08/10/2019 - 13:01

Muddy waters in maintenance deal

08/10/2019 - 13:01

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The Water Corporation is refusing to release the details of a review it says backs a decision to insource a major maintenance contract, a move that runs counter to the economic reforms of recent decades.

Muddy waters in maintenance deal
Water Corporation, which operates assets such as the Subiaco Wastewater Treatment Plant, has moved to insource maintenance. Photo: Gabriel Oliveira.

The Water Corporation is refusing to release the details of a review it says backs a decision to insource a major maintenance contract, a move that  runs counter to the economic reforms of recent decades.

In August, the state government announced that about 250 workers would be transitioned from Perth Regional Alliance, a business controlled by Programmed and contracted to deliver metropolitan water maintenance services, to work in-house.

The Water Corporation argued the move would be consistent with operations and maintenance services in regional areas, make customer interaction more  streamlined, and improve efficiency of decision making.

The government also claimed the move would save between $2 million and $3 million annually.

Few other details are available, however Water Corporation said the decision followed an 18-month review of its operating model, with a business case prepared by consultants and approved by the board.

Despite the corporation being publicly owned, a spokesperson said the review would not be released.

Water Corporation also declined to name the consultancy that conducted the review.

“Consultants assisted in this review, but the decision was made by Water Corporation’s board, so it is not appropriate to disclose this information,” chief executive Pat Donovan said in a statement.

“The review contains sensitive commercial information relating to the existing contract with Programmed and it is therefore not appropriate to disclose this information.”

At the time of the announcement, Water Minister Dave Kelly said the move would save money and enable better conditions for workers.

When asked by Business News whether the government’s plan for more generous employee compensation had been factored in to the savings target, the Water Corporation said only legal requirements had been considered.

“The estimated savings for taxpayers of $2 million to $3 million per year also took into account projected costs to satisfy Fair Work Commission requirements to ensure no employee will be worse off as a result of the transition,” Mr Donovan said.

“This cost saving also includes the margin costs that were previously paid to Programmed.”

That margin came from turnover of about $123 million, the corporation said.

A source familiar with the contract told Business News Programmed had saved the corporation about $18 million in the past seven years, and there were no issues with performance.

Business News understands the contract was ended under a convenience termination clause.

A spokesperson for Mr Kelly, a critic of privatisation, said he had been briefed about what would be presented to the board, and was advised after the board made the decision on June 24.

The move to undertake the review was not done at the request of the minister, the spokesperson said.

Shadow water minister David Honey said it was a surprising decision, with no information to justify it.

“What we’re told in parliament is that no-one lost their job, that people are going to be paid more,” Dr Honey said.

“It’s a bit hard to understand how that’s going to add value to the water users who are paying enormous fees.

“It’s hard to fathom what logic there could be for this.

“The reason these sort of services were put out to contractors in the first place was that it was seen to be a very positive business case.

“Maintenance specialists that work across a number of industries … they’re very good at that; it’s their specialty, they work on very low margins.

“It’s hard to see how government can do this more efficiently if they’re going to give everyone a pay rise.”

Back in time
Water Corporation’s new arrangement is moving against the trend of private investment and outsourcing.

Only four years ago, the enterprise sold its engineering division to RCR Tomlinson for $10.4 million.

Among local utilities, Synergy signed a deal last year with CBus Super and Dutch Infrastructure Fund to attract private investment into the Warradarge wind project and Greenough River solar expansion.

Interstate, private provision has continued.

SA Water opened up tenders for metropolitan water and wastewater treatment and operations in May, after 10 years of provision by Broadspectrum and Suez.

In 2015, Sydney Water gave Veolia a 15-year contract extension worth about $400 million for operations and maintenance at some facilities, and then in 2016 selected the same company for inspection work on sewer and stormwater conduits.

Last year, Ventia was given a two-year electrical and mechanical maintenance extension for Sydney Water, with the company saying it had delivered a 20 per cent cost saving.

In Victoria, Wood Group was awarded a $US145 million, three-year extension by Melbourne Water for maintenance and other work, employing about 250 people.

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