OUTCOME 3: A secure Australian Government presence overseas through the provision of security services and information and communications technology infrastructure, and the management of the Commonwealth’s overseas owned estate
Program 3.2: Overseas property
Program 3.2 Objective
- To ensure a secure Australian Government presence overseas through the effective management of the Commonwealth’s overseas owned estate, including through effective contract management.
Program 3.2 Deliverables
- Effective management of a substantial construction program in the overseas property estate, including new chancery construction projects in Jakarta and Bangkok.
- Effective management of outsourced property contract arrangements.
- Effective management of the overseas property Special Account, consistent with the provisions of the Australian Government Property Ownership Framework.
- Progression of a feasibility study and planning towards a secure, purpose-built Australian embassy in Kabul, Afghanistan.
Program 3.2 Key performance indicators
- Management of the overseas property estate meets the Government’s property needs, achieves an appropriate return on investment, and accords with the principles set out in the Australian Government Property Ownership Framework.
- Management of the property services contract and construction project contracts is effective and accountable, and ensures that contractors deliver on intended results within agreed performance and cost targets.
- Tenant satisfaction with the condition and utility of the estate.
Program 3.2 Overseas property
The department’s Overseas Property Office (OPO) is responsible for managing all aspects of the Government’s overseas owned property estate, and provides advisory services to posts and other areas of the department which manage chanceries and staff residential accommodation leased on the commercial market. Our work also covers the construction, refurbishment and maintenance of embassies and staff accommodation.
We managed the estate through the application of sound commercial practices and in accordance with the framework set down by the Department of Finance and Deregulation (Finance), in particular the Australian Government Property Ownership Framework. We paid a dividend to the Government and maintained a management expense ratio consistent with industry standards. A negative rate of return on investment reflected reduced revenues and current market conditions.
The Australian National Audit Office (ANAO) completed a performance audit of the operation of the overseas owned estate during 2009–10, with the report tabled in Parliament on 28 April 2010. The report focused on administrative processes. It acknowledged the department’s implementation of a range of good practices and made four recommendations aimed at strengthening management of the overseas owned estate. The recommendations related to tenant–agency arrangements, improving the property condition rating system, strengthening building compliance auditing and performance indicators and reviewing with Finance the effectiveness of the current commercial management model. The department has agreed to these recommendations and is in the process of implementing them. In particular, we will be undertaking a joint review with Finance of the overseas property operating framework with the objective of reporting to ministers during 2010–11. The ANAO has also begun a performance audit of the overseas leased estate. The ANAO report is expected to be tabled during 2010–11.
The difficult international security environment continued to pose significant challenges for our management of overseas property. We ensured that new projects complied with security requirements.
OPO managed a varied construction program across the owned and leased estates during 2009–10. The embassy in Seoul was relocated and phase one of the refurbishment of the residential apartment complex at the Tokyo embassy compound was completed. We completed the refurbishment of the locally heritage-listed head of mission residence in The Hague which involved the removal of asbestos, a major services upgrade and internal redesign to improve the building’s functionality. We made substantial progress in constructing staff apartments in Baghdad and in relocating the chanceries in Stockholm, Nicosia and the Holy See—all of which are expected to be completed later in 2010.
Progress in finalising the design of the new embassy compound in Jakarta continued on schedule. The project involves construction of a secure compound including a chancery of approximately 20 000 square metres gross floor area, a head of mission residence designed for optimum use for representational activities, residential accommodation for 32 diplomatic personnel and their families, recreational facilities and a medical clinic. Parliament approved the project on 20 August 2009 following detailed consideration and a report by the Parliamentary Joint Standing Committee on Public Works.
We signed a thirty-year lease for a block of land for the construction of a new embassy compound in the Pathumwan District of central Bangkok with the Thai Crown Property Bureau (CPB).
Outsourced property services contract
The department provided a range of property, facilities management and financial services for the overseas estate through its outsourced property services provider, UGL Services Pty Ltd (UGL). For the owned estate, UGL provided the full range of services including repairs and preventive maintenance of plant, equipment and buildings, revenue collection and operational and financial reporting. For chanceries and head of mission residences leased on the commercial market, UGL undertook biannual inspections and provided technical advice on matters such as essential services and building safety and compliance. UGL’s services include a global network of 21 on-site facilities managers.
We reviewed the operation and outcomes of the first year of the new four-year contract for outsourced property services with UGL against the new contract requirements and the contract key performance indicators (KPIs). Some contract and operational modifications were made to reflect the evolving overseas operating environment and to refine administrative procedures. We worked closely with UGL to improve service delivery and the quality of UGL’s reporting on the performance of the overseas owned estate.
Overseas Property Special Account
The department is funded for its management of the overseas owned estate through the operation of a Special Account established by the then Minister for Finance and Administration in 2002. The account is separate from the department’s Budget appropriations. Funding is raised through revenues derived from commercially-based rents paid by agencies that occupy government-owned property overseas.
The Special Account met the funding needs of the overseas property estate, including construction and maintenance. The expiry in June 2009 of a ten-year agreement with agencies for supplementary rental payments, however, created a shortfall in anticipated Special Account reserves. This funding shortfall, amounting to $42 million per annum, impeded OPO’s ability to develop forward planning in relation to capital works in the overseas owned estate. The future of funding arrangements for the Special Account is one of the critical elements of the joint DFAT/Finance review of the overseas property operating framework due to be finalised by the end of 2010–11.
The department paid a dividend to the Government of $986 200 in 2009–10. This amount, which was agreed between the Minister for Foreign Affairs, Mr Smith, and the Minister for Finance and Deregulation, Mr Tanner, was smaller than in previous years because of the unavailability of the $42 million in agency rents mentioned above and the current heavy capital works program.
In the 2009–10 Budget, the Government approved feasibility funding of $3 million to undertake planning for construction of a new chancery and secure staff residential compound in Kabul. The study was undertaken by OPO’s consultants in Afghanistan, the Snowy Mountains Engineering Corporation (SMEC). The Government also approved $19.4 million for the purchase of land in Kabul for the compound.
Negotiations to purchase a suitable site in Kabul were ultimately unsuccessful. Given the lack of suitable sites and the complexities of the Afghan land tenure and legal systems, there are no current plans to purchase land in Kabul. In November 2009, however, the department leased two properties in Kabul, one for use as a chancery and one for staff residential accommodation. These properties are currently being refurbished and are expected to be operational before the end of 2010.
Meeting the Government’s overseas property needs
In 2009–10, OPO managed owned properties in 61 countries valued (at 30 June 2010) at $1641 million. The leased estate, which comprises properties leased on the commercial market from private landlords, is funded by departmental appropriations with OPO providing management advice and oversight.
By managing a mix of owned and leased properties, the department met the office and staff residential accommodation needs of agencies representing the Government’s interests overseas.
We maintained a program of continuous assessment of the overseas estate through annual property inspections by facilities managers and consulted closely with agencies on overseas property issues, particularly agency requirements for new and/or relocated chanceries.
In accordance with industry standards, we determined priorities for maintaining, upgrading and refurbishing properties under a five-year rolling program approved annually by the Departmental Executive. We also initiated longer-term planning over a twenty-year horizon for major capital works. Acquisitions and disposals of properties were implemented in accordance with the Australian Government Property Ownership Framework and the Lands Acquisition Act 1989.
The rate of return on investment was negative 0.5 per cent in 2009–10, reflecting reduced income revenue and an appreciating Australian dollar, which lowered overall asset values.
The management expense ratio for 2009–10 was 1.366 per cent. This measure indicates the relationship between costs of management and the value of the estate.
The department returned $5.9 million to consolidated revenue from property divestments in 2009–10.
OPO assessed the extent to which its tenants were satisfied with service delivery by UGL through direct survey, regular consultations with agencies in Canberra and regular post inspections. The overall assessment was between satisfactory and good. OPO continued to work closely with UGL and tenants to improve the efficiency and effectiveness of service delivery.
We will continue to manage a significant construction program in the overseas property estate in 2010–11. The program of regular assessments and inspections of the overseas estate will continue with the objective of maintaining and enhancing the value of the estate in compliance with appropriate standards.
The outcomes of the joint DFAT/Finance review of the overseas property operating framework will be the key to shaping the department’s future approach to overseas property management.