Masters’ update

– squandering on an option ratepayers do not want

 

Ratepayers are incensed by the attitude of MidCoast Council (MCC) in their proposed centralisation of merged councils (excluding Gloucester Council) and MidCoast Water to the Masters’ site at Taree. 

Since the original underhand purchase of the Masters’ building in November 2017, Council’s attitude has been non-disclosure or limited disclosure coupled with underestimation of the real cost to relocate to Masters. Further, Councillors and ratepayers do not know what costs have been incurred to-date. Asking MCC will not yield a satisfactory response as MCC are determined to keep hidden and reveal only fragmented costs. Determining the true costs to relocate, and the actual expenditure to date, is largely an estimation exercise based on the financial reports produced by external consultants and from limited fragmented financial data from MCC’s own finance department. Even the Cost Plan produced in July 2018 by Slattery’s (consultants) was impounded, hiding the detail cost breakdown to fit out the Masters’ building from ratepayer’s scrutiny. The well-worn lame-duck excuse “commercial in confidential” shuts the door on ratepayers. Again, no proper disclosure and no transparency. At the very least, a brief synopsis of prime costs would be better than nothing,  acceptable to most ratepayers and show a change of MCC attitude. Council’s motto “building trust” is truly well shredded and out the window.

Staged Process

In the staged process to relocate to Masters’, Councillor’s voted (March 2018) to undertake just the Initiation stage. That entailed gathering adequate financial data to primarily enable a Cost Benefit Analysis (CBA) to be undertaken. That is, for the 350 staff affected, compare and evaluate the costs to accommodate the staff in the existing administration offices (campus option) with the costs to centralise at Masters’ (single site option). After practically one whole year of bitter division in Council meetings, a change in General Manager, reports and report addenda from fourteen groups of consultants and reports from MCC’s own finance department, no consensus has been reached. And at what cost? (read on.)

At the latest Council meeting (6 February 2019) a motion was carried that proposed to undertake a new CBA subject to external review, with the inclusion of the latest property values for those properties earmarked to fund the relocation, consequently delaying the overdue decision on whether to proceed. 

Ratepayer concerns with this motion pushed through by Cr Pontin, despite the more reasonable motion by Cr Epov, backed by Crs Bell and McWilliams are: 

1) that the same limited, understated costs will be used in the new CBA, 

2) the external review is just another consultant selected and paid by council staff with the limitation of “he who pays the piper” and not truly independent, 

3) it makes the assumption that Masters’ should be used for centralisation and no other purpose (no other options will be considered) and, 

4) no direct ratepayer input and little or no input from ratepayers. 

It would appear Councillors are aware of a severe decrease in value of those properties earmarked for sale to fund relocation and hence the inclusion of this item in review and CBA. 

Culture Program

One aspect of the motion supported by all Councillors was the elimination of the assumed and grossly overstated financial benefits of the “culture transformation program” (CTP) (where the then GM Hanford claimed that there would be a $76M productivity savings over 20 years, from the culture transformation)  a key part of the original Business Case reported by consultants Savills & Syneca (Jan 2018). 

It is a relief that Councillors have seen the folly in a desperate attempt to use unrealistic hypothetical financial returns from a nebulous program stretching over a 20-year culture change program. This appears to have been motivated by the previous General Manager (Mr. Glenn Handford) to justify the move to Masters. Even in the revised addendum report presented at the recent Council meeting, the consultants failed to respond to a challenge to identify one public entity or council that has had success with a CTP. Thankfully common sense has prevailed, the CTP will not be part of the new CBA. It certainly falsified the original business plan (including the CBA) on which the decision by Council to embark on the Initiation stage was based.

Consultants

MCC has engaged fourteen groups of consultants to date (6 Feb 2019) at a cost of $375,000, a figure from the probity report produced by the consultant group O’Connor Marsden & Associates (OCM), submitted to the recent Council meeting (6 February 2019). It is ironic that at the same Council meeting MCC’s senior Director of Corporate & Business Systems (Mr. Steve Emery) submitted a report entitled Taree Office Relocation Investigations Update which stated the costs to date for consultants is $210,00. If senior MCC management are inconsistent and not correct in reporting costs to Council, what chance has a ratepayer with limited access to financial data in gaining correct financial data? 

Probity

This probity report itself has another serious shortcoming. OCM consultants were appraised by MCC’s senior management and informed that the cost to relocate to Masters’ is $27 million ($7 million purchase plus $20 million fit out cost). OCM’s terms of reference included “accountability and transparency of process”. OCM did not do their job properly, naively accepting that $27 million is the correct figure. The $27 million is not correct, the real figure is $40 million plus when cost of capital (loans, cash reserves and sale of property assets) and the cost of the new customer service office at Forster Precinct are included.

The source data has been provided by the Council Staff all keen for the project to go ahead. It has never been independently verified by any of the Consultants.

Property Sales

The original Business Case (Slattery / Syneca report Jan 2018) identified four potential sale-properties to fund relocation to Masters. These properties are MCC Forster and Taree and MidCoast Water Forster and Taree and were valued at a total of $14.56 million. In the revised Business Case report submitted to the recent Council meeting the same properties are valued at $6.665 million, a $7.8 million drop in value in 53 weeks. MCC need to explain this serious anomaly. In March 2018 this author reported a $4 million discrepancy in the residual values of IT and audio-visual values in the same consultant’s report. These serious discrepancies overstate the benefit / cost ratios, a key figure in the original cost benefit analysis and crucial to Council’s decision to proceed with the Initiation stage. This further undermines the credibility of the original Business Case and the decisions based on the financial data in that flawed report.

Expenditure Unaccounted

MCC have not been transparent in identifying and declaring costs incurred in their intention to relocate to Masters’. Many costs are swallowed internally and taken for granted such as: the ratepayer survey via Australia Post, graphic art and website changes to display MCC signage on the Masters’ building, the propaganda campaign to convince ratepayers that the cost to relocate to Masters’ is $27 million, flyers and inclusions with rates notices, community consultations, cost of proposed independent building certifier, further building fit out design and engagement with consultants. The cost of inter-office travel itemised in the original Business Case seems to have “fallen away”: a figure of $2.618 million. That may appear again in the next CBA. It would be interesting to know why this was removed from the latest batch of reports. These expenditure items are besides the major omitted cost of capital items already mentioned.

New CBA

The purpose of a cost benefit analysis is to derive a benefit / cost ratio. The original Business Case gives the reader the impression that a benefit / cost ratio (BCR) above 1.0 is satisfactory and therefore acceptable. A ratio of 1.0 is just getting the original investment returned and no investor would be satisfied with just that after a 20-year investment period, particularly where there is considerable risk. A simple compounding term deposit at 6.0% per annum over 20 years gives a BCR of 1.2 with little or no risk.

The recent revised Business Case report shows a BCR of 1.5 where the residual value of the Masters’ building is included. This has little credibility because the full extent of relocation costs are omitted. Including just the cost of capital reduces the BCR below 1.0. 

Will the next CBA due for the April 2019 Council meeting be forthright and transparent? The new GM should show leadership, stop the circus and insist on transparency and proper disclosure of costs to relocate. After three iterations of CBA, will the campus option with a $12.9 million price tag to refurbish Council’s existing administrative buildings and expenditure of $3.9 million on IT and audio-visual equipment, be the far cheaper and more effective option? Whereas expenditure of that amount could provide modern video-conferencing facilities.  So why then continue to squander ratepayer’s money on Masters’?

Mike Deignan

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