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 and refurbishment 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.
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 and Services (OPO) manages the Government’s overseas owned property estate. OPO also advises posts and other areas of the department on management of chanceries and staff residential accommodation leased on the commercial market. OPO’s work covers the acquisition of land and buildings, and construction, refurbishment and maintenance of owned embassies and staff accommodation. OPO also manages the divestment of assets deemed excess to operational requirements.
The department managed the estate within the governance arrangements established by the Department of Finance and Deregulation (Finance) and applicable legislative requirements. We observed the provisions of the Australian Government Property Ownership Framework (AGPOF) in acquiring and disposing of properties. Successor arrangements to AGPOF will apply in 2011–12.
In accordance with the Government’s decision as part of the 2010–11 Budget process, and consistent with recommendations of a performance audit of the operation of the overseas owned estate conducted by the Australian National Audit Office (ANAO) in 2009–10, we undertook with Finance a joint review of OPO. Recommendations of the review, approved by the Government in May 2011, established revised governance, financial and forward strategic planning measures for the management of the estate.
Security of the overseas estate remained a significant aspect of property management. The department ensured that new projects complied fully with security requirements.
OPO managed a substantial construction program across the owned and leased estates during 2010–11. The program included completion in June 2011 of 12 staff residential apartments at the chancery compound in Baghdad. Office fit-outs were completed for relocated chanceries in Stockholm and Nicosia, which became operational in July and October 2010 respectively. New leased chancery offices were opened in Rome for the mission to the Holy See in July 2010. Major projects continuing in 2010–11 included the upgrading of staff apartments in the embassy compound in Tokyo, mid-life refurbishment of the chancery in Paris and refurbishment of owned staff apartments in Port Moresby. Work continued towards completion of a leased office fit-out for the new embassy in Lima and new consulates-general premises in Mumbai and Chennai. We continued planning for leasing and fit-out of new offices to replace the current temporary embassy offices in Addis Ababa. Design concepts were developed and project planning commenced for a new embassy residential compound in Dili.
Preparation for construction of the new embassy compound in Jakarta continued on schedule. The project will involve construction of a secure compound including a chancery, a head of mission residence, residential accommodation for 32 diplomatic personnel and their families, recreational facilities and a medical clinic. The project design and delivery period is expected to be over four years with completion in 2014.
Work continued with planning for the construction of a new chancery and head of mission residence in Bangkok on land leased for the purpose from the Thai Crown Property Bureau in 2010. Subject to consideration by the Parliamentary Public Works Committee and approval by Parliament, work should commence in the latter part of 2011 with completion in 2016.
Overseas property – leased estate
In addition to overseas owned property, the department also leases from private landlords on a commercial basis approximately 550 properties as chanceries, head of mission residences, staff accommodation and other facilities.
Projects completed in the overseas leased estate in 2010–11 included new staff apartments in the embassy compound in Baghdad, offices for the new embassy in Lima, and for relocated chanceries in Stockholm, Nicosia and the Holy See. Planning and works continued for new offices in Chennai and Mumbai, for relocation of the chancery in Ho Chi Minh City, and for a permanent chancery in Addis Ababa.
Assessments of risk are undertaken and risk limitation strategies applied in executing project and estate management programs. Risk strategies included identification of local risk in business cases for all new projects, probity reviews of contracts, performance bonds and time penalties to ensure minimum risk to government funds, timing and project quality. Delivery of capital works to required construction and performance standards was maintained by the engagement by OPO of on-site Australian project managers.
Professional rigour was applied in the development of initial budgets to secure approved project funding. Project finances were subject to monthly reporting and close analysis to identify any trends towards budget shortfall and remedial steps taken if necessary.
OPO’s Project Management Manual (PMM) was utilised as a guide to project delivery. The PMM is framed against the requirements outlined in the department’s Risk Management Policy and Finance’s Best Practice Guide–Risk Management. Hindsight reviews are undertaken for completed major capital works projects to identify opportunities for future project development and delivery improvement.
The Minister for Foreign Affairs, Mr Rudd, unveils the plaque marking the opening of the Australian Embassy in Amman on 12 December 2010
Property management and financial services for the overseas owned estate are carried out through the department’s contract with an outsourced property provider, UGL Services Pty Ltd (UGL). Contract services provided by UGL include a network of 21 facilities managers at overseas posts. UGL provides procurement and contractor management in servicing the overseas owned estate, financial management through revenue collection and payment processing and IT and reporting support services.
UGL also provides advice to post management and OPO on leased chanceries and head of mission residences. This includes annual inspections, technical assessments and advice to post managers on building safety and compliance issues.
The contract between DFAT and UGL has robust governance measures in place to refine and improve service delivery. Assessments of UGL’s service delivery are measured by regular reporting, direct survey of posts, consultation with tenant agencies in Canberra and regular OPO post inspections. The average overall assessment of UGL’s service provision across the department’s network of overseas posts was between good and very good in 2010–11, an improvement over 2009–10.
OPO was established in 2001 when responsibility for management of the overseas owned property estate was transferred to the department from the then Department of Finance and Administration. OPO’s operations have been managed on a quasi-commercial basis through the Overseas Property Special Account established for this purpose. OPO has relied on revenue received from tenant agencies by way of rent and through supplementation (‘amortisation’) payments reflecting the special purpose nature of diplomatic property. These arrangements have ensured that the real cost of property is reflected in tenant agency budgets. Changes under the agreed new arrangements flowing from the joint DFAT/Finance review of OPO are outlined below.
Revenue received by OPO is used to fund approved major capital works expenditure, land and building acquisitions, repairs and maintenance programs and internal OPO administration.
Following the lapse in 2008–09 of the amortisation agreements with agencies which provided an annual amount of $42.5 million, the Government decided that the department and Finance should conduct a joint review of OPO for consideration in the context of the 2011–12 Budget. The joint review examined options and made recommendations for the long term planning, funding and management of the overseas owned estate. Its recommendations were approved as part of the 2011–12 Budget.
The main issue identified by the joint review was that the existing arrangements required OPO to emulate commercial practices by achieving a financial return on the overseas owned estate by way of a return on investment and payment of an annual dividend to government. This model did not take into account restrictions on a commercial model that derive from the specialised nature of diplomatic property—including limited locations, a small pool of tenants and operational and security requirements.
Key changes under the agreed new arrangements are that OPO is no longer required to achieve a rate-of-return or pay a dividend. Instead, tenant agencies (including the department) are to be charged market-based rents determined by independent valuations. Where necessary, supplementary funding can be approved by government through the Budget process. Amortisation funding and associated payments by agencies to OPO will cease from 2011–12. OPO will continue to operate through the Overseas Property Special Account. OPO’s forward strategic planning arrangements will be enhanced, and new governance arrangements for management of the overseas owned property estate along with new key performance indicators are to be introduced in 2011–12.
The rate of return on investment in the overseas owned estate was negative 3.2 per cent in 2010–11, reflecting the appreciating Australian dollar, which lowered overall overseas property asset value.
We met the office and staff residential accommodation needs of agencies representing the Australian Government’s interests overseas through management of owned and leased properties in 77 countries, with an overall value as at 30 June 2011 of $1.5 billion. We also provided office and residential accommodation for our overseas posts by leasing property on the commercial market from private landlords.
We ensured the overseas estate was well maintained through repairs and maintenance programs and programmed major refurbishment where necessary. We identified long-term property maintenance requirements by continuous assessment of the overseas estate through annual property inspections by UGL facilities managers. We consulted closely with agencies on overseas property issues, particularly in relation to changing space requirements arising from new government policy. We ensured that security requirements were met in new buildings.
The department established priorities for maintaining, upgrading and refurbishing properties under a five-year rolling program approved annually by the department’s Executive. Longer-term planning was developed for major capital works over a 30 year projection. This forward planning also assists the department to determine when it might be necessary to purchase new property or to sell or relocate existing properties.
Management of the two major chancery and related construction projects in Jakarta and Bangkok will occupy a significant part of the department’s new construction program throughout 2011–12. We will continue to develop other projects in the overseas estate to meet the Government’s requirements and to enhance the value of the estate. We will maintain our program of assessments and inspections to ensure that the overseas estate is managed in accordance with the required OH&S and related building compliance standards.
Implementation of the recommendations of the joint DFAT/Finance review of the overseas operating framework, which is to be fully implemented by 1 July 2013, will be the major administrative task in our management of the estate in the coming year.