2.1
Services Australia (the Agency) seeks approval from the Committee to proceed with the proposed fit-out of New Leased Premises at 120 Bathurst Street, Hobart, Tasmania. The aim of the project is to consolidate the Agency’s three current Hobart sites (three leases) into one fit for purpose office space by 2024 in accordance with the Whole of Government Leasing Strategy.
2.2
The estimated cost of the project is $32.86 million (excluding GST).
2.3
The project was referred to the Committee on 1 December 2021.
Conduct of the inquiry
2.4
Following referral, the inquiry was publicised on the Committee’s website and via media release.
2.5
The Committee received two submissions, one supplementary submission and one confidential submission. A list of submissions can be found at Appendix A.
2.6
On 25 January 2022, the Committee conducted a project briefing, and public and in-camera hearings via videoconference. A transcript of the public hearing is available on the Committee’s website.
Need for the works
2.7
Services Australia is ‘responsible for the delivery of advice and high-quality, accessible social, health and child support services and payments.’ To support the ongoing delivery of these services, the Agency is seeking to consolidate three of its currently leased sites in Hobart, Tasmania ‘to deliver operational and financial efficiencies’.
2.8
The Agency currently leases 16,910m² of office accommodation in Hobart providing 1,398 work points across three leased sites. Of the three existing sites two are within 700 metres, and the remaining site is within nine kilometres of the new building.
2.9
The locations of the three current Services Australia sites are:
188 Collins Street, Hobart;
199 Collins Street, Hobart; and
1-3 Longreach Avenue, Dowsing Point.
2.10
Services Australia stated that the need for the proposed works was driven by the fit-outs at the current sites ‘reaching the end of their economic life’, and that ‘the separation of Agency staff across three sites reduces collaboration’.
2.11
At the public hearing, the Agency stated that the key objective of the proposed works is ‘to ensure the workplace is a purpose-built space that consolidates our operations while enhancing collaboration and improving our operational effectiveness.’
2.12
Services Australia confirmed that the lease consolidation would not impact customer facing services and will not reduce Agency jobs in Hobart.
Options considered
2.13
Services Australia stated in its submission that it considered the following five options when considering the proposed works:
Option 1: Renew existing leases (status quo);
Option 2: Build, own and operate a new site;
Option 3: Alternative funding model;
Option 4: Occupy other existing Commonwealth leased/owned properties; and
Option 5: Lease a new site (preferred option).
2.14
Services Australia stated that the renewal of existing leases was discounted as the option would have a higher ongoing operating cost, due to the older age of the buildings, and ‘will require significant investment to ensure they are maintained to adequate operational standards.’
2.15
Balsa Rejus Pty Ltd, trading as Bellala, the current landlord of the Agency’s leased site at 188 Collins Street, Hobart stated in its submission to the inquiry that the Agency’s consideration of Option 1 (renew existing leases) ‘contains errors in the calculation of footprint reduction from current to proposed.’
2.16
Bellala stated that:
Services Australia has incorrectly calculated the reduction in office space as a result of the proposal to lease a new site at 120 Bathurst Street by using 11,755m² of office space rather than the 10,695m² which will be leased at 188 Collins Street from 1 July 2022. This results in the total reduction of space being a negligible 25m² or 0.16% not the 6.40% included in the submission.
2.17
Option 2, Build, own and operate a new site, was discounted by the Agency. It stated that ‘working accommodation can be most efficiently provided via commercial means’ providing better value for money outcomes.
2.18
Services Australia discounted Option 3 of using a ‘Public Private Partnership’ or hybrid financing model to develop and operate the working accommodation. The Agency stated that ‘alternative funding models do not provide better value for money than a lease model.’
2.19
Services Australia stated that the Department of Finance was consulted regarding the availability of suitable Commonwealth accommodation (Option 4), however the Agency was advised that Finance ‘were unable to identify any surplus Commonwealth space that would suit the Agency’s requirements’.
2.20
In December 2019 Services Australia approached the market ‘in a two-stage procurement with an Expression of Interest and a Request for Proposal for approximately 15,500 square metres of high quality A Grade office space.’
2.21
Services Australia stated that the financial and qualitative analysis indicated that Option 5 (new leased site) at 120 Bathurst Street would provide the best value for money outcome for the Commonwealth.
2.22
Bellala, the current landlord, responded to the Expression of Interest in December 2019 and were unsuccessful in progressing to the Request for Proposal stage.
2.23
In its submission to the inquiry, Bellala stated that in its opinion ‘there is no demonstrated need for a new building at 120 Bathurst Street Hobart to meet Services Australia intent to locate all services in one building.’
2.24
Following the public hearing on 25 January 2022, Bellala provided the Committee with costings and rental rates in a confidential supplementary submission.
2.25
In its submission, Bellala stated that its 188 Collins Street proposal achieves significantly greater public value than the 120 Bathurst Street proposal for the following reasons:
significant financial savings on rental when compared with the 120 Bathurst Street proposal;
re-use of existing building assets is a more sustainable and environmentally beneficial solution than constructing a new building;
favourable location with all services provided;
no significant impact on the current Hobart commercial office market;
a current [Development Application] already approved to enable work to commence in a timely manner;
A-grade and premium standard accommodation provided with efficient allocation and utilisation of workspace and resources;
history of trusted and respected professional landlord – 22 year long leasing relationship.
Scope of the works
2.26
The new building at 120 Bathurst Street, Hobart will provide 23,194 square metres (gross floor area) of mixed-use commercial building space split across 12 storeys.
2.27
Services Australia will be the sole office tenant, occupying 15,825 square metres of net lettable area across levels one to nine. This represents a 6.4 per cent reduction in comparison to the current net lettable area across the three current Hobart leases.
2.28
The scope of works for the proposed fit-out at 120 Bathurst Street includes the following:
Integration of services into the base building works including electrical, air conditioning, ventilation, lighting control, voice and data communications, audio visual equipment, security, fire and hydraulic services;
Office accommodation including easily removable partitioning for individual offices, meeting and conference rooms, reception areas, utility and storerooms, secure rooms, training rooms, break-out and staff amenities and communication equipment rooms;
1,307 workstations (1.8 metres long by 0.8 metres deep) at a density of 12m² per workpoint, configured in an open plan layout;
Team and workstation based storage to support the staff and their operations;
Personal lockers to cater for 20% more staff to allow for future flexibility;
Loose furniture including tables and chairs for meeting rooms and lunchrooms;
4 offices for Senior Executive staff; and
59 meeting and coaching rooms of varying size.
2.29
When questioned by the Committee on the reduction in workstations proposed at the new site, Services Australia stated that:
I think it's fair to say that we will get to a point where we have undertaken our pilots and we'll have the results from those. We'll evaluate them and then we'll implement what the recommendations are from those pilots. But I imagine there will be an ongoing need to conduct pilots and evolve into the future. We didn't see what's come at us over the last couple of years and where we've ended up and what the expectations of staff are coming out of that, and I don't think we have any real certainty going forward either at this point, other than that we sort of understand what people's expectations are in terms of their employers.
2.30
At the public hearing, the Committee questioned whether any fixtures and fittings from the three current leased sites could be reused in the new site. In response, Services Australia stated that due to the limited warranty on many of the items, they would not be used in the new fit-out.
Staff consultation
2.31
The proposed works will result in the movement of 1,307 back of house and corporate Agency staff comprised of:
972 staff from 188 Collins Street, Hobart;
181 staff from 199 Collins Street, Hobart; and
244 staff from 1-3 Longreach Avenue, Dowsing Point.
2.32
With regard to staff consultation Services Australia stated that:
During the design development phase, the agency will undertake interactive design sessions with the business areas of our staff to ensure we understand their needs and ensure the design is fit for purpose. Our staff are our key stakeholders, and their input will significantly inform the design of the agency's fit-out. Staff will continue to be engaged, from the commencement of the works through to relocation.
2.33
Services Australia stated that it had been engaging with the Community and Public Sector Union (CPSU) and advised the CPSU of the proposed works in December 2018.
Cost of the works
2.34
Services Australia’s proposed fit-out of new leased premises at 120 Bathurst Street, Hobart, has an estimated total cost of $32.86 million excluding GST.
2.35
Services Australia told the Committee that funding for the lease and fit-out of 120 Bathurst Street, Hobart will come from the Agency's approved budget.
2.36
The Agency provided further details on project costings in its confidential submission and during an in-camera hearing.
2.37
Services Australia told the Committee that the proposed fit-out has an estimated cost of $2,087 (excluding GST) per square metre which ‘is attributable to the higher density proposed for the new building and reflects post COVID prices.’
2.38
The Committee is satisfied that the costings provided for the project have been adequately assessed by the proponent entity.
Revenue
2.39
There will be no direct revenue generated by the project.
Committee comment
2.40
The Committee acknowledges the impact of COVID-19 on the construction industry and recognises that the increases in raw materials and labour have impacted the overall budget for the project, resulting in a higher-than-average cost per square metre. However, the Committee was disappointed to hear that Services Australia was not planning on reusing any fittings and furnishings from the current fit-outs due to the expiration of the item warranties.
2.41
The Committee expresses its concern that the proposed fit-out has not been informed by the results of a number of pilot programmes aimed at understanding future flexible ways of working.
2.42
The Committee acknowledges the evidence provided by Bellala and its concern for the proposal. The Committee encourages Services Australia to provide Bellala with detailed feedback on its response to the Expression of Interest (EOI), including why Bellala was not invited to progress to the second round of EOI submissions.
2.43
The Committee did not identify any issues of concern with the proposal and is satisfied that the project has merit in terms of need, scope and cost.
2.44
Having regard to its role and responsibilities contained in the Public Works Committee Act 1969, the Committee is of the view that this project signifies value for money for the Commonwealth and constitutes a project which is fit for purpose, having regard to the established need.
2.45
The Committee recommends that the House of Representatives resolve, pursuant to section 18(7) of the Public Works Committee Act 1969, that it is expedient to carry out the following proposed works: Services Australia — New Leased Premises at 120 Bathurst Street, Hobart, Tasmania.
2.46
Proponent entities must notify the Committee of any changes to the project scope, time, cost, function or design. The Committee also requires that a post-implementation report be provided within three months of project completion. A report template can be found on the Committee’s website.