2.1
The Department of Foreign Affairs and Trade (DFAT) seeks approval from the Committee to proceed with Base Building Refurbishment and International Energy Agency (IEA) Tenancy fit-out at the Australian Chancery, Paris, France.
2.2
The estimated cost of the project is $27.73 million including 20 per cent French value added tax (VAT).
2.3
The project was referred to the Committee on 1 December 2016.
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 one submission and one confidential submission from DFAT. A list of submissions can be found at Appendix A.
2.6
On 17 February 2017, the Committee conducted public and in-camera hearings. A transcript of the public hearing is available on the Committee’s website.
Need for the works
2.7
In its submission, DFAT stated that ‘the Australian Chancery complex in Paris is located in a UNESCO heritage listed precinct at 4 Rue Jean Rey, in the 15th Arrondissement.’ The complex was designed by Australian architect Harry Seidler and French architect Marcel Breuer, was built in the 1970s, and is ‘considered one of the pre-eminent buildings in Australia’s overseas estate’.
The Australian Government occupies office accommodation on the fourth, fifth, sixth and basement floors with 5,565 square metres of space, surplus to the Australian Government’s needs, leased to the International Energy Agency (IEA) since 1996.
2.9
DFAT told the Committee that the IEA’s current lease was due to expire in April 2017. After seeking lease proposals for its future office accommodation, the IEA Board decided in June 2015 to ‘continue leasing the space within the Australian Chancery in Paris’. DFAT noted that:
A pre-condition of the new IEA lease is for the tenant space to have all asbestos hazards abated or removed, with the relevant [hazardous materials] management plans and registers developed… In additional, the base building services will be upgraded to the IEA tenant space with an integrated fit-out provided as a lease incentive.
2.10
In addition to the IEA lease pre-condition, DFAT stated:
The base building services in the area to be occupied by the IEA are in need of an upgrade as the services are over 35 years old and at the end of life. The renegotiated lease with the IEA allows the Overseas Property Office (OPO) the opportunity to upgrade and refurbish this area of the chancery, integrated with a tenant fit-out that meets the IEA’s functional requirements and at the same time secure a compatible long term tenant.
On completion of the project, the new lease with the IEA will secure for the Australian Government a twelve year lease, with a tenant compatible with the operations of the Australian Embassy, whilst achieving a commercial return on investment.
2.12
DFAT submission further states:
The IEA has executed a Heads of Terms (HoT) in June 2016 for a new twelve year lease of approximately 6100 square metres space in the Chancery building commencing from July 2019. The proposed increase to the IEA’s leased area of approximately 535 square metres will be realised through internal reconfiguration of existing accommodation which also addresses the Australian Government’s current needs.
2.13
The HoT also sets out the scope of refurbishment works and the agreed conceptual design and specifications for the proposed fit-out.
Options considered
2.14
In its submission, DFAT states that it considered three options for leasing the surplus space in the Paris Chancery.
2.15
Option 1 was to ‘do nothing’. This option assumed the current IEA lease would expire in April 2017, that the IEA tenancy would be vacated, and the deferral of the base building upgrades and asbestos abatement to a future date. DFAT noted that:
This option still requires the maintenance of the vacant space, operation of the building services at an inefficient 50 per cent capacity resulting in increased energy costs, and [represents] a poor return on investment for the Commonwealth.
2.16
According to DFAT’s submission:
Option 2 considered the Commonwealth entering into a new commercial leasing arrangement with the IEA, reflecting market terms and conditions. This option included the delivery of an integrated base building services upgrade and IEA tenant fit-out project on a pre-leased basis.
2.17
During the refurbishment works, DFAT states that IEA would ‘relocate to alternative office accommodation’, and that upon completion, ‘the IEA and Commonwealth would commence a new twelve year commercial lease arrangement’.
2.18
DFAT outlined Option 3 in its submission:
This option considered base building refurbishment works to the vacated tenant space with no pre-commitment lease and seeking a new compatible tenant/s to lease the refurbished space. This option requires the marketing of the refurbished space whilst being fully exposed to the vagaries of prevailing market conditions.
2.19
Option 1 was discounted as it ‘results in the inefficient operation of the building’ and ‘does not represent value for money’ due to the requirement for maintenance and management of 50 per cent unoccupied space in the Chancery ‘with no offset against revenue’. Similarly, Option 3 was not preferred as the requirement to find a new compatible tenant presented a greater risk than Option 2.
2.20
DFAT told the Committee that Option 2 ‘provides the best value for money for the Commonwealth’:
Option 2 is the preferred option as it secures a commercial lease with the IEA for a twelve year period with associated rental revenue for the Commonwealth. This option maximises the use of space with a known tenant; reduces operational and maintenance costs and provides capital value input to the property.
Scope of the works
2.21
The scope of work comprises an integrated fit-out and base building refurbishment of the current IEA leased area and the additional requested area to provide efficient, modern and functional accommodation that includes office facilities, an auditorium, conference rooms and improved amenities.
2.22
The IEA fit-out works will comprise the following:
Office areas to accommodate 293 workstations, including hot desks;
One large conference room;
Staff amenities (coffee breakout room, utilities area and storage);
New lift and stair access, providing access from lower ground floor to upper ground floor;
Relocation of server room; and
Auditorium (170 seats including coffee and bar area) and associated AV services and translation booths.
2.23
The base building refurbishment within the IEA tenancy floors comprises:
Asbestos removal/abatement;
Code compliance – upgrades to access and egress requirements;
Building core wet area upgrade; and
Upgrade building services including;
fire services in the IEA tenancy area.
2.24
Subject to Parliamentary approval and final lease commitment by the IEA, tendering is expected to commence in mid-2017, with project completion expected in the first quarter of 2019 and the IEA’s technical fit-out works completed prior to occupancy in the third quarter of 2019.
2.25
The Committee finds that the proposed scope of works is suitable for the works to meet its purpose.
Cost of the works
2.26
The estimated cost of the project is $27.73 million, which includes charges from local authorities and French VAT of 20 per cent.
2.27
DFAT provided further detail on the project costs in the confidential submission and during the in-camera hearing.
2.28
The Committee considers that the cost estimates for the project have been adequately assessed by DFAT and is satisfied that the proposed expenditure is cost effective.
2.29
The project is revenue generating. As mentioned above, DFAT told the Committee that the long term lease agreement with the IEA will provide the Commonwealth with a strong revenue stream from rental income.
2.30
Details of the revenue generated by the IEA lease were provided in DFAT’s confidential submission, and in the in-camera hearing.
Committee comment
2.31
The Committee did not identify any issues of concern with DFAT’s proposal and is satisfied that the project has merit in terms of need, scope and cost.
2.32
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.
2.33
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: Base Building Refurbishment and International Energy Agency Tenancy Fit-out Australian Chancery Paris, France.
2.34
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.