In October 2015, the Department of Finance released new Guidelines for the Commonwealth lease endorsement process.
Who do the Guidelines apply to?
Non-corporate Commonwealth Departments and Agencies subject to the Public Governance, Performance and Accountability Act 2013 must follow the Guidelines where their lease procurement is expected to have a whole of life costing of more than $2 million (excluding fitout). The Guidelines also apply to the Department of Defence. The Guidelines replace the previous Finance Guide that was issued in 2014.
Given that a whole of life costing includes all costs of the lease procurement from beginning to end (the main cost of course being rent and other payments due under the lease), it is likely that short-term leases with a low value rental are the only lease transactions that will not meet this $2 million threshold.
What does the Agency have to do?
The Agency must notify Finance of the proposed lease procurement by way of a template notification form. Finance will undertake a review of the request in view of two criteria:
- Whether there is any available surplus space that could be leased by the Agency; and
- Whether a Local Impact Assessment (LIA) is required. (A LIA will be required where the Agency has more than 10% of the employed workforce in its region). A LIA is not required if an Agency is relocating within its local area.
Surplus Space Requirement
Finance will decide whether there is any surplus space available. Approval to approach the market will not be given where suitable surplus space is available unless the procurement is required for reasons of Government policy or other substantive reasons.
The Guidelines do not offer any further guidance as to how this surplus space assessment will be made.
Local Impact Assessment
Finance will also determine whether a LIA is required. While Finance will carry out the LIA, the Agency will be responsible for any costs in undertaking the LIA.
The LIA process consists of three core components:
1. Local business
This involves an estimate of the number and type of businesses that may be impacted and the potential loss of revenue in the region within which the Agency is located. The Guidelines set out a formula for determining the potential loss of revenue, being a Daily Spend amount (suggested by the Guidelines to be set at between $10-$30 a day for typical lunchtime and other purchases). The Daily Spend is then multiplied by the number of work days in a year (220) and multiplied by the number of employees in the Agency.
Once this Amount is calculated, data from the Australian Bureau of Statistics can be sought to determine the number of retail trade and food services businesses that exist in the local region.
The Amount is then divided by the number of relevant businesses to produce a figure of generalised loss that each retail/food business in the local area will suffer.
ABS data indicates that the local region of Gungahlin in the ACT has a workforce of 2,353 persons. If an Agency located in Gungahlin has 800 employees with a daily spend of $10 per day this equates to an annual loss of $1.76 million to the local area. Drilling down into the number of retail and food businesses this equates to a yearly loss of $30,344.83 per business. With a daily spend of $30, the estimated per annum loss will be $5.28 million and $91.034,48 per business.
Even with a relatively small workforce it is clear that there is likely to a definable loss per business in the local region. It remains to be seen how great this loss must be before Finance determines that it is significant.
2. Road network and infrastructure
This involves looking at where the Agency's employees live to determine any change in travel patterns and how these changes may affect road networks. A traffic impact assessment may be required to assess whether there will be greater congestion on certain roads resulting from the relocation and greater demand on "end destination" infrastructure such as parking facilities, traffic lights, pedestrian crossings. Alternative public transport options also need to be canvassed.
3. Community and employee impacts
This involves community consultation by way or survey, information sessions or other means to assess the full implications of the relocation in terms of the views of the community. The potential impact on employees is also to be assessed under this heading ‒ such as an increased (and more costly) commute, disruption to recreational activities and/or family commitments such as schooling, child care.
Completing the process
Once the LIA is completed, Finance will determine whether any additional requirements are to apply to the procurement where significant local impacts arise. Interestingly, the Guidelines do not state that Finance will prevent the procurement from taking place, just that Finance may specify additional requirements that must be taken into account.
Following the procurement process, the endorsement of the Finance Minister must be sought before the Agency commits to a lease with a whole of life cost greater than $30 million ($100 million for Defence). Previously, the Secretary of the Department of Finance could endorse leases with a value exceeding these thresholds.
It is likely the Guidelines will apply to the majority of:
- large Commonwealth Departments/ Agencies located in the ACT; and
- Commonwealth Departments/ Agencies located in regional areas nationally.
Large Agencies will be unable to relocate to anywhere outside of their local region. Other Agencies may be caught where they are located in smaller regional areas but comprise a significant percentage of the workforce in that area.
Agencies will now need to:
- consider surplus space options upfront;
- factor the potential requirement for an LIA into their procurement strategy and timeline; and
- make provision for additional costs to be borne by the Agency in complying with the new requirements (largely consultant reports).