bid to purchase Bond University, it is useful to distinguish between funding arrangements for the initial purchase of the land and those relating to the ongoing operations of the university.

The University of Queensland has consistently stated that no public money would be used in the purchase of Bond University. The project would be funded by means of a loan from a major financial institution to be repaid through three sources of income.

• a guaranteed return from the Delfin Property Group, a major public Australian land developer, which covers the repayment of capital and all interest charges on the development land adjoining the campus. The company will be completely responsible for the

development, marketing and sale of the land in a mixed development of residential housing, light industrial and community amenities. The University will have no responsibility or financial liability for this development.

Transcript of Evidence, Canberra p97 (Prof Penington)

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Report oftlie inquiry into the sale of Bond University

e a fair rent from Bond University for the buildings and land which

it currently occupies. It has been agreed with Bond that this rent should be justifiable in commercial terms, should be financially sustainable by Bond University and should enable UQ to meet the financial obligations arising from its investment. The annual rent would be reduced by a capital contribution for Bond which would be credited towards a possible future purchase of the land and buildings by Bond; • rents from companies occupying the research park facilities and

other commercially let areas.29

The arrangements with Delfin provide for payments 'which are legally binding, guaranteed by a major Australian bank, in the form of a performance bond'. The Delfin arrangement is reputed to cover approximately $27 million30 The Committee accepts that this money is not at public risk.

Concern, however, has been raised about the viability of the overall project. According to BUT, the project is not viable.

You do not have to be a mathematical genius to work out that you cannot service $80 million out of Bond University, which, as Llew Edwards said, has not been paying rent,we have not been asked for it, and has not been paying the full tote odds on maintaining the buildings. Bond University could not afford to service that amount of debt. 31

Furthermore, BUT representatives claimed, even if the capital debt was reduced by an up front payment of $20 million, repayments of capital and interest to service this debt would be approximately $7 million dollars per annum. They pointed out that although the University had achieved a cash surplus of around $6 million in the past year, this had involved stringent financial cutbacks. They also expressed doubt about the ability of the University to make such a significant initial payment because it would leave the University w ith o u t' the reserves needed for essential maintenance and upgrading of facilities to protect its standards and reputation.'32

Submission No 123, Vol 2,p 72 (The University of Queensland) Transcript of Evidence, Brisbane p48 (Mr Turnbull) Transcript of Evidence, Brisbane p55 (Mr Turnbull) Submission No 74, Vol l,p 155 (The Council of Bond University)

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In BUL's assessment of the UQ proposal, to meet annual repayments of the order indicated, they would have to make changes which would include included significantly increasing enrolments and class sizes, reductions in staff training and a cessation of all but essential maintenance of physical facilities.

Given UQ's insistence on needing sufficient input to BUL in order to ensure the interest is m et33 and given the following remarks:

To meet the repayments on the rent that would be negotiated, it is essential that there are certain financial stringencies and certain financial matters dealt with, such as fees, on a regular basis. 34

The Committee considers it likely that the changes mooted by BUL representatives would ultimately need to be implemented. The impact of these changes on the philosophy and practices which distinguish BUL from other universities is an issue to be addressed under the question of

the impact of this sale on diversity and choice in higher education.

If UQ's ability to service its debt depends on BUL's capacity to pay a reasonable rent, so too does BUL's capacity to pay that rent depend on maintenance of enrolment numbers. Despite UQ's confidence that, properly marketed, enrolments would rise, the Committee is concerned about what would happen in the event of this not happening even in the short term.

However viable the project seems, the Committee must also concern itself with the risk to public money should it fail. To a large extent this depends on the nature of securities that are given. The University insists that no public assets will be given as securities and that no guarantees of loans have been sought from State or Commonwealth governments.

[The purchase of the Bond campus] will be totally without recourse to Commonwealth funding. We will be negotiating a private loan with the banking industry. There will be no Commonwealth funds used whatsoever....Or interest earned from Commonwealth funding....We will not be seeking the guarantees from the Commonwealth government...[Commonwealth] funds [to UQ] are continually audited by our own auditor-general...and there will be

Transcript of Evidence, Brisbane p i 7 (Sir Llewellyn Edwards) Transcript of Evidence, Brisbane p i 7 (Sir Llewellyn Edwards)

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no evidence ever produced, nor will it occur, that any

Commonwealth funds or state funds will be used in the retirement of this ... It is a bankable debt and, therefore, the assets that are there would then be sold to meet that debt. There would be no call upon Commonwealth funds..35

The Committee accepts, from evidence given in private, that the assets referred to here are not public assets. It is concerned, however, that these assets may be worth significantly less than the $80 million they are being held against as security.

It could be argued that this is a matter for the banks to consider and that if they are satisfied that there will be a sufficient cash-flow to service the debt and are satisfied with the value of the assets being offered as security, then the Committee should be satisfied also.

The judgments of risk are ones which will be taken by the bank. They are in a far better position than, I would suggest, anyone in this room to make those judgments.36

According to DEBT the public may be assured that the relationship between the University of Queensland and its bank will include the specification that there is no default against the public assets of the University of Queensland.

The construction and financing will be such that there will not be a · possibility of [UQ being called upon for $80m in the event of default] Because of the way in which the loan arrangements and repayments will be structured, it would not be possible for there to be that level of default.37

It could also be argued that public money is further protected by conditions of approval required by the State government under The Statutory Bodies Financial Arrangement Act 1982. According to DEBT one of the conditions is that 'the public assets of the University of

Queensland will not be allowed by the State government to be used as security.'.38

Transcript of Evidence, Brisbane p21 (Sir Llewellyn Edwards) Transcript of Evidence, Canberra pl87 (Mr Phillips) Transcript of Evidence, Canberra pl82 (Mr Phillips) Transcript of Evidence, Canberra p i 82 (Mr Phillips)

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The Committee understands that other conditions that the Queensland Treasury may apply would relate to factors such as the viability of the project, the capacity of the University of Queensland to service the debt

and the government's exposure or contingent liability. It is the last factor that is of most concern to the Committee._While the Treasury has assured the Committee that 'it is not proposed to provide any Government guarantee, either explicit or implicit, to UQ'39, the Committee questions whether this rules out any possibility of a move being made to recover money from the government in the event of a default.

Much depends on the terms of the loan contract. Unless the bank is prepared to insert a clause that there would be no default against the public or private assets of the University of Queensland (other than the land and buildings put up as security)40 or against the State government, the Committee believes public money is not entirely secure. Such a clause would need to preclude any option of the bank resorting to

garnishee orders or writs or any other means of enforcing the debt through the Supreme Court. Ultimately it would become a debt of honour, a debt that may have significant non-cash cost to both the University of Queensland and State and Commonwealth governments. The Committee believes it is highly unlikely the government would expose itself to the damage to its reputation that would result if, at the end of the day, it refused to guarantee UQ in a default situation.

In the event of the sale of the campus proceeding as proposed in UQ's bid, the University of Queensland has voluntarily

agreed to enter into a formal memorandum of understanding with the Commonwealth to demonstrate and ensure that the sale proceeds, and that the subsequent operations proceed in a way which is fully consistent with the Commonwealth's desired outcomes: that is, that there be, and be seen to be, no cross-subsidy of public to private funds, nor any risk to public assets.41

The Committee notes DEET's confidence that the agreement will protect public money.

39 Correspondence from the Queensland Under Treasurer to Senator Tierney, 22 Nov 1995 40

41 Transcript of Evidence, Canberra pl80 (Mr Phillips)

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We had some preliminary discussions with the university on that matter...on 2 November. They agreed to make us privy to the development of their financing arrangements, and the detailed operational planning documents which they have developed for the operation of the campus, sale of the land and so on. They made it known to us, as far as it was possible, the conditions on which they were negotiating for finance, and the conditions which the state government are attaching to the potential approval for borrowings, which also go to the same issues as are the concern of the

Commonwealth.

On the basis of that preliminary discussion with the University of Queensland, we are confident that, subject to further detail and further processes in terms of scrutiny of those details by appropriate experts, it will be possible to construct an agreement which serves the Commonwealth objectives, that is, which ensures and demonstrates that there is that separation, both in respect of the ongoing operation of the campus, but also in terms of ensuring that there is no risk to public assets in the event of default.42

The Committee has been unable to obtain enough detail about the form of this agreement to assess its value or enforcability. The Committee has been advised that, before details are finalised , DEET will expose the details to due diligence processes. While the Committee is reasonably satisfied that an agreement could be constructed that would satisfy the Commonwealth that the initial purchase did not involve public money, it is less certain that this also applies to arrangements for separating the ongoing operations of the university. In the light of DEET's comment that 'at this stage we have not developed detailed mechanisms to operationalise the agreed position of the Commonwealth and the university for the ongoing auditing' , it is impossible to evaluate the effectiveness of the mechanisms.

Further descriptions from DEET as to other accountability mechanisms that will be in place only provide for more general re-assurance.

Apart from these specific measures which will be developed in conjunction with the University of Queensland, DEET will continue to monitor the publicly funded activities of the University through the normal processes. These include annual statistical collections which provide detailed information of the University's teaching and

Transcript of Evidence, Canberra p!80 (Mr Phillips)

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research activities, including the distribution of Commonwealth funded student load between disciplines by level of study.43

But by DEET's own admission, the profiles process, which would almost certainly be one of the processes it refers to above, 'is essentially an accountability process in relation to the use of public funds and

therefore it does not go to issues of interaction of private and public use of private funds'.44 It is in precisely this area of the public/private interface which is of most concern in terms of safety of public money.

Cross-subsidisation

The Committee is particularly concerned about the potential for cross subsidisation. It would appear that the likelihood of cross-subsidisation must increase with the degree of overlap between the activities of the two institutions.

The best parallel of subsidies of this type is the case of the ABC and its pay-TV subsidiary where free-to-air programming was intended to be used to prop up the commercial enterprise. For example, the University of Queensland could provide to Bond teaching materials developed by its public employees or make those staff directly available for the same purpose.

Again, the University of Queensland could supplement the income of its private arm by contracting with it for the supply of teaching and research activities or the production of teaching materials for use in the public area of the institution.

Subsidies of these kinds would mean a transfer of funds to a private enterprise and a reduction in the size of the public activities of an institution such as UQ.45

Cross subsidisation in the immediate future may be limited to a non­ cash kind gained 'through an association with an established and respected public institution'.46 It was suggested to the Committee that the reputation of UQ would be used to increase demand for Bond.

Submission 115, Vol.2 p45 (DEBT) Transcript of Evidence, Canberra pl83 (Mr Phillips) Submission No.23 Vol.l p43 (Macquarie Uni Students Council Submission No.85, Vol.l p 210 (NUS)

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[NUS is] certainly of the view that UQ considers that potential [Bond] students would be reassured as to the future of Bond and would be more easily recruited under the arrangements which they are moving towards.

What we have seen with the operation of commercial arms is that universities will publicly..or when it comes to issues of

accountability, represent the commercial arm and the university as being very distinct organisations. That is not how they are presented ... to students, and it is particularly not how they are presented to overseas students. There, they are presented as being very close, almost synonymous, in order to attract demand for the private side and raise revenue in that way. So we would see [cross-subsidisation] as being very difficult to avoid.47

In the long term the potential for direct cross-subsidisation is far greater particularly in the event of the University of Queensland developing a contiguous public campus. UQ has declared that the 'long-term interest of the university is in protecting a site for its future development as a public university in the fastest growing area of Australia1. UQ has also stated its interest in a 'site which could be developed at a lower than normal cost through access, on agreed terms, to the student facilities and other infrastructure already available on the adjacent Bond campus'48. The Committee considers that there are grounds for concern here. According to some witnesses such arrangements would almost inevitably lead to cross-subsidisation.

My own [Prof Watts] view is that that is where the waters are really muddied. You see, the example of Cornell is often quoted here and it is a university I looked at very thoroughly during my period at Curtin.... You could not, in my view, at the present stage of the development of the Australian culture in higher education, build a Cornell model in Australia. The interference at the boundary of those' two universities, I think, would inevitably lead to a breakdown in the sanitised form of the separation... There would be pressures in respect to access to facilities and libraries. There would be deals done behind closed doors that would not be accountable either to the public or to the council of the university. There would just be a very messy form of accountability.49

Transcript of Evidence, Canberra p i72 (Mr Graham) Submission No. 123, Vol.2 p73 (University of Queensland) Transcript of Evidence, Canberra pi 62 (Prof Watts)

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Report of the inquiry into the sale of Bond University

[Wjherever there are contiguous sites, there is almost an osmosis that occurs if you are not careful...I think it would be a long bow to suggest that the university management does not have in mind some level of integration.... Having said that, it would be possible, if the regulatory will were there, to require the university to develop a regime where, despite the existence of contiguous sites, true cost pricing applied to any provision of resources by the University of Queensland to the private arm.... If there is true cross-pricing in the

provision of UQ resources, then I do not think we have got a concern, but the obvious concern is that there will be attempts not to do that.50

The Committee notes that DEBT would have an interest in the event of the establishment of a public campus contiguous to Bond. It notes also that DEBT perceives that the relationship between public universities and their corporate arms and that between the University of Queensland and Bond University differ in character. The Committee considers that if this the case, it may then follow that accountability arrangements , whose value in detecting cross-subsidisation between universities and their corporate arms is generally questioned, may be inadequate for arrangements which are dissimilar to those for which they were designed. The Committee concludes that until DEBT has devised arrangements to deal with the situation of a public university owning a private university, its confidence that it will be able to ensure that no cross-subsidisation will occur is somewhat premature and, possibly, ill founded.

Transcript of Evidence, Canberra p i38 (Mr McCullough)

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Threat to government policy of no up-front fees for Australian undergraduates

While the safety of public money may be the most immediate of the concerns raised by the sale of Bond University campus to the University of Queensland, the sale is also seen to represent a real threat to aspects of higher education policy. Of particular concern to the Committee is the threat to the policy of no up front fees for undergraduate study by Australian students.

The Committee acknowledges that current government policy prohibits the charging of up front fees to Australian undergraduate students. It points out, however, that there is already some tension between this position and • the existence of at least a partial legitimising of the user-pays principle

through the introduction of HECS • the use of commercial arms of universities to offer fee-paying courses for which credit may subsequently be given as part of an

undergraduate degree, and • the opening up of some post-graduate courses to full fee paying arrangements.

In this context, the sale of Bond University can be seen as having the potential to undermine the policy of no fees for undergraduate study by Australian students. As one witness explained:

At the moment, the federal government's policy framework is for no up-front fees for undergraduate degrees for Australian students. We have seen the whole policy framework undermined over time. Bond will very significantly undermine that kind of process. This is really at the heart of our concerns.

Currently, we are assured that there is an arm's length relationship between Bond and UQ and that they will be independent and all the rest of it. However, questions by Senator Teague this morning of the vice-chancellor indicated quite clearly that a different relationship is expected to be negotiated in the future. From my dealings with the vice-chancellor, the feeling within the university is that a Chinese wall is being set up at the moment to satisfy whatever concerns people might have about public and private funds. Once people get over their jitters and we accept an increasingly privatised system, the wall can start to break down. We can then start to negotiate all sorts of closer relationships between St Lucia and Bond University.

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Report of the inquiry into tire sale of Bond University

In particular, we are concerned about the possibility that students from the University of Queensland will have to pay up-front for some components of undergraduate degrees if credit transfers

develop. This would minimise duplication in course offerings between the University of Queensland and Bond University. It would be perfectly rational, understandable and foreseeable that that sort of rationalisation occur in the future.....This has effectively opened the way, despite [UQ Registrar] Douglas Porter's assertions, for a public university to charge full up-front fees to Australian

undergraduate students provided that they do so through a technically separate entity. They are our concerns in terms of fees.51

Others agree that the proposed purchase of Bond by UQ has the potential to undermine current policy and to, in effect, create new policy by stealth.

NUS strongly believes that a formal link between the public and private sections of Australia's higher education will undermine the integrity of the prohibition on charging up front fees....[and] would pose very similar threats to equity as those posed by the improper use of commercial arms by

universities.52

What we believe that the purchase of Bond University does is to allow public policy to be set by stealth. This is the way that we have seen the whole system of higher education move: because you cannot privatise all at once, you bring it in little bit

by little bit by little bit until you set up a self-perpetuating cycle where you underfund universities, which forces them to move towards private sources, which forces them to start finding ways of extracting those funds from students.53

The vigorous entrepreneurial approach now taken by universities to the sale of educational services has its own momentum, Unless the Commonwealth moves quickly and decisively to regulate these trends, the principle of fee-free, public undergraduate higher education will soon be

thoroughly undermined.54

Transcript of Evidence, Brisbane pp58-59 (Ms Vizzard) Submission No. 85, Vol. 1 p211 (NUS) Transcript of Evidence, Brisbane p67 (Ms Stuart-Fox) Jane Nicholls "Universities and the Public Sector" Attachment to submission No 83 Vol 1, p 198

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While clearly the ramifications of this sale are bound up with the generally increasing commercialisation of higher education, it was seen by some to represent a far greater threat to government policy on no fees for Australian undergraduates. Despite the government's condemnation of practices whereby students, who have studied fee-paying courses through universities' commercial arms may be then granted credit towards a mainstream undergraduate degree, the fact that Bond can confer degrees in its own right allows it to represent a different form of challenge to government policy. When asked why the sale of Bond to UQ represented a bigger threat than instances of credit transfer between universities and their corporate arms, witnesses from the NUS explained:

Ms Wheeler—As the NUS highlighted in March, there was the instance at UWS Macarthur where there were backdoor fees being charged and people were being accredited with degree status. The government has since responded by cracking down and is doing so through the profiles visit. Bond University is a private institution and we have a major problem because of that fact. As I mentioned before, it is setting up a precedent for other universities to do the same. Mr Kent—There is also the issue of scale. The size or number of students enrolled in this way would increase vastly through Bond alone, and the precedent would be set, allowing other universities to do similar things. The other major difference is that Bond has degree accrediting status in its own right and avoids the difficulties of creating what are potentially untidy and very open to criticism methods of credit transfer between what are supposedly legally separate entities. Mr Graham—Mel made the point that at the moment the government has made its intention clear as to how it is going to treat universities charging back door fees through commercial arms. The mechanism it has chosen to do that is through the profiles process and that has no relevance to Bond. You could not regulate the same difficulties through an institution like Bond operating in this way without actual changes to the funding act.55

Implicit in many of the concerns aired to the committee, is the perception that the sale of Bond to UQ sets a precedent for other public

Transcript of Evidence, Canberra pi 73, (Ms Wheeler, Mr Kent and Mr Graham)

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universities to establish private campuses for the purpose of delivering fee-paying undergraduate courses to Australian students.

There is some logic in pursuing that argument, that in fact if Queensland could do this then you have watered down the barrier against, say, Monash University privatising the Chisholm campus. So I think that, if you look at the way in which politics occurs by the

process of whittling down, you would see it as a way of a public university entering the market for fee paying domestic students and then creating a smaller gap to, say, Monash privatising the Chisholm campus...

I mention Monash University for good reason. Monash University over recent years has been in everything. You are not going to tell . me that it is not going to make a strong political case to suggest that one of its campuses should not be treated by government in the same way as Queensland has established a relationship with Bond University. It is just ludicrous to think that this is not the automatic sequel, and, if it does not happen before this election, it will happen before the next one. If I was a public sector vice-chancellor,thank a lot of things for the fact that I am not,then that would be my next step.56

Although strictly speaking, existing policy precludes such a development, it remains the case that higher education policy is an evolving category which will no doubt respond to initiatives proposed by institutions which fall within its purview.

While the Committee supports the growth of a private sector in higher education, it is imperative that such developments take place within a well considered policy framework. It wishes to avoid what one witness described as a 'system that in a befuddled way evolves into a system which is uncontrollable' ,57The Committee therefore has some sympathy with the following comments by the representative of the Queensland

University Students Union.

As we see it, if the federal Labor government wishes to change its policy and to allow the charging of full up-front fees for, now, Australian undergraduate students, then let us have that debate up-front. Let them say, 'This is what we want to move to doing. We do not believe in guaranteeing an accessible

Transcript of Evidence, Canberra pl56 and p i63 (Prof Watts) Transcript of Evidence, Brisbane p88 (Mr Bosse)

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education system.' If that is the direction that we want to have, let us have that debate publicly.58

In a similar vein, the National Tertiary Education Union has expressed some concerns that the debate on issues about boundaries between of private and public activity in the higher education sector has been inadequately pursued.

While this [Senate Committee] Inquiry raises some significant issues regarding the interface between public and private higher education, it is too narrow in scope, and the time frame too brief, to allow for their full exploration.59

It is the Committee's view that such a debate is appropriate to the present stage of development of Australia's higher education system. While Australia's commitment to a high quality public system of higher education is unlikely to diminish, it is important that any developments in the private sphere with respect to higher education are guided by suitable government policy. Only then will interest of both the pmblic and private sectors be served.

The Committee recommends that the Senate and the Commonwealth Government encourage and facilitate a broad public debate on issues arising at the interface between the public and private activities of universities, on the role o f the non-government sector in the provision o f higher education, and the implications o f these matters for higher education policy and funding.

Transcript of Evidence, Brisbane p67 (Ms Stuart-Fox) Submission No.83 Vol.l p!86 (NTEU)

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Independence of Bond U niversity- q u e s t i o n s o f c o n t r o l

The issue of independence loomed large on the horizon of concerns placed before the Committee during this inquiry. In order to tease out the various notions of independence which were aired before the Committee, it is helpful to sample representative comments made by some of the key players.

Representatives of the University of Queensland reiterated on several occasions their commitment to the preservation of Bond University's special characteristics, and in particular its ethos of independence.

We [University of Queensland] believe that a new independent council, not controlled in any form by this university, would rebuild Bond University... as an outstanding private, independent university

here to stay. Time will prove, we believe ...that if this is

consummated, the action by [Queensland University] ...to purchase the land and the buildings, allowing an independently controlled council to operate the university, will allow Bond University to survive and expand as a private and independent university.60

Our plan for the first time in Bond's history is to have a lease for that university, to have a council with strong independent voices, to further an opportunity to expand the university as a private independent university ... It will give to Bond University, the students and the staff for the first time in its history stability and independence and, as the students have said, is here to stay in that form.61

Members of the Bond University board, Bond Students Council and the Bond Alumni Association regarded independence as the core consideration in any relationship between Bond and the University of Queensland - or indeed any other entity as landlord or sponsor. Bond students and alumni were particularly vocal in this regard.

One of the difficulties we have at the moment is that the very special nature of Bond University, its campus and its prospective buyers means it is no ordinary negotiation. From that point of view... provided Bond University Limited can remain independent, can

continue to provide private education in Australia as an independent private university, then there should be no problems

Transcript of Evidence, Brisbane pl4 (Sir Llewellyn Edwards) Transcript of Evidence, Brisbane p i3 (Sir Llewellyn Edwards)

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with the landlord relationship, whoever that could be. It could be BHP, Pratt Industries or University of Queensland. Basically, under any of those circumstances you would expect independence between the landlord and the tenant. But, because it is a public university, it brings some special issues, and those issues have been identified.62

People talk about independence. Some people say that we [Bond] are independent of government and that that is satisfactory. But we are seeking to ensure that we are independent of control, be it by the University of Queensland, the Bond staff, the Bond alumni, the Bond students or some individual. We do not want that. The balance of power on any council structure should be people who are independent and disinterested so that they can say the council is truly working in the university's best interest.63

We [Bond students] see the meaning of independence as disinterested. We would be very happy to have on our board high profile, high quality, well known independent directors that are involved in disinterested things like BHP and Pratt Industries. But we have real problems with getting people on our board that are involved in things where their primary interest is always going to be University of Queensland; yet they are still sitting on our board and to some extent controlling our university.64

While the notion of Bond's independence has been generally taken for granted to date, the Committee notes a somewhat different perspective on the nature of Bond's independence provided by one member of Bond's academic staff;

The other false dichotomy is the supposed "independence" of Bond University contrasted with some notion of an educationally servile state suffered by public universities. Only an exaggeration of the position of both types of institution will support this distinction. To address only the "independence" of Bond University: we have spent our first six years completely dependent for most of our operations (including, e.g., appointment of senior academic and administrative officers and many operational matters) on the whims and directions of landlords whose sole interest in the university was its function in real estate speculation. It seems odd at least to argue that swapping this landlord for one with an interest in and commitment to quality tertiary education necessarily reduces our "independence". The

Transcript of Evidence, Brisbane pp5-6 (Ms Tomkins) Transcript of Evidence, Brisbane pp7-8 (Mr Clarke) Transcript of Evidence, Brisbane p80 (Mr Bosse)

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direct dependence on the goodwill of the landlords has been a fact of life from the beginning.65

Much of the witnesses' discussion about independence inevitably turned to the structure of a (revised) Bond University council, and several witnesses challenged the proposed representation of Queensland University on such a body. In the Committee's view, however, there are both formal and informal criteria by which the independence of an institution might be judged. Ultimately, the question of independence extends to issues of control, and clearly the structure of governance of an institution is a crucial consideration. But just as there are several dimensions to independence, so does control exhibit itself in multiple guises and with varying degrees of immediacy. It is important, therefore, to explore concepts of independence and control across a range of factors.

The most formal expression of the independence of Bond University is to be found in the Act of the Queensland State Parliament by which it was created.

11. Independence of Bond University. It is declared that the University Company alone is responsible for and has authority over the provision of education within Bond University and shall not be subject therein to the direction of any person.

It has been argued that, should the University of Queensland attempt to direct BUL regarding the provision of education, then UQ would be in contravention of that section of the Act. The argument goes that any control of BUL by UQ would make BUL subject to the direction of UQ, and that this is proscribed by the Act.66

Section 11 of our act provides that we have got to be free of control of any other person and it talks about the provision of education. Some people take a narrow interpretation of that, but that seems to me to be so much sophistry. If you control the finance, if you control

the administration then I think you are breaching that act in its spirit if not its letter. So we are very conscious of that provision in our constitution. That is in the state act that established the university together with a memorandum of association. We want to preserve that point of being private, independent and in control of our own

Submission No.12, Vol.l p!9 (Prof Krebs) Submission No.74, Vol.l p i54 (The Council of Bond University)

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destiny. We do not want to be a subsidiary of the University of Queensland or anybody else.67

However, according to the Bond University Act 1987, No.19 the University Council means "the Board of Directors of the University Company". If it eventuates, through negotiation, that representatives of UQ are appointed to the Bond University Council, such UQ

representatives are, by definition under the Act, also Directors of the University Company (because the Council just is the Board of Directors). Under such circumstances it would appear prima facie that these UQ representatives would no longer be considered "persons" (in the "external-to-the-Board" sense required by Section 11), and no contravention of the Act ensues. On this account, it may be argued that Bond's independence as defined under its Act remains secure even if UQ representatives are members of the Board of Directors/ Council.

But beyond the legislated guarantee of independence, questions of "perceived independence" nevertheless arise. What may be regarded formally or technically as independence may not appear so to the casual

observer, nor to potential students considering Bond as an option for university education. Such concerns were expressed to the Committee in a variety of ways.

If tomorrow we [Bond] make a deal with the University of Queensland and it is announced in the newspaper... [that senior UQ personnel will be on the Bond board] ... the perception that that gives is that the University of Queensland has taken control of Bond. That is going to damage Bond in the long term, because the reason that we are able to get the students is that we are able to offer something different. We are able to say, 'We are private; we do things differently; we apply the principles of the private sector in terms of the education that we offer.'

If it turns out that the public perception is that the University of Queensland has control of us, we will not be able to market ourselves as a different product....

Obviously, something is going to come out in the press as a result of negotiations. If it comes out that, in effect, the University of Queensland is this big brother that is gently coaching Bond along, then a lot of the students,and bear in mind, we have a very great

Transcript of Evidence, Brisbane p54 (Prof Farrar)

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degree of mature aged students,are going to say, 'Why go there? What is the different product that is going to be offered there?'68

Among witnesses concerned about threats to Bond's independence there was a broadly held view that, if the University of Queensland acted purely as the landlord for Bond University, and did not seek a position on the Bond Council, they would have less concerns about the purchase of the Bond site by UQ.

The Melbourne Alumni [of Bond} is not opposed to the University of Queensland purchasing the campus of Bond University. However, that must be a tenant-landlord relationship. Bond University must remain independent and University of Queensland should have no

control over Bond University in any way, shape or form.69

But even if the landlord-tenant relationship were to proceed on a conventional basis, a number of witnesses still harboured doubts.

The issue ...about University of Queensland purchasing the land and buildings remaining the landlord, I think that brings the idea that they will eventually seek to control the university itself.... We think

that the independence will be brought into question if they do try to seek control through their position as a landlord.70

I think it comes back to the terms of the lease, whether the lease is inequitable in any way, whether the rent is too high or there are default provisions which make it too easy for the University of Queensland to appoint a receiver so that, effectively, they can get control through the back door. That is why we see it as being one of the fundamental issues.71

We are working very hard to avoid a repeat of the situation of 1992. We are trying extremely hard in our negotiations with the University of Queensland to prevent any mechanism for such a thing to occur again,that is, where they would have the power as the

landlord to produce some sort of pressure through the board, through the terms of a lease or through maintenance of

subordinated debt. We are seeking to establish our independence.72

Transcript of Evidence, Brisbane pp 79 and 86 (Mr Bosse) Transcript of Evidence, Canberra p i 07 (Mr Leathlean) Transcript of Evidence, Canberra p i 07 (Mr Barrah) Transcript of Evidence, Brisbane p4 (Mr Clarke) Transcript of Evidence, Brisbane p87 (Mr Bosse)

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Report o f the inquiry into the sale of Bond Universihj

The question was put to Dr Tannock, Vice Chancellor of the private Notre Dame University, as to the public perception should the University of Western Australia (hypothetically) be the landlord for Notre Dame.

If the University of Western Australia owned the land on which we were based and had a controlling position, even if from a distance, in the nature of our board of governors and therefore the way in which the place operates and, above all, if the University of Western Australia bore residual financial responsibility for our liabilities, then we would be, to all intents and purposes, a public institution. And we would be seen to be such.73

The Committee regards a pure landlord-tenant relationship between UQ and Bond as considerably less threatening to the public perception of Bond's independence than a more direct involvement of UQ in Bond University's affairs. However, on balance, it regards such a relationship as conducive to a public perception that Bond University might in some way be beholden to the University of Queensland. It is difficult to measure or even predict the effect of such a perception in market terms - that is, whether it detracts significantly from the attractiveness of Bond as an alternative to public sector tertiary offerings. Nevertheless, such a risk must be acknowledged, albeit as a small one.

As was emphasised above, issues of control lie at the heart of any proper assessment of independence. Control of an organisation may be exerted explicitly and formally ( through a majority of votes on a board, say) or in a de facto way (through financial leverage, say, in areas which bear upon the organisation's capacity to function.) Given that questions of control have dominated debate in this inquiry, it is imperative that these be explored in some detail.

The University of Queensland has sought to allay the fears of its opponents that it will "control" Bond University and thereby impair its operation as a specialised, private, elite university with low student- teacher ratios and a record of high employability of its graduates in private sector law and commerce. In both its written and oral evidence to the Committee, UQ repeated its assurances that it did not seek to change the operation or ethos of Bond University through the exercise of

Transcript of Evidence, Canberra p!32 (Dr Tannock)

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Report of the inquiry into the sale o f Bond University

either financial or academic control. It is worth spelling out these assurances in some detail.

[I]n our submission you will see that we are pledging, as we are not buying the university or taking control of the university in any form, that Bond University, should this deal be consummated, would continue as a private and independent university.74

We have indicated from day one that we want a minority of numbers [on Bond Council], We have suggested,if I remember rightly,three out of 11 people. When it comes to votes, we would only have one vote each. I must remind you that there are two bodies: the first is the university council, which would be responsible for the financial and administrative contracts and so forth; the second is the academic board. We would have nobody on the academic board; we would not even want anybody there. So the academic freedom is there.

What we believe is that, because we have an investment for the foreseeable future, there should be some representation. To meet the repayments on the rent that would be negotiated, it is essential that there are certain financial stringencies and certain financial matters dealt with, such as fees, on a regular basis. We believe, as the one who has to service that debt, that we should have an input but not control.75

But as we said, we are not buying the Bond University...We are not interested in control, we are not interested in running it. We are only interested in, as I said, the other aspects of it, and expanding the Bond University to a private university, as it should be.76

We have never discussed...and we will not be seeking...an amendment to the Queensland act. The Bond University Act is there. We made no approach. That seems to be another bit of imagination from some people.77

I really must assure you that we have no ulterior motive....We want to let you know very clearly that we have only one ambition, which is for Bond to go from strength to strength as a private and independent university.78

Transcript of Evidence, Brisbane pl3 (Sir Llewellyn Edwards) Transcript of Evidence, Brisbane ppl6-17 (Sir Llewellyn Edwards) Transcript of Evidence, Brisbane p30 (Sir Llewellyn Edwards) Transcript of Evidence, Brisbane p23 (Sir Llewellyn Edwards) Transcript of Evidence, Brisbane pl9 (Sir Llewellyn Edwards)

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Report o f the inquiry into the sale of Bond University

For some Bond supporters, however, such assurances are insufficient to overcome their conviction that any UQ presence on the Bond University Council - even a minority presence - will undermine Bond's

independence and its prevailing private sector ethos.

Those three people [alleged to be the likely UQ representatives on Bond Council] were the three gentlemen that addressed you earlier this morning. As you saw, those gentlemen are very persuasive, they are very strong willed and they are very skilled. Perhaps they would bring greater than three votes worth of weight to control of that board. If you take this as the newly constituted Bond University board and at the end of the table sit Messrs Porter, Edwards and Wilson, and all around the table are a group of independents, student representatives and staff representatives with divergent views, and at the end of the table the three very powerful, very skilled people are speaking with the same mind, you are going to find that they have an influence greater than the three votes that they actually carry. That is our major concern.79

It is not just a question of control and numbers. It is a question of dominance. The University of Queensland is a very powerful organisation. It is very fortunate that it has amongst its leadership three of the most powerful individuals in the country from the point of view of academia and how things function.

The staff and students have said to me, 'Professor, it doesn't matter if the council has 200 members on it, because those three guys are going to control it.1 It becomes a matter of control, and this is in no way a reflection on these individuals. They are strong people and very fine people. The university needs strong governors.

I am not reflecting upon them, but the student body and the staff body...have this worry that, if it is not controlled, there will be total dominance. This issue has not been settled. It is a major sticking point for staff, students and ourselves..80

Some witnesses, concerned at the risks of UQ control of Bond University, are nevertheless prepared to entertain the notion of UQ having representation on the council under certain conditions. Professor Watts, for example, a former Bond Vice­ Chancellor commented as follows:

Transcript of Evidence Brisbane p79 (Mr Bosse) Transcript of Evidence, Brisbane pp52-53 (Prof Messel)

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Report of the inquiry into the sale of Bond Unwersity

If Queensland University simply wants to be the owner of the real estate...and have a very definite minority7 interest position in the council, and with some form of commitment from the fact that that is going to continue to exist and that the chairman of council was clearly totally independent of the University of Queensland. That is absolutely essential, if the chairman is able to force the directors to exercise their responsibility to declare an interest at all times and to dissociate themselves from that. If they come in as real estate owners like any other group of people, in terms of proper corporate governance, I would not be concerned.81

There is an aspect of UQ "control" of Bond via UQ membership on its Board which bears upon questions of the financing of the campus and land purchase, and in particular the capacity of UQ to service the associated debt. In brief, UQ needs to satisfy its financial backers that it can secure sufficient cash flow to manage its repayments. Commonwealth officers explained their understanding of the situation in the following terms:

We understand from our discussions with [Queensland University] and with the state government that the university wishes to ensure, given that rent from Bond University Ltd will be one of the principal sources of revenue involved in paying off the loan, that the University of Queensland can ensure that Bond University Ltd will continue to operate in a way which ensures a fair rent coming from

the operations of the university. Therefore, as a condition of its bid, it indicated to the receivers that it wished to gain effective control of Bond University Ltd in order to ensure that interest is met.82

Several witnesses commented that the dictates of financial prudence would require UQ to exercise at least a degree of control in relation to a core source of income from its investment.

[It] is ... difficult to believe that anyone would wish to lend [UQ] money unless they were in control.... No-one in his right mind would lend them money unless they were in control.83

I know nothing about the technicalities of this, [but] it seems to me that, if the University of Queensland or any other public institution took ultimate financial responsibility for a private venture such as

Transcript of Evidence, Canberra p i59 (Prof Watts) Transcript of Evidence, Canberra p i 79 (Mr Phillips) Transcript of Evidence, Canberra pl54(Prof Watts)

39

Report o f the inquiry into the sale of Bond University

Bond University or an allegedly private venture and did not exercise ultimate control, they would be acting irresponsibly.84

The Queensland University Student Council also raised the issue of prudential management where such large sums were involved in the financing of the Bond land purchase.

As we see it, we are being put in a huge financial risk. But the converse of that is that, if there is going to be this risk, it is

completely understandable and would seem to me to be in the best interest of preserving that public money and minimising that financial risk if there is some control over the Bond council and there is some way of guaranteeing that investment. Everything seems to be pointing to a much closer relationship in the future between the University of Queensland and Bond because of the need to guarantee that financial risk.85

The University of Queensland is caught between a rock and a hard place. On the one hand, financial prudence and the minimisation of risk to public monies require that it be in a sufficiently influential position to protect and ensure the optimal performance of its investment. On the other, it wishes to be seen to be acting in good faith with respect to the maintenance of the independence and ethos of Bond University as it presently operates, and to avoid being seen to control the educational activity of the private university.

The University of Queensland has sought to express its involvement with Bond University Ltd in terms of being at a level sufficient to demonstrate protection of its investment. It appears that UQ regards a minority representation on the Bond Council as sufficient to achieve that end, while at the same time

counteringmny accusation that it seeks control of Bond University in the way feared by Bond's staff, students and alumni.

The University of Queensland has sought to explain its position of non-interference in Bond University academic programs by distinguishing between its participation on the Bond Council as opposed to Bond's academic board.

Transcript of Evidence, Canberra pl32 (Dr Tannock) Transcript of Evidence, Brisbane p59 (Ms Vizzard)

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Report of the inquin/ into the sale o f Bond Unizvrsity

I must remind vou that there are two bodies: the first is the university council, which would be responsible for the financial and administrative contracts and so forth; the second is the academic board. We would have nobody on the academic board; we would not even want anybody there. So the academic freedom is there.

What we believe is that, because we have an investment for the foreseeable future, there should be some representation [on the Bond Council]. To meet the repayments on the rent that would be negotiated, it is essential that there are certain financial stringencies and certain financial matters dealt with, such as fees, on a regular basis. We believe, as the one who has to service that debt, that we should have an input but not control.86

Although UQ has consistently asserted its that it has no desire to influence the educational program of Bond University, and the Committee acknowledges that UQ has not sought representation on the Academic Board of Bond, the fact remains that, through its membership on Bond University Council, UQ representatives would automatically and necessarily be involved in matters pertaining to the educational programs at Bond.

This is so because of the explicit statement in the Bond University Act which describes the function of the Bond University Company in relation to the educational offerings of the University. This statement involves the University Council (the

Board of Directors of the University Company) in deliberations on matters educational. The relevant section of the Act is section 3(2)(b), which says that in the discharge of its function the University Company:

(b) may establish, abolish, replace and add to faculties, departments, schools or other organisational sections or units within Bond University as the University Council thinks fit.

Despite UQ's express wish not to exercise influence in the academic side of Bond's operations, its membership on the Bond University Council would naturally draw it into such

considerations. It would then be up to the UQ representatives to explicitly remove themselves from such deliberations if they

Transcript of Evidence, Brisbane p i 7 (Sir Llewellyn Edwards)

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Report of the inquiry into the sale o f Bond University

wished to be seen as having no influence on Bond's educational program.

The Committee acknowledges the existence of an additional safeguard to academic independence at Bond University which was drawn to its attention by a former Bond Vice Chancellor, Professor Watts:

One of the things we put in place at Bond University at the beginning,and it was again the first time in the world that this was done,was actually define academic freedom. We put it into the contract of employment of every member of staff in order to remove the argument that is used to link tenure with academic freedom. So every member of staff at Bond University has academic freedom defined and written into the contract of employment. That was a long way ahead of any other university in the world when that was

done. That, I think, safeguards the academic independence.87

Another concern raised by witnesses about the presence of UQ on the Council/Board of BUT was predicated on a perceived conflict of interest for UQ members who had a fiduciary responsibility to Bond as Board members, but had similar responsibilities to their own institution, the University of Queensland.

[Ojne could not properly be a director of ANZ Bank and Westpac. In the context of the University of Queensland bid,the University of Queensland being represented on the council of Bond,there is a real issue about a continuing conflict, not simply in respect of a contract between Bond and UQ or a joint course but because higher education is a competitive industry.

It is in every decision of the Bond board, Bond University Council, in offering courses, in changing courses and in deciding to offer. If the Bond University council sits down and says, 'Maybe we should have an information technology joint degree with law or with Japanese,1 that clearly has a competitive impact and competitive considerations are being taken into account. That is just as it would be on the board of Westpac, if they said, 'Well, maybe we should design a new home loan product.1 So the conflict of interest is very real with respect to the University of Queensland because the two businesses are in competition..88

Transcript of Evidence, Canberra pp!60-161 (Prof Watts) Transcript of Evidence, Brisbane p44 (Mr Turnbull)

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Report oftlie inquiry into tlx sale o f Bond University

The arguments which develop from this concern over conflict of interest rest ultimately on an assessment as to whether Bond and UQ are indeed in competition with one another.

Bond witnesses insisted that Bond University was a competitor of the University of Queensland, but UQ witnesses argued that this was not the case. UQ's written submission declared that 'UQ operates in different markets to Bond University', although UQ would regard itself as a competitor in the public sector with, say, Monash or Griffith.89

Bond University, on the other hand, makes a virtue of what it regards as the competition it provides to the public sector universities in a number of ways - not just as a competitor for enrolments.

A major misunderstanding that has been put out is that, because we charge fees, we are in a different market. There is no question that we are in the same market and that we are competing for the same students.... To suggest that the charging of fees somehow makes a different market is like saying that public and private secondary schools are in a different market. They are not; they are in the same market.90

There is no question about our competing. Although it is relatively small, you cannot regard Bond as being not a competitor...Monash is clearly regarded as a competitor [to UQ]. Is the person who made that statement then going to turn around and say that Bond, a

private institution, is not also a competitor?.... There is competition in this market. This is big business for Australia.... Monash competes with the University of Queensland. Bond University may be

embryonic.... We do not want it to get very large, but we want to be, and we are, strong competition. We revel on that competition....

We compete for staff, as I said before, and we compete for the top students. We offer the stop students in this country scholarships to come here. ... We compete with our facilities and salaries. To say that we do not compete is not even a reasonable statement.91

Submission No.123, Vol.2 p71 (University of Queensland) Transcript of Evidence, Brisbane p77 (Prof Carmichael) Transcript of Evidence, Brisbane p76 (Prof Corkery)

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Report o f the inquiry into the sale of Bond University

The recent Hilmer report, and the developments in competition policy which flowed from it, are regarded by some as giving particular clout to Bond's claims about the need to preserve its independent status as a competitor with public universities in the higher education market.

The public ownership of Bond University, whether it be the University of Queensland or any other university which is public, seems to me to be totally contrary to the agreements between the Premiers and the Prime Minister with respect to the national

competition policy. The removal of the independent alternative, to me, is totally outside the framework and agreements between the Premiers and the Prime Minister with respect to the competition policy.92

Secondly, if the University of Queensland intends to operate in conjunction with Bond, there is... going to be a substantial lessening of competition, and this contradicts the Hilmer report... that increase of competition is in the national interest. ..[TJhere is a problem here that there is not competitive neutrality....93

In anticipation of a proposed change in the relationship between UQ and Bond, the Trade Practices Commission (now absorbed into the recently established Australian Competition and Consumer Commission) examined the issue of whether the two universities are in competition. It examined the universities in relation to the markets they served, fee structures, relative demand for services, size and course provision and concluded that Bond • is not in direct competition with public universities, • that Bond is not a competitive constraint to UQ, • that there was no competitive incentive for UQ to diminish

Bond as^ private university, and • that the acquisition of the Bond campus by UQ was not likely to substantially lessen competition.94

On this assessment by the TPC, questions of conflict of interest are reduced with respect to UQ members sitting on the Board of

Transcript of Evidence, Canberra p i 54 (Prof Watts) Transcript of Evidence, Canberra p i 96 (Mr Deane) Submission No 121, Vol 2, pp57-67 (Australian Competition and Consumer Commission)

44

Report of the inquiry into the sale o f Bond University

Bond University as they will not strictly speaking be constrained in their directorial functions by a competitive regard for UQ's own interests as a university. There are, of course, matters other than the purely competitive which bear upon conflict of interest.

In the Committee's view, there still remains the potential conflict of interest arising in the context of UQ's relationship of landlord to Bond as tenant. For example, should Bond University require changes to the physical facilities it occupies in order to deliver an educational product which might enhance its success, the UQ members of the Bond Council may need to disqualify themselves from the discussion. Or should Bond University seek, say, a variation to rent payments because, for example, there was a

downturn in international students (c.f. the Tienanmen Square aftermath), or because intellectual property returns diminished, the UQ members of the Bond Council would be in a difficult position. They are committed to protecting UQ's investment by way of a cash flow to service UQ's debt, while at the same time

having a fiduciary responsibility to serve the best interests of Bond.

Those issues of conflict of interest are ones which are under consideration by the parties, that is, the University of Queensland and Bond University Ltd, in the current discussions over the heads of agreement. My understanding is that they wish to reach a very clear understanding on how conflict of interest provisions will be handled.95

Thus the University of Queensland is in a difficult position when it comes to persuading a hostile Bond camp, or a Senate Committee, or the general public, that UQ's interest in Bond is benign (at worst) or actively beneficial (at best) when it comes

to the securing of Bond's future as an independent, private operation displaying up-market service characteristics and a strong private enterprise disposition.

What are the perceptions of the UQ bid by those opposed to it, and how do they respond to UQ's various reassurances?

Transcript of Evidence, Canberra p i 90 (Mr Phillips)

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Report o f the inquiry into the sale o f Bond University

• UQ's claims to altruism in relation to Bond's thriving in the future are met by accusations that UQ sees Bond as a "milk cow" or fee-paying degree factory (particularly for overseas students) from which it can siphon off substantial funds.

• UQ's desire for a thriving higher education sector to which private providers as well as public providers might contribute to a high standard prompts the retort that UQ should therefore withdraw in favour of a wholly private sector bid, and allow BUL to consolidate links with private enterprises who are the employment targets for Bond students.

• To UQ's assertion that it will not interfere in the educational program and style at Bond comes the response that this will be inevitable if UQ wants to secure the necessary cash flow and financial stability commensurate with a prudent investment.

• Any UQ involvement on the Bond Board, even in the minority, is perceived to necessarily entail conflicts of interest, especially where UQ is Bond's campus landlord

• To the question of future collaboration between UQ and Bond - even if by mutual consent - comes the rejoinder that this brings the threat of cross-subsidisation of private activity by public resources, and possible constraints on developments in the public university because resources get tied up in the private- public joint venture.

It seems that, even with the best will in the world, the

impediments to UQ's universally establishing its credentials as a purchaser-of the Bond campus which will in no way influence or threaten the independence of Bond University are practically insurmountable.

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Report of the inquiry into the sale of Bond University

Conclusion

The concerns for national interest and for diversity in higher education which direct the Senate Committee's inquiry are multi­ dimensional. This report has canvassed those aspects which have emerged most strongly in the evidence placed before the Committee in written submissions and by way of oral

contributions in public hearings.

Key concerns brought to the Committee's attention included the following:

• The purchase of Bond campus by UQ, and the associated involvement of UQ on the Bond University Council, would inevitably lead to the loss of Bond's independence and private sector ethos, as well as to the erosion of features such as low staff-student ratios, attractive academic salaries and incentives, and the capacity for innovation in educational delivery.

• The loss of Bond's independence would, in effect, remove from the higher education sector both a distinctive private choice for undergraduate students and an alternative, challenging model for the operation of universities. • The UQ purchase undermines the existing policy of public

universities not being permitted to charge fees to

undergraduate Australian students, because it opens the way for other public universities to establish private campuses. • The close link between UQ and Bond, after settlement of the bid and certainly in the longer term, risks the cross­

subsidisation of the private operation by public resources, and threatens the range and expansion of study opportunities on the public UQ campus through possible rationalisation of offerings on the two campuses.

The Committee has been charged with the task of determining, in the light of these sorts of concerns, whether the purchase of the Bond campus by UQ would be in the national interest and, in particular, whether it zoould lead to a reduction in diversity and choice in Australian tertiary education

Report o f the inquiry into the sale o f Bond University

Put simply, the argument for loss of diversity is that the purchase of Bond campus by UQ, and the elements of UQ control which that might entail, amounts to a diminution - some would say elimination - of Bond University's private and independent essence. Thus there would be removed from the higher education scene a distinctive element, and an alternative style of

undergraduate study for Australian students.

It is the Committee's view that Bond is generally regarded as a genuine alternative to public universities, adding a distinctive quality and ethos to the higher education sector as a whole. This is certainly the view of its staff (many of whom have taught in public institutions), and its students and alumni (many of whom have also studied in public universities). It is also the view of the University of Queensland, which stated in its submission to the Committee that 'there is no doubt that something different in higher education has been created on this private university campus on Queensland's Gold Coast'.96

If Bond's distinctiveness is preserved as UQ declares it be, and if its independence is seen by the public to be retained, then the argument that there will be a reduction in diversity collapses. But given that perceptions play a large role in the way people exercise choice about a range of matters, from consumer goods to lifestyle options to education alternatives, any perception that Bond University - with UQ as its landlord and possible eminence grise - was no longer differentiable from its public counterpart, would in the public's view diminish the range of tertiary study alternatives available - that is, there would effectively be a reduction in diversity.

The Committee must make a judgment about diversity which does not rely exclusively on either technical assessments of the Bond-UQ relationships of independence/control/competition, nor simply on popular perceptions which have no regard for the technical considerations.

Submission No.123, Vol.2 p69 (University of Queensland)

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Report of the inquiry into the sale o f Bond University

Broadly speaking, the Committee is of the view that, on grounds of both substantial and technical considerations and of public perception, the purchase of the Bond campus by UQ - and the landlord/tenant and other necessary relations at Board level which that entails - would lead to a reduction of diversity in the higher education sector.

UQ must be able, as a prudent investor, to influence Bond's operations, and technically will need to achieve that through Board/ Council membership - albeit in a minority. Both through the Bond University Act which empowers the Board/ Council to influence Bond's educational programs, and through the dictates of financial reason governing the achievement of an adequate cashflow, UQ's influence on Bond University must be acknowledged. Indeed the Committee regards as a real threat to Bond's independence the proposed presence on the Bond University Board of three senior UQ nominees. Such a powerful UQ influence on the Board has the potential to destroy the Bond ethos. Moreover, the public perception which flows from UQ's influential presence on the Board is that Bond University can no longer enjoy its independent status nor sustain its wholly private enterprise ethos and educational offerings in the way that it has previously done. It will be perceived, to this extent, to have become simply an arm of an existing public university. On this account, the diversity of the higher education sector has been diminished.

The Committee recommends that, in the national interest, the purchase of the Bond University campus by the University of Queensland should not proceed.__________________________________

The Committee recommends that public universities should be disqualified from participating in any re-tendering or other future selling process for the Bond University campus._________

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Report of the inquiry into the sale o f Bond Unii'ersity

In the Committee's view, the University of Queensland would best serve its own interests by focusing on its existing operations, and the development the Ipswich campus. The excellent reputation which UQ enjoys can only be further enhanced by devoting any additional resources and energies to what it is already doing so well. There is some unease abroad when universities are seen to involve themselves in significant land speculation projects. UQ's bid for Bond invites such adverse public reactions, especially when it is complicated by the appearance of UQ taking over a private provider. UQ is one of this country's leading universities. The Committee believes that UQ's bid for the Bond campus is a distraction from its

commitment to becoming an even greater public university.

50

Appendix 1

Public H earing W itnesses

Brisbane, 9th November, 1995

ANDERSON, Ms Nicola Leigh, Member, Bond Univesity Alumni Association, QLD

BOSSE, Mr Michael William, Executive, Bond University Student Council, QLD .

CARMICHAEL, Professor Jeffrey, Vice-President, Bond University Academic Staff Association, QLD

CHISWELL, Dr Barry, Branch President, University of Queensland Branch of the National Tertiary Education Union, QLD

CLARKE, Mr Xavier Fitzgerald, President, Bond University Alumni Association, QLD

CORKERY, Professor James Francis, President, Bond University Academic Staff Association, QLD

COX, Mr Martyn, President, Bond University Student Council, QLD

EDWARDS, Sir Llewellyn Roy, Chancellor, University of Queensland, QLD

FARRAR, Professor John Hynes, Acting Vice-Chancellor, Bond University, QLD

MESSEL, Professor Harry, Executive Chancellor, Bond University, QLD

MURRAY, Ms Catherine, President, General Staff Association, Bond University, QLD

NELSON, Mr Adrian Charles, QLD

PORTER, Mr Douglas, Secretary & Registrar, University of Queensland

SHOEMAKER, Dr Adam, QLD

STUART-FOX, Ms Maya Lisu, President, University of Queensland Union, QLD

TOMKINS, Miss Shauna, Executive Committee, Bond University Alumni Association, QLD

TURNBULL, Mr Malcolm Bligh, Director, Bond University, QLD

VIZZARD, Ms Michelle, Acting Education Resource Officer, University of Queensland, QLD

WILSON, Professor Brian Graham, Vice-Chancellor, University of Queensland, QLD

Canberra, 10 November, 1995

BARRAH, Mr Andrew, Bond University Alumni, VIC

BLACK, Ms Christine, VIC

BURMESTER, Mr William Peter, Assistant Secretary, Resources Branch Higher Education Division Department Employment, Education & Training, ACT

DEANE, Mr Henry, "Dirrundirri", NSW

GRAHAM, Mr John, President, National Union of Students, VIC

KENT, Mr Simon, Research Coordinator, National Union of Students, VIC

KILMARTIN, Mr Brian Patrick, Solicitor, Sciacca & Associates, QLD

LAWLER, Sir Peter James, Chair, UTS Foundation

LETHLEAN, Mr Justin, Vice-President, Bond University Alumni, VIC

McCULLOCK, Mr Graham, General Secretary, National Tertiary Education Industry Union, VIC

NICHOLLS, Ms Jane, National Research Officer, National Tertiary Education Industry Union, VIC

PENINGTON, Professor David, Vice-Chancellor, University of Melbourne, VIC

PEIILLIPS, Mr David, First Assistant Secretary, Higher Education Division Department Employment, Education & Training, ACT

SCARF, Mr David, Promoter & Member, IITS Foundation

TANNOCK, Mr Peter, Vice-Chancellor, University of Notre Dame Australia, WA

THORN, Mr William, Public Funding Section, Higher Education Divison Department Employment, Education & Training, ACT

WATTS, Professor Donald, Shenton Park, WA

WHEELER, Ms Melanie, Education Officer, National Union of Students, VIC

ZUBRZYCKI, Emeritus Professor Jerzy, Member, IITS Foundation.

..

Appendix 2

Subm issions to the inquiry

1. Mr Alan Mullins, QLD

2. Mr Keith Johnson, NSW

3. Mr Rob Hill, QLD

4. Bond University Student Council Mr Ben Dunn, President

5. Ms Rani Taylor, QLD

6. Mr David Baxby, NSW

7. Mr Alan Leslie, QLD

8. McDonald's Australia Limited Mr Peter Ritchie, Chairman

9. Mr Mark Zemek, QLD

10. Ms Emelda Roche, QLD

11. Mr David McKeon, QLD

12. Associate Professor W A Krebs, QLD

13. Ms Claire Bibby, WA

14. Mr Simon Davies, NSW

15. Ms Christine Rose, QLD

16. Bond University Information Centre Ms Mary Newton & Ms Doe Rudd, Coordinators

17. Friends of Bond University Ms Mary Newton, Board of Management

18. School of Business, Bond University Mr Joe Mula, Associate Professor

19. Australian Council for Private Education & Training Ms Heather Benham

20. ME & BJ Quirk, NSW

21. Mr Christopher Hughes, QLD

22. Bond University Professor of Law Ms Mary E Hiscock

23. Macquarie University Students' Council, NSW Mr Jim Wellsmore, Researcher/ Organiser

24. The John Hewson Group, NSW Mr John Hewson, Chairman

25. Mr James Sarah, SA

26. Bond University Assistant Professor of Law Mr Duncan Bentley

27. Mr Ken Cross, NSW

28. Office of the Vice-Chancellor, Bond University Mr Terry Gygar, Chief of Staff

29. Mr Ray Walsh, QLD

30. Burns Philp and Company Limited, NSW Mr Andrew Turnbull, Chairman

31. Subiaco Young Liberals, WA Mr Alan Dungey, Policy Vice-President

32. Mr Stewart Brash, QLD

33. Ms Kathryn-Anne Poulos

34. Mr Rafael Ribas, QLD

35. Ms Anne O'Brien, QLD

36. Miss Bahar Etinan, QLD

37. School of Business, Bond University Professor Ashley Goldsworthy, Dean

38. Ms Patricia Poulos

39. Ausasean Management Limited, NSW Mr Kris Harcourt, Investment Manager

40. Study and Migration Centre of Australia, NSW Mr Gunther Berghofer, Partner

41. Mr Glenn Leighton, UK

42. Mr Robert Lewis, QLD

43. Minister for Finance, Racing and Gaming, WA The Hon GM Evans

44. Ms Anita D'Alessandro, QLD

45. Ms Rachael Zavodnyik, NSW

46. Warren McKie Gold Coast Honda, QLD Mr A B O'Brien, Financial Controller

47. Council of Australian Postgraduate Associations Inc, VIC Mr Simon Vanderaa, President

48. Ms Annabella Simon, VIC

49. Η Μ Morgan, VIC

50. Mrs Yvonne Rowse, QLD

51. Australian Institute of Management Mr Ivan Deveson, National President

52. Member for Burleigh, QLD Ms Judy Gamin, ML A

53. J C Weaver, QLD

54. Ms Lynne M Betts, QLD

55. Tweed Shire Council, NSW Dr John Griffin, General Manager

56. Bond University Library Mr Graham Johnson, Senior Librarian

57. Dr Andrew Crouch, QLD

58. School of Law, Bond University Professor Jan McDonald, Professor Patrick Quirk

59. Christ Church Grammar School, WA Mr John James, School Counsellor

60. Life Education Centre Foundation Queensland Inc Mr Peter J Fox, Executive Director

61. Mrs Kay Leighton, WA

62. School of Business, Bond University Professor Ken Moores, Associate Dean _

63. Mr Dean Shepherd, QLD

64. Bond University Rugby Union Club (Inc) Mr Robert E Field, Vice Patron

65. Gold Coast City Council, QLD Councillor AJD Bell

66. Mr Matthew Donnellan, ACT

67. Mr Paul Leighton, WA

68. AMIS Pacific Pty Ltd, QLD Mr Gary Livermore, Director

69. Ms Lyla Raftery, QLD

70. R E Balchin, QLD

71. Mr Evan Douglas, Professor of Entreprenuership, Bond University

72. Bond University Alumni (Victoria) Inc Mr Andrew Barrah

73. Bond University Student Council Mr Michael Bosse, Mr Martyn Cox

74. The Council of Bond University, Queensland Professor John Farrar, Acting Vice-Chancellor

75. SBC Australia Funds Management Limited Mr John A Fraser, Executive Chairman and CEO

76. Assistant Professor of Law, Bond University Professor Jay Forder

77. School of Information Technology, Bond University Professor Peter Poole, Dean

78. The Executive Committee, Law Chapter, Bond Alumni Ms Donna Field, President

79. Law School Academic Staff, Bond University Professor Eric Colvin, (Acting Dean)

80. D Armenores, QLD

81. Bond Alumni, QLD Mr Xavier Clarke

82. Mr Leigh Anderson, QLD

83. National Tertiary Education Industry Union, VIC Ms Jane Nicholls, National Research Officer

84. Mr Guy Mosel, QLD

85. National Union of Students Inc, VIC Mr John Graham, National President

86. Bond University Academic Staff Association Professor Jim Corkery, President

87. Twin Towns Services Club Limited, NSW A D Mitchell, Board Chairman

88. Ms Peta Nicholson, Mr Justin Lethlean, VIC

89. Mr Allan Radford, QLD

90. Mr John Koutsoukos, QLD

91. Ms Samantha Raines, QLD

92. Mr Paul Edgar, WA

93. Gold Coast Combined Chamber of Commerce Mr John Witheriff, Chairman

94. Mr David Langford, NSW

95. The Institute of Chartered Accountants in Australia, QLD Mr Robert Savage, Immediate Past State Chairman

96. Ms Sarah Ingwersen, VIC

97. Ajit Overseas, QLD Mr Y a tin Shah

98. Mr James Welch, WA

99. School of Business, Bond University Professor B Shaw, Human Resource Management

100. Ms Anne McCallum, QLD

101. Morgan Stockbroking Limited, QLD Ms Virginia Fay, Representative

102. PRD Realty Pty Ltd Mr Archie Douglas, Joint Managing Director

103. University of Queensland Union Ms M Stuart-Fox, President

104. Garry Luxmore & Associates Mr Garry P Luxmore, Principal Partner

105. Sir Frank Moore, AO, QLD

106. Mr Graham Williamson, QLD

107. C A Sciacca & Associates, QLD Mr B P Kilmartin, Partner

108. University of Western Sydney Professor J Clark, Deputy Vice-Chancellor

109. Australian Society of Certified Practising Accountants, QLD J H Clarke, Director

110. Mr Michael Ford

111. Faculty of Business, Queensland University of Technology Professor Trevor Grigg, Dean

112. Murdoch University, WA Professor P J Boyce, Vice-Chancellor

113. Vandervords, WA Mr Charles A Vandervord, Principal

114. Mr Terrence Ewing, TAS

115. & 115(a) Department of Employment, Education & Training Mr David Phillips, First Assistant Secretary Higher Education Division, ACT

116. KPMG Chartered Accountants, QLD Mr J Allpass, Receiver and Manager

117. TAC Insurance, VIC Ms Margaret Jackson, Chairman

118. Defiance Mills Limited, QLD T A O'Brien, Chief Executive Managing Director

119. Mr Barry Cronin, QLD

120. Deakin University Council of Students, Inc, VIC Ms Christine Black, Spokesperson

121. Australian Competition & Consumer Commission, ACT Mr Luke Woodward, Senior Assistant Commissioner Mergers. Branch

122. Somerset College Limited, QLD Mr B J Arnison, Headmaster

123. The University of Queensland Sir Llewellyn Edwards, Chancellor

124. D C K Allen, AO, VIC

125. Australian Vice-Chancellors' Committee, ACT F S Hambly, Executive Director

MINORITY REPORT

Senators Carr, Denman and Forshaw

-

Minority Report by Senators Carr, Denman and Forshaw

CONTENTS of Minority Report

The esta blish m ent of th e in q u iry i

The intrusion, of the Senate inquiry into a commercial negotiation 2

The public-private interface in higher education 4

N a tio n a l interest, diversity a n d CHOICE IN HIGHER EDUCATION 7

Safety of public money 11

Alleged intentions of public universities to establish private campuses 17

Diversity in the higher education sector 19

C o n c l u sio n 27

Rec o m m e n d a tio n s 28

MINORITY REPORT by Senators Carr, Denman and Forshaw

The Establishment of the Inquiry

The Government Senators, both in Committee and in the Senate, expressed serious reservations about the proposal by Senator Hill to refer to the Employment, Education and Training References Committee the matter of the sale of Bond University campus to the University of

Queensland. These reservations turned, in part, (a) on the questions of the propriety of the Senate becoming involved in a commercial, contractual arrangement arrived out through a process of

public tender managed by the receivers of the Bond properties, and (b) on the wisdom of attempting to deal with matters that went to important policy issues concerning the interface between private and public operations in the higher education sector within the extremely short time frame proposed for the inquiry.

Nothing happened during the course of the inquiry to allay Government members concerns about the appropriateness or the adequacy of the Committee's investigations, and the findings of the majority report do everything to suggest that the Opposition has merely contrived the outcome which its initial prejudices demanded.

The Opposition have become extras in a paltry stunt played out by a Bond University Ltd clique and aimed at blocking other bidders for the assets of EIE associated with Bond University :

Act 1 was the (continuing) Supreme Court action by Bond; Act 2 was the failed TPC action; Act 3 was a 'bodgie' Senate Inquiry

This three act farce was played out against a vociferous back drop of a supportive media campaign aimed at undermining the University of Queensland bid.

Matters were not helped by the rather spurious preliminaries in which the Opposition engaged prior to the inquiry being proposed in the Senate.

Minority Report by Senators Carr, Denman and Forshaiv

[T]his proposition was first advanced...through the pages of the Australian. On Wednesday, 6 September it was announced that the Senate standing committee was having an inquiry into this matter. There was no reference to the committee, no discussion within the committee, just a bland announcement... I found out about the work of this committee through the pages of the Australian.

It said that Senator Robert Hill had requested this inquiry. I do not recall his being a member of this committee. It indicated that Senator John Tierney, the chairman of this committee, had said that the proposed inquiry' will investigate the full implication of university funding including the suitability of the public-private funding mixes.

Again, last week there were reports in the paper about the work being undertaken by this committee. It was described as a committee hearing when in fact we are having an alleged private briefing. Of course, all of this was reported in the papers beforehand.

That raises the whole issue of what is the political intent here. This is why I say this proposed reference is in fact a recipe for yet another dirty little Senate inquiry. It is not about a proper investigation of a serious issue....It would take four or five months of committee work, not four or five weeks at the end of a busy session at a time when all of us are involved in so many other inquiries.1

The intrusion of the Senate inquiry into a commercial negotiation

The somewhat glasshouse political environment in which the inquiry has been pursued has included some features which might incline an impartial observer to suspect sharp practice.

Senator Teague, to his credit, declared at the outset a direct personal interest in Bond University.

[OJur first son is a student at Bond University, he having openly won a nationally available scholarship. He has nearly completed a law degree at the university. His attendance there has given me the opportunity to hear a great deal about Bond. I visited there on several occasions before he became a student and have been, I would say, a strong supporter of this addition of a private university to the spectrum of offerings for undergraduate degrees in this country. I am an even greater supporter given the personal knowledge I have

1 Senate Hansard Date: 18 October 1995 (09:45) Page: 1976

Minority Report by Senators Carr. Denman and Forslimr

through meeting with many Bond students and some members of staff.2

Other links between senior Liberal Party figures and Bond University were not so abundantly clear. One member of staff at Bond University is Professor Ashley Goldsworthy, Dean of the School of Business. Professor Goldsworthy is a former Liberal Party National President, and is currently a member of the National Executive of the Liberal Party, as is Senator Robert Hill, the mover of the motion to refer the Bond sale to this Committee. A private communication with a Government member of the Committee advises that Professor Goldsworthy told a meeting of Deans at Bond that he (Professor Goldsworthy) had written the terms of reference moved by Senator Hill.

Another active participant in Bond University Ltd's contribution to the Senate inquiry was Mr Terry Gy gar, Chief of Staff in the Office of the Vice-Chancellor at Bond. Mr Gygar is a former State Liberal member for Stafford in the Queensland Parliament.

The Committee received written submissions from several Bond staff, including Mr Gygar and Professor Goldsworthy. Interestingly some of the private submissions received by the

Committee arrived courtesy of the Bond School of Business fax machine. Amongst these was a letter to Professor Goldsworthy from a prominent business person, who was writing 'in response to [Professor Goldsworthy's] letter of 30 October 1995'. It would seem that Professor Goldsworthy was playing an active role in soliciting submissions for the Committee's inquiry.

While this is a perfectly acceptable and above-board strategy, it suggests that a coordinated political effort, underpinned by good contacts with key Liberal figures including Senator Hill, was an important part of an overall Bond strategy to oppose the University of Queensland purchase through the Senate inquiry. It seems likely that the Liberal Party-Bond nexus was also instrumental in pushing to get the inquiry launched by the Senate in the first place.

2 Senate Hansard Date: 17 October 1995 (18:30) Page: 1950

Minority Report by Senators Carr, Denman and Forshaw

It would be a disturbing trend if attempts were being made, through close party political connections, to use the Senate Committee system to try and advance the interests of one bidder over another in a private commercial matter.

The public-private interface in higher education- a serious question

The Government members of the Committee believe that policy issues arising at the boundaries of private and public activities by institutions in the Unified National System are some of the most significant on the higher education landscape. Indeed, the terms of reference of this inquiry - dealing with national interest, diversity and choice - indicate the breadth of the questions thrown up by the potential sale of the Bond campus to the University of Queensland.

One might have hoped that the big issues contained in the terms of reference would have received their due in terms of the genuine interest of the Committee, rather than being used as pegs upon which to hang a cursory investigation into a commercial arrangement. The Government members of the Committee believe that the hastily concocted and conducted inquiry into the University of Queensland bid for Bond has made a mockery of the seriousness demanded by the issues involved.

It strikes me that there are important implications...but they require a much deeper and broader inquiry than what is being proposed... It is a flagrant abuse of the committee system which will discredit the whole Senate....

Thai raises the whole issue of what is the political intent here. This is why I say this proposed reference ...is not about a proper

investigation of a serious issue....

We see yet another politically inspired inquiry designed to provide a political platform in the run up to an election for the perceived interests of the coalition in terms of higher education. It is not about an objective analysis of a serious public policy issue; it is about party political advantage.3

3 Senate Hansard Date: 18 October 1995 (09:45) Page: 1976

Minority Report by Senators Carr, Denman and Forsliaw

Somewhat spurious claims were made by Opposition Senators during the debate on the Bond reference that government policy was unclear on matters of the commercial or private activities of universities, particularly where the establishment of private campuses was concerned, and where undergraduate study was involved. The Government's views are unequivocally on the record in all these matters.

Senator Schacht: The Commonwealth's position on the purchase of Bond University by a public university has been consistent and clearly articulated to all public universities that have expressed an interest in the purchase since the time that receivers were first appointed in August 1993. The Commonwealth has repeatedly stated that it would not oppose the purchase of Bond University by a public university, provided that there was no cross-subsidisation of private activities with public funds.4

Senator Carr: In the Financial Review of 11 May 1993, Mr Beazley, a spokesman for the Minister for Employment, Education and Training, indicated:. . . if a publicly funded institution w anted to buy and operate a private campus it w ould have to meet three conditions. Public funds could not be used for the purchase; there could be no cross-subsidisation of the

private cam pus with public funds; and the operations of the tw o w ould have to be kept at arm 's length In 1993 there was that reference to Bond. Mr Beazley outlined that well-known government policy. That is quite consistent with the position throughout the last five years.5

The Government's position was reiterated in correspondence not just to University of Queensland but to all higher education institutions. There can be no doubt in anyone's mind as to the Government's view on the University of Queensland bid for

Bond, just as there can be no doubt about the Government's policy that there shall be no up front fees for undergraduate study by Australian students in public universities.

The Government members of this Committee have placed on the record their interest in pursuing an in-depth study of the issues attaching to the private-public interface of our universities, including the implications of universities' commercial activities and credit transfer policies for a viable, diverse, vigorous and accessible system of higher education. Let us have that debate, not

4

5

Senate Hansard Date: 17 October 1995 (18:20) Page: 1947 Senate Hansard Date: 18 October 1995 (09:45) Page: 1976

Minority Report by Senators Carr, Denman and Forshaw

a sham exercise which improperly intrudes upon arrangements being negotiated between two parties in a contractual

arrangement, and whose autonomy in these matters ought to be respected.

Minority Report by Senators Carr, Denman and Forshmv

N ational interest, diversity a n d choice IN HIGHER EDUCATION

Before dealing with the questions of "national interest" in the context of the evidence presented to this inquiry, the Government members wish to place on the record their dissatisfaction with the way in which the terms of reference of this inquiry have contrived to exploit notions of "national interest" for the purposes of prosecuting a politically partisan agenda.

The feigned concern of Opposition Senators for the integrity of the "no up front fees" policy of the Government is risible, as well as being hypocritical. Senator Hill is on the record as vigorously encouraging private enterprise in the activities of our public universities. The mock concern for the possibility that public universities might seek to establish private campuses is nothing more than a mask behind which to hide an attempt to discredit and destabilise the perfectly reasonable and lawful bid by the University of Queensland to purchase the Bond campus.

The Opposition, in pushing for the establishment of this inquiry, has been disingenuous, both with regard to its motives and the way in which it has constructed its findings in the majority report. The Government members of the Committee are seeking, in this dissenting report, to restore a sense of balance and propriety to the proceedings.

There are many dimensions to the question of national interest in higher education, but one which has been prominently canvassed in relation to the University of Queensland bid for Bond campus concerns the safety of public money and assets.

Ignoring the evidence

Throughout the course of the inquiry, Liberal Senators have been loath to let the facts get in the way of a good story. The majority report totally flouts any suggestion of objectivity. It openly chooses to ignore facts and lack of evidence in favour of possible perceptions which only serve

to bolster their pre-conceived set of beliefs and predetermined outcomes.

Minority Report by Senators Carr, Denman and Forshnw

The majority report selectively chooses to ignore or dismiss the evidence provided by University of Queensland in favour of the comments made by Bond University Ltd, particularly in relation to the financing of the bid. In concluding ,without evidence, that the Committee "believes public money is not entirely secure" (page 21) it also deliberately dismisses the Department's evidence in relation to accountability mechanisms to be established for the administration of the Bond campus.

As such the majority report is deliberately offensive to the University of Queensland; the commercial backers and the future students of Bond University . It is open to substantial criticism regarding the selective nature of evidence relied on in drawing the final conclusions and it has totally failed to acknowledge the opinion of the sellers of Bond University that University of Queensland made the best all-round offer..

The language used in the report also seeks to undermine the University of Queensland purchase - the bid to be "apparently financed" (page 4), doesn't even do the successful bidders the courtesy of assessing their evidence. The re p o rt, with little analysis, even questions the valuation of the assets against which security is to be held. ( page 20.) Comments on the final page of the majority report are also offensive to the University of Queensland. It is not appropriate for the Senate to make gratuitous and patronising comments about the University of Queensland which is an autonomous body.

Such a report would not be acceptable in a court of law where a decision is reached on the facts , not on perceived public perceptions.

In this instance the Senate has chosen to intervene in a commercial decision between the seller and the bidder, completely ignoring that the University is established under State legislation. Such intervention in any other private contract would be roundly criticised by the very supporters of this inquiry.

The majority report starts from the premise that the University of Queensland should not be allowed to buy the Bond campus despite public assurances orally and in writing from the University of Queensland:

• about Bond's continued academic independence;

8

Minority Report by Senators Carr, Denman and Forshmc

• that Bond will still operate as a private university; • the low number of University of Queensland people to be put on the Board; • that it does not use public funds or assets to purchase the campus.

Despite the expert advice from the new Australian Competition Commission that the two universities are not in competition , the majority report still comes up with the conclusion that the University should not be allowed to buy the Bond campus on the grounds of possible public perception that the two universities might be in competition.

The two recommendations of the majority report which disqualify University of Queensland and other public universities for pursuing an investment in the Bond campus are outrageous. On what legal basis is such a disqualification to be pursued? There is nothing in the Higher Education Funding Act to allow the Minister to intervene in this way - nor should there be. There are no grounds in law or reason for these recommendations.

In their evidence, Bond University Ltd (Messel) claims that Bond is financially sound and would be able to pay a market rent but fears that purchase by University of Queensland would involve stringent hardships such as increasing enrolments and class sizes and reductions in staff training to achieve the same amount of market rent, (page 19 ) Such fear-mongering makes little economic sense given that it is in

University of Queensland's interests to continue to promote Bond as a high quality, prestigious university if University of Queensland's investment is to be successful.

Interestingly enough, Bond University Ltd, while wishing to vigorously assert its independence from Government, is happy to be in competition for Commonwealth funded research grants and fellowships.

The majority report contains a number of technical inaccuracies most notably the abuse or interchangeability of the phrases about buying Bond University. Despite the statement at the beginning of the majority report that , "Bond University as such is not, and never has been, for

sale", the majority report goes on to discuss the sale of Bond University.

Minority Report by Senators Carr, Denman and Forslinw

The report is inconsistent on this matter and the language should be changed at the very least.

The University of Queensland is not buying Bond University, it is buying the campus and surrounding land. That is clearly an investment by the University of Queensland not a buy-out of Bond University Ltd.

There is little in the majority report that reflects the Committee's stated objectives of investigating a broader debate about public and private funding of universities despite the fact that the terms of reference for this inquiry, while specifically tied to the purchase of Bond University, related to broader questions of whether the transaction was in the national interest and affected diversity in the higher education sector. Thus the majority recommendation concerning the need for a broader public debate on these matters is facile in the light of the majority report's strong statements about the inappropriateness of the sale of Bond University.

This position reflects the hidden political agenda behind the inquiry of undermining the Government's higher education policy. Evidence for this can be found in statements that the sale is a threat to a policy of no- up front fees for undergraduate and in the claim that corporate arms are using credit transfer practices to get around this policy.(page 9) Similarly on page 27 the majority report refers to "the potential [of the proposed purchase] to undermine current policy and to, in effect, create new policy by stealth". This is despite repeated statements by the Government that it will act against the introduction of fees when they are in contravention of the Higher Education Funding Act or the spirit of the Act.

In a speech as recently as June, Minister Crean reiterated the

Government's requirement that universities must comply with both the letter of the law and the spirit of Government policy. During the Profiles process, DEET has been specifically monitoring institutions' compliance in this regard. This has been followed up with requests for assurances in writing that no breach of the Government's requirements has occurred. A small number of universities who sought clarification of arrangements for future years are being assisted by DEET to ensure that courses are structured in order to meet unequivocally the universities' obligations. DEET has no evidence of breaches of policy in this regard.

Minority Report by Senators Carr, Denman and Forshaw

Finally , despite so-called arguments presented in the majority rep o rt, it fails to answer a number of major questions such as :

• What will happen to Bond University if it is not sold; • How does the purchase of Bond University campus and land detract from Bond in the market place; and • Will the sale restrict activities of and opportunities for the clients - that

is the students?

Safety of public money

The University of Queensland has consistently adhered to the principle that no public assets must be utilised in the Bond campus purchase, or subsequently. University of Queensland has been diligent at every step with regard to quarantining its bid from any public resources. On this, the evidence has been clear, and in the opinion of the Government members of the Committee,

the majority report simply fails to acknowledge the validity of • the repeated public assurances which have been given by University of Queensland • the highly formal auditing arrangements and default protection

agreements being arranged between University of Queensland and the Commonwealth and University of Queensland and the Queensland Government • the operation of due diligence procedures and the involvement of external scrutineers in the monitoring of ongoing

expenditures • the professional judgments as to the 'bankability' of the project by the financial institutions involved.

It is worth spelling out again the nature of these assurances, agreements and guarantees.

The University of Queensland has consistently stated that no public money would be used in the purchase of Bond University. The project would be funded by means of a loan from a major financial institution to be repaid through three sources of income.

Minority Report by Senators Carr, Denman and Forshnw

• a guaranteed return from the Delfin Property Group, a major public Australian land developer, which covers the repayment of capital and all interest charges on the development land adjoining the campus. The company will be completely responsible for the development, marketing and sale of the land in a mixed development of residential housing, light industrial and community amenities. The University will have no responsibility or financial liability for this development. • a fair rent from Bond University for the buildings and land which

it currently occupies. It has been agreed with Bond that this rent should be justifiable in commercial terms, should be financially sustainable by Bond University and should enable University of Queensland to meet the financial obligations arising from its investment. The annual rent would be reduced by a capital contribution for Bond which would be credited towards a possible future purchase of the land and buildings by Bond; • rents from companies occupying the research park facilities and

other commercially let areas.6

The arrangements with Delfin provide for payments 'which are legally binding, guaranteed by a major Australian bank, in the form of a performance bond1. The Delfin arrangement is reputed to cover approximately $27 million7 Even the majority report declares that the Committee accepts that this money is not at public risk.

The Government members of the Committee agree that, however viable the project seems, the Committee must also concern itself with the risk to public money should it fail. To a large extent this depends on the nature

of securities that are given. The University has made it abundantly clear that no public assets will be given as securities and that no guarantees of loans have been sought from State or Commonwealth governments.

[The purchase of the Bond campus] will be totally without recourse to Commonwealth funding. We will be negotiating a private loan with the banking industry. There will be no Commonwealth funds used whatsoever....Or interest earned from Commonwealth funding....We will not be seeking the guarantees from the

Commonwealth government...[Commonwealth] funds [to University of Queensland] are continually audited by our own

auditor-general...and there will be no evidence ever produced, nor will it occur, that any Commonwealth funds or state funds will be used in the retirement of this ... It is a bankable debt and, therefore,

7

Submission 123, Vol.2 p72 (University of Queensland) Transcript of Evidence, Brisbane p 48 (Mr Turnbull)

Minority Report by Senators Carr. Denman and Yorshaw

the assets that are there would then be sold to meet that debt. There would be no call upon Commonwealth funds..8

The Committee accepts, from evidence given in private, that the assets referred to here are not public assets. In any event, the Government members of the Committee consider that this is a matter for the banks to consider and that if they are satisfied that there will be a sufficient cash­ flow to service the debt and are satisfied with the value of the assets being offered as security, then the Committee should be satisfied also.

The judgments of risk are ones which will be taken by the bank. They are in a far better position than, I would suggest, anyone in this room to make those judgments.9

According to DEET the public may be assured that the

relationship between the University of Queensland and its bank will include the specification that there is no default against the public assets of the University of Queensland.

The construction and financing will be such that there will not be a possibility of [University of Queensland being called upon for $80m in the event of default] Because of the way in which the loan arrangements and repayments will be structured, it would not be possible for there to be that level of default.10

The majority of the Committee has asserted that unless the bank is prepared to insert a clause that there would be no default against the public or private assets of the University of

Queensland (other than the land and buildings put up as security) or against the State government, then the majority of the Committee believes public money is at risk.

This overlooks the fact that the Queensland government has stated clearly that it will not give the University of Queensland authority to borrow unless it is perfectly clear that there is no risk, either actual or implied, to public assets and no potential claim, either explicit or implicit, against the government in the event of default. In a letter to the Committee from the Queensland Under

Transcript of Evidence, Brisbane p21 (Sir Llewellyn Edwards) Transcript of Evidence, Canberra pl87 (Mr Phillips) Transcript of Evidence, Canberra p!81 (Mr Phillips)

Mirtorihi Report by Senators Carr, Denman and Forslunr

Treasurer dated 22-11-95, the Queensland Government emphasises that approval to borrow would be granted only if the arrangements involve no "Government Guarantee either explicit or implicit. " In other words, the State government will not authorise the loan to the University of Queensland unless these conditions are fully reflected to the satisaction of the State in the loan agreement between the University of Queensland and the bank.

In the event of the sale of the campus proceeding as proposed in University of Queensland's bid, the University of Queensland has voluntarily

agreed to enter into a formal memorandum of understanding with the Commonwealth to demonstrate and ensure that the sale proceeds, and that the subsequent operations proceed in a way which is fully consistent with the Commonwealth's desired outcomes: that is, that there be, and be seen to be, no cross-subsidy of public to private funds, nor any risk to public assets.11

Such an agreement justifies confidence in the protection of public money. DEET outlined in detail for the Committee the discussions it had entered into with University of Queensland.

[University of Queensland] agreed to make us privy to the development of their financing arrangements, and the detailed operational planning documents which they have developed for the operation of the campus, sale of the land and so on. They made it known to us, as far as it was possible, the conditions on which they were negotiating for finance, and the conditions which the state government are attaching to the potential approval for borrowings, which also go to the same issues as are the concern of the

Commonwealth.

On the basis of that preliminary discussion with the University of Queensland, we are confident that, subject to further detail and further processes in terms of scrutiny of those details by appropriate experts, it will be possible to construct an agreement which serves the Commonwealth objectives, that is, which ensures and demonstrates that there is that separation, both in respect of the

11

Transcript of Evidence, Canberra p i80 (Mr Phillips)

Minority Reyort by Senators Carr, Denman and Forshaw

ongoing operation of the campus, but also in terms of ensuring that there is no risk to public assets in the event of default.12

DEBT has also advised the Committee that, before details are finalised , DEET will expose the details to due diligence processes, and will secure external, independent professional financial scrutiny of the proposal as part of that due diligence process.

On this issue, the majority of the Committee fails to place sufficient weight on the undertaking between the University of Queensland and the Commonwealth that there will be a formal agreement which identifies and demonstrates, inter alia, that no public assets are placed at risk by the loan arrangement. The

execution of this agreement with the Commonwealth will also require the inclusion of appropriate provisions to this effect in the loan arrangements between the University and the bank.

All of this will be specific to the University of Queensland-Bond arrangements, and will be additional to other standard accountability mechanisms that will be in place.

Apart from these specific measures which will be developed in conjunction with the University of Queensland, DEET will continue to monitor the publicly funded activities of the University through the normal processes. These include annual statistical collections which provide detailed information of the University's teaching and

research activities, including the distribution of Commonwealth funded student load between disciplines by level of study.13

As well as the financial safeguards, the Government members of the Committee acknowledge, as the majority report has not done, that the Commonwealth has made it clear to University of Queensland that the acquisition of the Bond University campus must not lead to any diminution of the quality and range of its public higher education provision. This was made very clear not only in DEET's submission to the inquiry, but by the M inister's representative during the Senate debate on the original reference.

Transcript of Evidence, Canberra p!80 (Mr Phillips) Submission 115, Vol.2 p45 (DEET)

Minority Report by Senators Carr, Denman and Forslmw

The minister has made it quite clear on a number of occasions that the government would not provide any assistance for, or guarantee any loans associated with, the purchase. This position has been conveyed to interested public universities through ministerial correspondence and discussions between the Department of Employment, Education and Training and institutions at senior officer level. The Commonwealth has also made it clear that the acquisition of the Bond University operations should not lead to any diminution of the quality and range of public university higher education provision.

In the case of the University of Queensland, I am advised that as recently as last Friday at the annual educational profiles meeting the Vice-Chancellor gave a complete and unequivocal assurance that the purchase and operation of the Bond campus would not involve any use of public funds and that its operation would effectively be quarantined from that of the University of Queensland as a public university. Assurances were also given at that meeting that there would be no diminution of the range and quality of courses that would be offered to students attending the University of

Queensland.14

It is the view of the Government members of the Committee that in its bid to purchase the Bond campus the University of Queensland has observed scrupulously its obligations under the

Higher Education Funding Act and has acted in a manner wholly consistent with Government higher education policy and all associated requirements of the Minister. Not only has University of Queensland observed both the spirit as well as the letter of the law, it has voluntarily entered into extra, binding arrangements with the Commonwealth for the monitoring and accountability of all transactions related to the purchase of the campus and its subsequent operations as landlord of the Bond campus. As well, its bid will proceed according to the requirements of the Queensland Treasury, which include there being no claim on State funds in the event of a default, and no State assets used by way of securing loans.

The University of Queensland has declared publicly in a range of forums that it will only be using private resources in the purchase of the Bond campus, and has provided details in confidence to both DEBT and the Senate Committee about how these are to be

Senate Hansard Date: 17 October 1995 (18:20) Page: 1947

16

Minority Report by Senators Carr, Denman and Forshcnv

deployed and by whom. At the end of the day, University of Queensland must, in order to finalise the purchase, secure the necessary finance from a bank - in this case a major Australian bank - and the Government members believe that the judgment of

the bank in providing the necessary finance will be a further independent validation of the viability of the proposal.

The Government members are fully satisfied that the use of public funds has been entirely discounted in the purchase of the Bond campus. They will be used neither directly in the purchase, nor

public assets used indirectly by way of guarantees against the loan monies involved. Moreover, the Government members are satisfied that the voluntary agreement entered into by University of Queensland with the Commonwealth, on the public record and being subject to due diligence processes including external confirmation of the details of the purchase and its funding, will ensure the protection of public funds during the purchase of the campus, and subsequently.

As far as public funds or assets is concerned, there is no threat to the national interest in the purchase of the Bond campus by the University of Queensland.

Alleged intentions of public universities to establish private campuses

It has been argued by some that the purchase of Bond campus by University of Queensland opens the gates to other public universities purchasing private campuses for the purpose of charging fees for degrees. Such an eventuality is impossible in practice, given that, with the exception of the Catholic supported

(and not-for-sale) Notre Dame University, the Bond campus is the only other private campus in Australia which houses a university established by its own Act of Parliament and having the power to

award degrees. The opportunity simply does not exist for a similar purchase by other public universities.

The next claim is that some of the public universities will "privatise" one of their existing campuses, to run fee-paying degree courses. The simple fact is that to appropriate public

Minority Report by Senators Carr. Denman and Forshaw

resources for such a purpose is illegal. Moreover, a public university could not grant degrees to students who had studied on the (hypothetically) privatised campus, because that would be in contravention of Government higher education policy.

The variations on this theme were teased out at one of the Committee's public hearings. The absurdity of the proposals to "privatise" a campus was made abundantly clear.

[Those who set up a private campus] would need the authority of the relevant state government if they wish to register as a provider, and they would certainly need the authority of the state if they wish to offer degrees. That is a power vested in the state government, not the Commonwealth.15

A first point to make is that a public university wishing to dispose of a public campus would clearly be a matter in which the

Commonwealth would have an interest. [For example] ... if the state of South Australia were to pass an act of parliament establishing a private university called Bond University of South Australia, it could establish and operate in precisely the same way as the Bond University does in Queensland. It would not be possible for the University of Adelaide to establish such a body if it were acting in any way as an agent of the University of Adelaide and charging fees. In that instance it would be in breach of its obligations under the Higher Education Funding Act....

A clearer example perhaps would be if the University of Adelaide were to purchase a private piece of land because that removes the question of the disposal of the public campus. If the University of Adelaide was the owner of a privately financed piece of land and an institution was established on that with its own corporate identity, it could operate as a private university, if it had its own act of parliament....But it could not operate a campus or a subsidiary institution if it was acting as an agent of the University of Adelaide and charge fees.16

In short, the suggestion that the sale of the Bond campus to University of Queensland opens a floodgate of private undergraduate provision on private campuses run by public universities is a nonsense..

15

16

Transcript of Evidence, Canberra pi 91 (Mr Phillips) Transcript of Evidence, Canberra p i92 (Mr Phillips)

Minority Report by Senators Carr, Denman and Forshaw

Diversity in the higher education sector

The argument is mounted that the purchase of Bond campus by University of Queensland, and the associated conditions which apply regarding University of Queensland's input to the Bond University Board/Council, inevitably mean that Bond University will be reduced to a mere arm of the larger institution. The argument extends to the claim that the private sector ethos of Bond, the learning environment which prevails, and the particular industrial conditions which operate will be eroded as the ethos of the public sector intrudes into Bond's affairs.

This rather crude appropriation of 'stop the rot' type rhetoric does not sit comfortably with Bond's claim to understanding and valuing excellence. The University of Queensland is one of Australia's pre-eminent universities, with an excellent reputation for teaching and research. The intangible benefits which would flow to Bond from such an association should be obvious. The expertise that would be brought to the management of Bond by having access to the advice of senior University of Queensland people could only be purchased at a premium. Under the University of Queensland proposals, such advice will be readily available and freely given.

The Government members are somewhat bemused by the protestations of many of the Bond supporters in relation to having representatives of the campus owners on the Bond University Board. It has ever been thus, as one of Bond's own academic staff has taken care to point out:

The other false dichotomy is the supposed "independence" of Bond University contrasted with some notion of an educationally servile state suffered by public universities. Only an exaggeration of the position of both types of institution will support this

distinction...[We] have spent our first six years completely dependent for most of our operations (including, e.g., appointment of senior academic and administrative officers and many operational matters) on the whims and directions of landlords whose sole interest in the university was its function in real estate speculation. It seems odd at least to argue that swapping this landlord for one with an interest in and commitment to quality tertiary education necessarily reduces

Minority Report by Senators Carr, Denman and Forshaw

our "independence". The direct dependence on the goodwill of the landlords has been a fact of life from the beginning.17

In the view of Government members, the presence of University of Queensland members on the Bond Board - albeit in a small minority - will add considerably more value to the deliberations of the Board than its erstwhile landlords. At least the new members have a proven commitment to, an understanding of, and an excellent track record in university management.

Many of the claims being made about the alleged threat to Bond's independence simply do not stand up to scrutiny. Bond University's independence is secured in its own Bond University Act under Queensland law.

11. Independence o f Bond University. It is declared that the University Company alone is responsible for and has authority over the provision of education within Bond University and shall not be subject therein to the direction of any person.

There could hardly be a more explicit, legally binding guarantee of its independence.

If the University of Queensland bid is successful, University of Queensland will have only three of the eleven members proposed for the Bond University Board. Three will be Bond University appointees, and the remaining five will be totally independent directors. Three members out of eleven is hardly likely to result in a University of Queensland tail wagging the Bond University dog.

Indeed, some of the Bond University members themselves have stressed the importance of having a demonstrably independent Board of the type outlined above.

People talk about independence. Some people say that we [Bond] are independent of government and that that is satisfactory. But we are seeking to ensure that we are independent of control, be it by the University of Queensland, the Bond staff, the Bond alumni, the Bond students or some individual. We do not want that. The balance of

17

Submission No.12, Vol.l pl9 (Prof Krebs)

Minority Revert by Senators Carr, Penman and Forshaw

power on any council structure should be people who are independent and disinterested so that they can say the council is truly working in the university's best interest.18

The University of Queensland has repeatedly stated its commitment to retaining Bond University as an independent, private university. It is a commitment made in a very public way in a variety of credible forums, and set down in black and white in a range of documents. The proof of that commitment will be in the pudding of the new arrangements, but even as it stands that commitment is clearly unequivocal, and there seems to be an element of mischief in the contention that University of Queensland's stand is in bad faith. The following are just some of several confirmations of the University of Queensland position:

We [University of Queensland] believe that a new independent council, not controlled in any form by this university, would rebuild Bond University... as an outstanding private, independent university here to stay. Time will prove, we believe ...that if this is

consummated, the action by [Queensland University] ...to purchase the land and the buildings, allowing an independently controlled council to operate the university, will allow Bond University to survive and expand as a private and independent university.19

Our plan for the first time in Bond's history is to have a lease for that university, to have a council with strong independent voices, to further an opportunity to expand the university as a private independent university ... It will give to Bond University, the students and the staff for the first time in its history stability and independence and, as the students have said, is here to stay in that form.20

Moreover, it is the understanding of the Government members of the Committee that the University of Queensland Senate has agreed that the proposed Heads of Agreement between University of Queensland and Bond for the purchase of the campus shall include a provision whereby Bond University Ltd may be given the opportunity to buy back its campus from University of Queensland upon the expiry of its lease. What more could be required in terms of an act of good faith ?

18 Transcript of Evidence, Brisbane p7-8 (Mr Clarke) 19 Transcript of Evidence, Brisbane pl4 (Sir Llewellyn Edwards) 20 Transcript of Evidence, Brisbane p!3 (Sir Llewellyn Edwards)

Minority Report by Senators Carr, Denman and Forshmr

One of the more vociferous arguments which has been put forward is that members of University of Queensland who sit on the Bond University Board would be in a conflict of interest situation because Bond and University of Queensland are competitors in the higher education market. The Trade Practices Commission took an interest in the potential sale of the Bond campus to University of Queensland with the express purpose of determining whether there would be a breach of Section 50 of the Trade Practices Act which deals with attempts to reduce competition in the market. The submission to the Senate inquiry by the recently established Australian Competition and Consumer Commission concluded that, based on current information, Bond and University of Queensland are not competitors in the same market. It is worth setting out the TPC's considerations in some detail.

[T]he [Trade Practices Commission] was of the view that Bond University operates as a specialised, niche university and is not in direct competition with other universities in south east Queensland as claimed by Bond University.

Although in some cases, the removal of a niche player may substantially lessen competition, the TPC did not believe that this was likely to occur in this instance, as it did not appear that Bond

University is currently a competitive constraint to University of Queensland.

Furthermore, there appears to be no competitive incentive for University of Queensland to diminish Bond University as a private institution in order to get students to transfer their enrolments to the University of Queensland due to the existing capacity constraints.

Therefore the TPC was of the view that the acquisition by the University of Queensland of the Bond University campus was not likely to substantially lessen competition in breach of section 50 of the Act.21

Given the emphatic claims by many witnesses that Bond and University of Queensland are in competition, it is important to

21 Submission No.121 Vol.2 p65 (Australian Competition and Consumer Commission)

Minority Reyort by Senators Carr, Denman and Forslmw

understand the arguments which led to the TPC's decision that such a claim is incorrect.

Section 50 of the Trade Practices Act prevents the acquisition of shares or assets in a substantial market where such acquisition has or is likely to have the effect of substantially lessening competition in that market. To this end, the Commission must determine:

• what the relevant market is

• whether that market is substantial; and • whether the acquisition would be likely to substantially lessen competition.

Each of these matters must be considered on a case by case basis and ultimately each of the matters can only be decided

conclusively by the courts.22

The market analysis conducted by the TPC indicated that Bond operates in a specialised segment or niche, on its own, rather than in direct competition with public universities. This is supported bv the following factors:

1. The difference in the fees charged by Bond as compared with public universities • Public universities charge HECS of around $2,400, regardless of course studied, while Bond fees are

substantially higher (6 times for a non-law degree) and such a fee structure means that Bond is not in direct competition with public universities for Australian undergraduates. • The fees for postgraduate study in public universities are

significantly lower than the fees for postgraduate study at Bond. • The fees charged by public universities to internation- al students are generally lower than those set by Bond.

2. Bond University has not experienced the unmet demand as has been the trend in most public universities:

22 Submission No.121, Vol.2 p58 (ACCC)

Minority Report by Senators Carr, Denman and Forshaw

• In 1995, 3800 applicants in Queensland missed out on a university place, while Bond has continuously been under capacity. • This tends to indicate that the majority of students

missing out on a place in a public university have not seen Bond as an alternative option.

3. Bond University offers a limited range of courses relative to all public universities.

4. In terms of student numbers, Bond is small compared to public universities

The summary of the TPC's market analysis was that • Bond offers a highly differentiated product in terms of price and service compared with public universities. • Bond promotes itself as an innovative and prestige university,

able to draw students on a national and international basis. • As it is a high cost option, Bond relies heavily on its high quality education services in order to differentiate itself from public universities which may provide the same basic end

product (a degree) but for substantially lower cost.

While the TPC acknowledged some difficulty in defining the relevant market in this instance, on the information available the Commission was able to conclude that Bond • is not in direct competition with public universities, • that Bond is not a competitive constraint to University of

Queensland, • that there was no competitive incentive for University of Queensland to diminish Bond as a private university, and • that the acquisition of the Bond campus by University of

Queensland was not likely to substantially lessen competition.

If the TPC is correct - and the Government members of the Committee contend that the Commission is extremely well-placed to provide an authoritative judgment on these matters - questions of conflict of interest simply do not arise with respect to University of Queensland members sitting on the Board of Bond University as they will not be constrained in their directorial

Minority Revort by Senators Carr, Denman and Forslww

functions by a competitive regard for University of Queensland's own interests as a university.

The Government members of the Committee are singularly unimpressed that the majority report does not even discuss the views of the TPC, despite the fact that the original TPC

investigations were a key activity surrounding the tendering process. The TPC (now the Australian Consumer and

Competition Commission) are the experts in matters of competition policy, but the TPC findings, sent as a submission to the Committee, are deliberately ignored because they do not support - indeed they fly in the face of - the Opposition's prejudiced views.

Again, on the matter of diversity, there is an argument that Bond University in reality does not add to the diversity of the spectrum of higher education courses already available in the public system. It offers a limited range of undergraduate and

postgraduate qualifications all of which duplicate degrees offered by public universities. It adds some choice by way of entry to undergraduate study for those without adequate Tertiary Entrance Scores, but it is a choice only available to those who can afford its considerable fees, and one which is not taken up by those eligible students unable to access the public system because of insufficient places. It has also been argued that much of its distinctiveness arising from offering a three semester year has been whittled away by other universities in the public system

'who now also have mid-year entry and summer semsters as a matter of course.'23

Apart from the many formal considerations which demonstrate that the independence of Bond University is assured, it should be clear that it is entirely in University of Queensland's interest to ensure that Bond continues to thrive as a private, independent university. These are the qualities that Bond requires to operate successfully in its niche market of high fees and private enterprise orientation, and it is imperative that Bond University continue to thrive if University of Queensland's investment in the campus is to remain successful.

23 Submission N o.lll, Vol.2,p35

Minoritv Report by Senators Carr, Denman and Forslmic

Any reasonable assessment of the various provisions for Bond University's independence - its statutory independence, the minority involvement of University of Queensland on its Board, the fact that Bond is not a competitor of University of Queensland as they operate in different markets, and so on - reveals that Bond will continue to operate as a private, independent university. That being the case, the situation in the higher education sector regarding public and private provision is no different than that which prevailed prior to the University of Queensland bid. There is simply no change in the diversity of the sector - the private choice remains as it was.

Minority Report by Senators Carr, Denman and Forslmw

Co n clusion

• The purchase of the Bond University campus by the University of Queensland does not have any adverse effect on the national interest, nor imply any diminution in the diversity and choice available in Australia's higher education sector. On the contrary, University of Queensland's involvement with Bond will serve to strengthen and enrich the provision of university

education, and will consolidate the overall high standards which Australians have traditionally enjoyed at the tertiary level.

• There is no involvement of public money in the purchase of the campus, nor public assets used as security against borrowings, and all transactions during the purchase and beyond are subject to comprehensive audit at university, State and Commonwealth level, with due diligence processes and external monitoring built into the arrangements.

• The purchase of Bond campus by University of Queensland does not contravene higher education policy in relation to no up front fees for undergraduate Australian students, nor does it have any capacity to facilitate such a move on any other campuses.

• The general question of the commercialisation of some activities by public universities and the policy issues which arise at the public-private interface of higher education delivery are extremely important matters which deserve comprehensive examination and extensive public debate. The Government members of the Committee look forward to contributing to that exercise.

• There is no impediment - legal, administrative or otherwise - to the University of Queensland seeking to follow through its purchase of the Bond University campus. It should be allowed to conclude its negotiations with Bond, and the relevant financial institutions, free from interference. The negotiations should stand or fall on their own terms, being neither propped

Minority Report by Senators Carr, Denman and Forshmr

up nor pushed over by vested interest and the misapplication of the findings of a Senate Committee.

R eco m m en d a tio n

The Government members of the Committee recommenc that, in the light of

(a) the substantial assurances, agreements anc processes of due diligence to protect public assets;

(b) the repeated public and formal declarations of University of Queensland's intention that Bond University will continue to operate as a private and independent provider; and

(c) the fact that there is no legal impediment

whatsoever to the University of Queensland undertaking such a private investment in land and buildings,

the negotiations for the purchase of the Bond campus by the University of Queensland should be allowed to proceed without further political interference.

SUPPLEMENTARY REPORT

Senator Baden Teague

:

SUPPLEMENTARY REPORT BY SENATOR BADEN TEAGUE FOR THE INQUIRY INTO THE SALE OF BOND UNIVERSITY.

I fully support the majority Report to which in all parts I have contributed in the same spirit as I did at the public and private Hearings of this reference. In particular, I support the three Recommendations of the Report.

However, I wish to make this additional statement based on the observations and findings set out in the Report and especially to propose five supplementary recommendations: two directed to the University of Queensland, two directed to Bond University and one directed to the Commonwealth Government.

Supplementary Recommendation One: That the University of Queensland concentrate its resources, including its private assets and income and its borrowing capacity, on its current and expanding operations at the St. Lucia campus and in the development of its approved Ipswich campus.

The University of Queensland is one of the great public universities of Australia and it should not be distracted from its commitment to becoming an even greater public university.

Supplementary Recommendation Two: That the University of Queensland sell to Bond University Limited the land and buildings occupied by Bond University; that the sale proceed as soon as practicable; and that the sale be negotiated on a fair, commercial basis which observes three broad objectives: (i) that Bond University be reasonably enabled to maintain financial viability on a non-profit basis as a private independent University by its present mode of operations and a consideration of its financial options for the next one-year, five-year and ten-year projections of its financial circumstances; (ii) that Bond University be reasonably enabled to maintain its current academic achievements in teaching and research to at least the current satisfaction of the public, students and staff; and (iii) that Bond University be reasonably enabled to maintain uncompromised and undiminished its own independent contributions to the diversity and quality of higher education offering in Australia.

It should be possible to negotiate this fair sale price. The current purchase bid by UQ would need to have been based on this price for one section of the land involved in the total EIE sale. Any higher price than the sale price outlined above for UQ's own purchase ought not to be acceptable to either the UQ Senate or the Bank providing the

loan for the purchase. The purchase price that bares scrutiny by the UQ Senate, the

Bank, and the State and Commonwealth Governments (given their requirement that guarantees be given by UQ that no public assets or income contribute to the purchase or continuing ownership of the property) should be no greater than the sale price outlined above.

UQ by this sale to BUL will have achieved two of its overriding objectives in this whole matter: (a) to secure a stronger foundation for Bond University to survive and grow as a private and independent university seeking academic excellence, and (b) to ensure that no other public University establish an integrated financial and academic relationship with Bond University to the competitive disadvantage of UQ both now

and for the foreseeable future. Moreover, UQ's achievements in these two regards will predictably raise BUL's regard for Queensland University and generate a genuine increase of cooperation between the two universities on the basis of each university's own free and independent estimate of the mutual benefit. This cooperation would then be able to include consideration of UQ's third overriding objective for its purchase: that is, (c) the possible joint academic and research endeavours envisaged by UQ. Only in a context of freedom and independence for both universities will such joint ventures be successful.

It must be recognised that BUL has initiated proceedings in the Supreme Court of Queensland to claim legal recognition of its just expectations to the ownership of Bond University's land and buildings, on the basis of undertakings made initially by the Bond and EIE corporations. However, sale of the land and buildings to BUL will make these court proceedings no longer necessary. Certainty in this complicated issue will have thus been determined for all the parties concerned.

Supplementary Recommendation Three: That in any event, Bond University Limited reject any proposal for the University of Queensland to appoint one or more directors to membership of the Bond University Council, giving consideration to at least the following reasons:

(1) Bond University is private and independent and this is best maintained by the constitution for its governance. This constitution should exclude any council member appointed by any other university, especially a public university which is involved in the same competitive markets but which has a completely '■ different basis of funding and dependence on Government policies.

(2) Bond University is private and independent and even as a tenant using land for which it does not hold the legal title, BUL should not give any automatic acceptance to the claim that a tenant should admit its landlord to membership of its own governing council. On the contrary the tenant - landlord relationship would normally be defined by a commercial contract.

(3) Conflict of interest will arise for any UQ - appointed director both in regard to the practical agenda of the Bond Council and in regard to the difficulties arising from the technical requirements in law of any director governed by Trade Practice legislation.

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(4) UQ has made it very clear that it seeks Bond University to remain private and independent. This objective is, however, inconsistent with any proposal to have UQ's Chancellor or Vice Chancellor or Registrar as a member of Bond University Council. Only with great difficulty can any person try to serve two masters in the same area of competing activity. Public perception of any appointment of a UQ director will raise the issue of control of one University by the other. In all reality, how will public perception not be led to this issue of control even if only UQ owns the land on which Bond operates. There should be no such relationship - neither the notion of shared directors nor the notion of one university appointing directors to the other. Plainly there should not even be a landlord - tenant relationship because both in practice and in perception this will compromise the independence of both universities.

(5) UQ has made it very clear that it does not seek to become involved in the academic decision-making of Bond University. The proposal of UQ appointing directors to the Bond University Council, it is claimed, will be only to safeguard UQ's financial interests. However, the Bond University Council is

empowered by its Act to unquestionable powers over the academic arrangements of Bond University. If UQ wishes to not participate in academic decisions it must not be represented on the Bond University Council.

Supplementary Recommendation Four: That in any event, Bond University Limited proceed expeditiously to reform its own governance by expanding its Council's membership from the current six persons (Chancellor, Vice-Chancellor, two other Australian directors and two Japanese directors) to become eleven by adding five new members comprising the following: three persons each with outstanding academic, entrepreneurial or public affairs experience who will be committed to the independence, academic excellence and success of Bond University all of whom to be appointed for a renewable term by the existing Council after appropriate informal consultations; and one person who is a staffmember of Bond University elected for a renewable term by the Bond University staff; and one person who is either a graduate or a student of Bond University elected for a renewable term by alumni and students.

This is the opportune time to complete the transition from the founding arrangements made by Bond and EIE corporations to the more mature and enduring arrangements for governance (envisaged by some all along) appropriate best now to serve Bond University as a private and independent University of academic excellence.

It is time also to consolidate the vital support that Bond University has received during 1995 (and earlier) from its staff and students and from independent blocks of opinion in academic, entrepreneurial and public affairs circles in Australia. It is very important that the continuity of each of these areas of vital support for Bond University be recognised and incorporated into the necessary arrangements for governance.

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These reforms should be in place by 1 July 1996 or at the latest by 1 January 1997, the delay only being provided to ensure the soundest consultation and firmest conviction to determine each practical detail by all involved.

Supplementary Recommendation Five: That the Commonwealth Government, acting on its current powers regarding university education, strengthen its policy to protect both public universities and private universities by not only insisting that public assets and finances not be used directly or indirectly for private university purposes but also determining that one university not be in a landlord-tenant relationship with another.

Accordingly should UQ not have of its own accord sold to BUL the land and buildings used by Bond University, that it be required to divest itself of this land to ensure that neither UQ nor Bond University is in a landlord-tenant relationship with another university.

Whether or not the current Government accepts this policy, it is further recommended that the Government elected at the forthcoming Commonwealth election accept this recommendation.

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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

PARLIAMENTARY PAPER No 469 of 1995 ORDERED TO BE PRINTED

ISSN 0727-4181