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Joint Committee of Public Accounts and Audit
Auditor-General's report No. 19 (2017-18)

CHIU, Mr Osmond, Policy and Research Officer, Community and Public Sector Union (Professional Staff Union Group)

FLOOD, Ms Nadine, National Security, Community and Public Sector Union (Professional Staff Union Group)


CHAIR: Welcome to the hearing and thank you for giving evidence today. Although the committee does not require you to give evidence under oath, you should understand that this hearing is a formal proceeding of the Commonwealth parliament. Giving false or misleading evidence is a serious matter and may be regarded as contempt of parliament. I also remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. This hearing is public and is being Hansard recorded. It is also being broadcast live. I now invite you to make a brief opening statement, if you desire, and the committee will then proceed to questions.

Ms Flood : The Community and Public Sector Union represents people working in the Australian Public Service and Commonwealth public sector. The Australian Public Service plays a vital role in Australian society and government. All Australians benefit from a public sector that can meet the big national challenges and deliver quality public services. However, the government's bizarre ideological addiction to cutting Public Service jobs while sending ever more lucrative contracts to big business is causing serious damage to Public Service capability and service delivery. The massive growth in the use of expensive contracting, consultancy and labour hire comes with insecure jobs and a waste of public money. Australians want government to provide quality services, retaining the skills and capability to deliver services. Australians expect governments to spend taxpayer money carefully and well, supporting jobs and services.

Australians might well be horrified to hear that the government is wasting billions on contractors because of an arbitrary decision the Public Service must be smaller than when the Howard government lost office a decade ago. Government's imposition of an average staffing level, ASL, cap on agencies has created perverse incentives to move work to contractors, consultants and labour hire staff, increasing costs to government while delivering less to the community. Regardless of funding levels, functions or operational requirements, agencies are forced to have a maximum average staffing equal or below their 2007 level. What does this mean? Contracting expenditure was $47.4 billion in 2016-17, while 55 million calls to Centrelink went unanswered last year, and their allocated average staffing level was cut by a further 1,118 jobs.

I note that, for example, none of the big four consulting firms receiving over $1.3 billion of public money in the last three years from contracting and consulting bothered to put forward any detailed information to this inquiry. Deloitte and Ernst & Young did not bother submitting at all. Pricewaterhouse did, asserting they did deliver public service functions at lower cost, without a single fact to back that up. Call me cynical, but perhaps their lack of content might be because this is one report government didn't pay them for. The NDIA, responsible for delivering the biggest social reform in decades, has had their Public Service staffing allocation slashed from 10,595 to just 3,000, filling the gap with a mishmash of contractors and labour hire. I have met with NDIA staff directly in a number of states who tell me how deeply concerned they are at the damage being done to people with disabilities and their families as a result of those arrangements.

Australians might be shocked to know that government can't even tell the parliament how many labour hire staff they employ, while we have tracked 4,257 jobs moving from permanent Public Service to labour hire in just 32 of over a hundred government agencies. Evidently the total figure will be substantially higher. As this committee has heard, neither the APSC nor government reports on labour hire use. Neither AusTender, the APSC nor annual reports currently provide any indication of labour hire employees. Astonishingly, an ANAO report from a decade ago is the most recent data on non-APS employees across the public sector workforce, showing that at that time contractors, consultants and labour hire constituted 11 per cent of the total workforce. We don't know what that number is now, and that is astonishing.

In 2017 the outgoing secretary of the Defence department reported that after extensive job losses, ASL caps, efficiency dividends and many other measures, there were more consultants, contractors and labour hire staff in Defence than permanent APS employees. This is despite contractors costing up to 40 per cent more than their Public Service equivalents. Recent Senate estimates information, in just one example, showed that in June 2017 the Department of Social Services had 841 contractors and labour hire staff. That is 26.5 per cent of the total departmental workforce in a department of state responsible for social policy in critical areas for our community.

I could go on. Unlike Pricewaterhouse, and despite being an overstretched not-for-profit, CPSU has put forward hundreds of facts and points of data to this critical inquiry. I won't go through all of those, but I would finish by saying this: public servants are deeply concerned at the impact of these issues on Public Service capability and service delivery to our community. Australians would be shocked to hear the number of questions that senior public servants have simply been unable to answer in this inquiry. The impact of job cuts, the increased use of external providers and the movement of significant Public Service functions to outside the Public Service is being deeply felt. Many experienced senior capable public servants, commentators and others have identified that essential skills are being lost and the capacity of the APS is being hollowed out while valuable funding in a highly constrained budget environment is being wasted on contractors and consultants. Public servants care deeply about the quality of their work and the quality of service to our community, and are increasingly frustrated and angry at what they see happening in their agencies and the communities they serve.

We call on government to seriously rethink the approach to contracting, consultants and the use of labour hire across the public sector. We believe that government must abolish the average staffing level cap, eliminate the use of labour hire, reduce the use of contractors, reduce the use of casual and non-ongoing positions in ongoing functions, and increase funding in a range of areas. Capping agency expenditure on consultants and contractors and reinvesting the savings to rebuild critical APS capacity is an important public policy. We urge this inquiry to make strong recommendations to government, given the critical juncture you meet at, for the Public Service and the services it provides to our community.

Ms MADELEINE KING: Did you say the CPSU tracked over 200,000 labour hire workers that moved out of the APS?

Ms Flood : Not 200,000; 4,257. That is in our submission. We put together all of the information that any agency has provided to Senate estimates over the last two years. Less than a third of government agencies have provided that information, and there is no central information on labour hire.

Ms MADELEINE KING: That's the 32 out of the 100?

Ms Flood : There are 118-odd agencies the last time I looked. I might not have that number precisely right.

Ms MADELEINE KING: Sorry, I misheard. I thought that was an enormous number, but it's enormous anyway, as you say. Earlier today I asked a group of departmental representatives whether they contract out or have consultants in to provide policy advice, analysis and development. All of them said that they do not—that they have adequate capacity to do that themselves and that they do that themselves. This was in the hearing this morning. It was Defence, the ATO, Human Services, Communications and the Arts, and Agriculture and Water Resources. That was said this morning. Would you agree with their response—that capacity is there?

Ms Flood : I would note those agencies aren't necessarily the policy departments. For example, the Department of Human Services is not the department developing policy in that area. With the tax office, it would be interesting to pose that question to the Treasury, given my understanding is that the secretary of Treasury and others have—there has been public commentary on this at various points in the last two years—at times said they don't have the policy capability on some of the tax reform propositions, which were then moved to the Prime Minister's department, from my recollection. It is probably a question to be put to the central policy agencies.

Ms MADELEINE KING: That would be a good thing to do. In your submission mentioned the large providers in Britain and the experience where the government relies on 'too big to fail' providers. We have large providers here as well, either the consultancy-type firms or the large service provider type firms. How close do you think we're coming to that situation in Britain?

Ms Flood : Australia as a jurisdiction has a more serious risk profile than most OECD countries, because of the nature of being a small market with oligopolies in a number of areas, from ICT to consulting and so on. We are impacted by the global move that means a relatively small number of firms have become very large in a range of areas of consulting and contracting. We've identified real problems and specific issues, such as the increasing reliance on panels and some of the questions about the way some of these relationships play out in the public sector. There are certainly issues. We specifically quoted the example of one Serco contract that was not put out to tender. I think there are some serious questions to ask.

Ms MADELEINE KING: Have you seen any evidence, through your work with the public sector, that they might be turning to the idea of building up the capacity and insourcing—I think that's the language you used, as it is used in Britain—or haven't we quite got to that point?

Ms Flood : There's a problem under successive governments—it's not just this government; it's the previous government as well—where Public Service capability has been eroded over some time, which means you face the risk of a vicious circle: you erode Public Service capability, then you say the Public Service doesn't have the capability, therefore we need to contract these functions and you further erode capability. There are some significant risks, but some of the newer policies such as the arbitrary cap on staffing levels are absolutely driving in that direction. A number of agency departmental secretaries have said to us: 'I am not allowed to undertake this policy or program in the way I think fits best, because I cannot breach my staffing level cap. I am reporting every month on my ASL cap: I have to move 19 ASL from here to here, I don't have additional ASL for that proposition; therefore I'm going to have to use labour hire here, I guess I can contract here.' It's just terrible public policy. They're deeply frustrated, because in a number of cases it's costing much more. That's a real problem.

CHAIR: What's an example of that where it is costing much more, in your experience?

Ms Flood : We put some numbers and examples in our submission. Obviously, with some of the gaps in the data, it can be a challenge to actually identify exactly what those costs are. There was one of the examples we put forward on the use of labour hire—let me find it. I can't remember whether it was in Senate estimates or elsewhere—but I think it was in estimates—where the CDPP talked about how they were actually spending more money than they needed to. But the bigger example we put forward is the use of labour hire employees, which we have been tracking: $447 million was spent on labour hire in 2015-16 on more than 4,000 employees. The assessment from agencies and information provided in national consultancy forums and in discussions with agencies is that that is not the most cost-effective—

CHAIR: On the 4,000 employees—you might have put it in the submission, I don't quite recall—can you give us a breakdown in terms of what sort of tasks they might have been doing?

Ms Flood : That is one of the many areas where there is not necessarily a full picture. There are specific examples if we take, for example—

CHAIR: You've quoted the 4,000-odd figure a couple of times now. I'm just trying to disaggregate that.

Ms Flood : I'll give you a couple of examples, and Osmond will probably have others. The National Disability Insurance Agency has needed to use labour hire and, because of the public service delegations, they have had labour hire employees directly engaging with people with disabilities and their families around assessments. Their concern was that there was limited training, they were very new and they didn't know the public service or the processes. All they got was some short scripts introducing assessments and then a public servant holding the delegation would be the tick off at the end of that assessment process, because you can't actually have that delegation exercised by a labour hire employee. That's one example of the way that has occurred.

We've got a Serco call centre in the Department of Human Services in Melbourne, which is handling compliance work usually undertaken by trained APS officers. There are concerns, both from the Serco staff and the DHS staff, that they are making routine mistakes because they do not have the same level of training experience as directly employed staff. There is inefficient double handling. When DHS was asked in Senate estimates why Serco was being engaged they stated:

We currently recruited all the way up to our ASL cap.

And that they were 'fully staffed'. There are many of these examples.

Ms FLINT: Could someone just remind me: what's the overall size of the federal public service? How many employees are there?

Ms Flood : That's a problem: we don't actually know. It depends on whether you're talking about only the direct employment or the people actually doing the work.

Ms FLINT: Let's say direct employment, as in full-time or full-time equivalent employees of the public sector.

Mr Chui : I think the most recent APSE figure from June 2017 was about 152,000. That's just the head count of directly employed staff, so it's not necessarily FTEs. It's around 152,000.

Ms FLINT: You're talking about 4,000 people out of 152,000?

Ms Flood : Well, we're talking about over 4,000 that have been tracked, but noting, as our submission goes through, that some of the largest users of contractors have not responded to those estimates questions or haven't been asked them. Specifically, it does not include the Department of Defence or the NDIA. The Department of Defence, which says that the majority of their workforce is now external staffing, is not included in that 4,257. The total larger is substantially larger.

Ms FLINT: If we doubled it, which is probably generous given that you've got a long list of departments there and you've come up with a figure of about 4,000, let's say that perhaps five per cent of the overall workforce would be contractors. Does the CPSU think that there is an acceptable level of contracting, outsourcing and consultancy? Is there a ratio you can provide us with that you would be comfortable with: is it zero, is it five per cent, is it 10 per cent or is it 20 per cent?

Ms Flood : I think the data we've put forward suggests that the total use is substantially higher than five per cent currently. It was 11 per cent a decade ago.

Ms FLINT: It's 2.5 per cent based on the figures that you've just provided.

Ms Flood : Well, it was 11 per cent a decade ago in the ANAO report and that does not encapsulate any of these things that have occurred in the last 10 years. So it's substantially higher now, but that is one of the challenges for this committee. We have long said, for decades, as a union that—and you've probably heard this from other witnesses—there has always been a use for external expertise in the public service. There has always been a need to, at times, bring in a capacity you don't have and build that in-house. I don't think anyone is suggesting that public servants would be good at designing and building submarines. I'm fairly convinced that's probably not a capability that you're ever going to develop. There has always been a need for some casual surge employment, particularly in areas such as human services, border protection around surge periods and holiday use, et cetera.

Ms FLINT: The tax office gave us strong evidence about that.

Ms Flood : Those things have been normalised in the public service for decades. The problem is what's happening now is very different.

Ms FLINT: But there's no firm figure that you have as a policy position on what the ratio should be?

Ms Flood : No, it's—

Ms MADELEINE KING: No-one has these figures and that's the problem.

Ms FLINT: No, but it's quite reasonable to ask an industry association-style organisation as to whether they have a figure. It's quite reasonable.

Mr HILL: Capability value for money.

Mr HART: I'm really interested in this issue of APS capability. If we can just backtrack a little, we've got the various categories where there are contractors, so the classic outsourcing situation where you outsource a function to a particular external service provider. You've got consultants providing specialist expertise and the like. We heard evidence earlier today about the dangers with hollowing out the public service with respect to managing the engagement, supervision and termination of contracts at a whole range of levels. Are you able to outline what particular risks you see for the Australian Public Service in proceeding to have more contractors and more consultants? For example, in this environment, where you talk about vicious circles with functions increasingly being outsourced because you've lost the capacity in the previous round of subcontracting.

Ms Flood : I think there are a range of risks. The overreliance on external advice has significant risks. We put some examples of this in our submission. Paul Shetler, who was brought out from the UK by the government to head digital transformation in the Commonwealth public sector, noted that there are serious problems with the lack of ICT capability. I have one quote from him:

Too frequently, we actually ask vendors to tell us what they think we should buy.

That entirely rings true, and we've seen that in a range of examples. We've quoted the 2016 census failures and noted the issues that occur around automated compliance in the Department of Human Services and Centrelink with what became known as robo-debt. Those things have serious risks in terms of the public's faith in government and in service delivery. I genuinely think there are real problems. There are, of course, also risks too as to what happens to clients and customers. We've highlighted that some of the issues around Public Service agencies simply becoming contract managers can become disconnected from direct service delivery and removed from actually understanding best practice at a point where the community is increasingly expecting government to engage in two-way communication. They expect that they're actually going to be able to deal with government in the way that they can deal with the NAB or Westpac off an app. Their expectation of government is changing at a time when there are increasing numbers of major service failures.

Mr HART: Can I return to this issue of management of the functions of the APS. In previous inquiries that this committee has dealt with, we have heard, for example, from DSS with respect to issues of the design of their correspondence. We've heard evidence of focus groups being required to construe the meaning of documents, with five people sitting around the table and giving five different interpretations of the meaning of the document. At a system design level, the architecture of the Australian Public Service and the design of particular functions within the Australian Public Service, do you think there's still capability within the Australian Public Service at a high level to redesign or to orchestrate new directions if government policy demands that?

Ms Flood : There is very substantial capability left in the Public Service. Very good people are attracted to work there who could earn substantially more in the private sector and, in some cases, have and have actually come across and said, 'I want to work on Closing the Gap and Indigenous disadvantage; that's something I'm prepared to do' or in a range of other policy areas. There are people who have come through a career based Public Service who have developed enormous capability around policy and service delivery, but the number of holes in that is increasing, and some of that is the unintended consequence of various decisions of successive governments playing in together. I think we are getting towards a point where that becomes a very substantial risk.

Mr HILL: I'm curious to try and flesh out a little bit more a sense of how much is short term and how much is longer term. I have two comments. I think your example before about the NDIA was a good one in that there seems to have been an arbitrary cap of 3,000, despite there being a projected staff peak of 10,500. Indeed, the Productivity Commission said only late last year that the government should just remove the cap because it's effectively a perverse resource allocation process and the agency should just figure out its staffing at lowest cost. I would be curious for any other comment, particularly on the NDIA, on impacts. Also, we received a submission from a low grade APS staffer saying that they've been, over the last 16 years, moved from doing the work to now just supervising labour hire workers to do the work in the department. They had an example of people who've effectively worked for 13 years or more as labour hire workers, alongside public servants or replacing them. I'm trying to understand your sense of how much of this is long term, because we hear talk of 'It's all about surge' and so on, and yet we have a number of examples informally that it's not, that there are people now on long-term arrangements.

Ms Flood : We've had a number of reports to that. The Australian Taxation Office is one where there has been a problem long term with people being on rolling contracts. There are a range of agencies. I'm happy to take that on notice and provide some more specific examples to the committee. I don't have them all in front of me. What I would say is that there are specific policies of the current government which have accelerated and made these problems much worse, but it is important that we acknowledge that there are longer term trends and decisions that have had a negative effect.

I've appeared previously at parliamentary inquiries and said, for example, when we look at 55 million missed calls in Centrelink and Human Services and the sort of triage approach currently in DHS to 'What's hitting the media?' and 'What's the minimum we can fix, because it's become a political problem for government?' it's awful. What I've said previously—and I stand by it—is that the previous Labor government's decision to hit Centrelink with four different lots of savings measures is one of the key factors that led to that. Accepting the Department of Finance's advice, that service delivery reform meant that people would go online—but they didn't, because a lot of disadvantaged pensioners and people struggling don't necessarily do that—Labor said, 'We'll take the savings up-front, plus put in additional efficiency dividends, whole-of-service savings measures and portfolio savings measures.' That was, frankly, a disaster. When you put poor decisions of successive governments together and then you come up with some very hardline policies, like the way the average staffing level cap has played out, it simply doesn't work. We are happy to take it on notice and put some further specific examples forward, but there is certainly a long-term element to these issues.

CHAIR: There being no other questions, I thank the CPSU for their time this afternoon and for giving evidence before the committee. The secretariat will be in contact, if we have any further questions of you.

Committee adjourned at 14:56