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NCP. From Full Cost Pricing to Better Business Management and Decision-making by David Spearritt . Outline. Context and history Progress before BMAP Outline of BMAP Decision-making & business management Best practice examples Experience overseas and interstate Future directions.

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Ncp

NCP

From Full Cost Pricing

to Better Business Management

and Decision-making

by

David Spearritt


Outline

Outline

  • Context and history

  • Progress before BMAP

  • Outline of BMAP

  • Decision-making & business management

  • Best practice examples

  • Experience overseas and interstate

  • Future directions


Ncp history

NCP History

  • 1993 Hilmer Inquiry into NCP

  • No mention of LG/ focus on Utilities

  • Aim - remove barriers to competitiveness

  • 1995 Cwth/State CoAG Agreements

    • Trade Practices Act to Govt Businesses

    • Competitive Neutrality – Govt Businesses

    • Anti-competitive laws review

    • National Access regime to infrastructure

    • Specific Industry reforms – eg Water

    • Included Local Government

  • Qld 2002 Initial deadline (LG Act)


Queensland ncp approach

Queensland NCP Approach

  • 3 Types of Business Activity

    • Type I – Very Large

    • Type II – Large

    • Type III - Other

  • 3 Levels of reform

    • Corporatisation (Separate Company)

    • Commercialisation (Operate as if separate Co)

    • Full Cost Pricing (FCP)(Price as separate Co)

  • Public Benefit Assessment for Type I & II


Queensland incentives

Queensland Incentives

  • Unique $150 million incentive package

  • Legislative reforms

  • Extensive training and guidelines

  • Queensland Competition Authority (QCA) oversight


What happened

What Happened

  • Good progress in most large LG’s

  • Poor progress in over 100 Council’s

  • Local Government’s overloaded

    • GST, AAS27, Assets, Y2K………..)

  • (Over half of incentive package unused by 2001, with only one year remaining


What went wrong

What Went Wrong

  • NCP bad name (= RIP)

  • Too many complex changes at once

  • Poor translation between economic principles and accounting/administration

  • Widespread misunderstandings

  • Poor QCA Feedback

  • Too-Hard basket

  • But many ‘intuitively’ operating business-like


Ncp

BMAP

  • Local Government Association (LGAQ)

  • Renamed – Business Management Assistance Program (BMAP)

  • Funded from unused Incentive pool

  • One year extension to 2003

  • See www.orionco.net


Bmap processes

BMAP Processes

  • Pilot study (Laidley)

  • Simplified guidelines (LG-speak)

  • Integrated into existing processes

  • In-house reviews and Action Plans

  • Ongoing mentoring

  • Regional Training

  • Software suppliers support


Bmap themes

BMAP Themes

  • Renamed FCP as Full Cost Decision Making

  • Informed decision-making

  • Decision-making transparency

  • Pricing signals

  • Management efficiency

  • Subsidy transparency

    • (Community Service Obligations (CSO’s))

  • Asset Management


Myths dispelled

Myths Dispelled

  • No Outsourcing required/ No CCT

  • No service reduction requirement

  • No exorbitant price increases required

  • No increased ongoing administration


Changes required

Changes required

  • Council resolution and complaints process

  • Business delineation (sep regulatory, etc)

  • Administration and overhead allocation

  • Asset valuation/ depreciation/ adjustment (ROI)

  • Depreciation

  • Commercial rate of return

  • Tax equivalents

  • Other Competitive neutrality adjustments

  • Community Service Obligations

  • Ongoing implementation

  • Two-part Water tariffs/ COAG Water


Best practice example 1

Best-Practice example #1

  • Douglas Shire – Daintree Ferry prices

    • Enormous public debate about prices

    • FCP not required

    • Voluntarily reviewed prices on FCP basis

    • Validated current charges and identified true cost of ‘free services’ as CSO’s

  • Main Roads Contract renegotiation

    • Achieved higher prices based on FCP review


Best practice example 2 3

Best-Practice example #2,3

  • Burdekin Shire – all business activities

    • From zero to 80/90% in 1 year

    • Integrated into Revenue Policy and additional FCP statements in Budget

  • Charters Towers

    • Identified under-utilised plant – revamped plant hire processes -$150,000 pa savings


Best practice example 4

Best-Practice example #4

  • Maryborough City Council

    • Revamped entire rates regime

      • Resolved major inequities

      • Justifiable charging basis

    • New admin charges based on cost-drivers

    • Improved management of Brolga Theatre with identification of CSO’s

    • New Corporate Plan and financial strategy based on Long term financial modelling

    • FCP pricing for new Waste Joint Venture

    • Integrated asset management funding

    • Reviewing Balance Sheet structure


Best practice example 5

Best Practice Example #5

  • Ipswich City Council

    • Internal Provider Units – FCP

    • Service Level Agreements – unit prices per service

    • 20% reduction in overheads after 3 years

    • Balance Sheet Restructuring

    • Helped overcome major revenue loss

    • Improved pricing and rating incidence


Bmap successes

BMAP successes

  • New processes used for:

    • Improved decision making

    • Solving real problems

    • Demonstrating value for money in Council services

    • Demonstrating real cost of community support/concessions

    • More realistic pricing

    • Decisions based on full costs

    • Greater awareness of asset management

    • Better understanding of Water business cash


Bmap lessons

BMAP Lessons

  • Keep it simple

  • Demonstrate the usefulness of the reform

  • Integrate with existing processes & systems

  • $’s and laws alone won’t achieve results

  • Need targeted support

  • Phased approach alternative (annual steps):

    • Structural (Business delineation)

    • Overhead allocation

    • Policies (Resolution, CSO, Complaints)

    • Assets (Valn, depn, optimisation, contributed)

    • Commercial (Tax, ROR, other adjustments)


Interstate developments

Interstate Developments

  • Victoria

    • Compulsory Competitive Tendering

    • Now replaced by Best Value

  • Other States took legislative approach

  • Qld - greater accountability v regulation

  • National Competition Council (NCC) regards BMAP as best-practice.


Overseas

Overseas

  • Corporatisation very common – larger businesses, esp developing countries

  • Cash accounting – limits effectiveness

  • Few countries have Type 3 reforms

  • NZ – LA Trading Enterprises (LATE’s)

    • Recent reforms to increase accountability

  • USA –

    • Widespread market testing/contracting

    • Cash accounting and no competitive neutrality


Overseas cont

Overseas (cont)

  • UK- CCT initially

    • Commercialisation plus market testing

    • Compulsory Competitive Tendering (CCT)

    • Direct Service/Labour Org’s (DSO/DLO)

    • Eg 70% of IT, 30% of HR must be tendered


Uk best value

UK Best Value

  • Now replaced by Best Value

    • 4C’s: Challenge, Compare, Consult, Compete

    • (CCT still required in specified areas)

    • Comprehensive Performance Assessment

    • Audit Commission review

    • Performance Indicators

    • Best Value Accounting - Code of Practice

    • Overall Council assessment (Poor ->Excellent)

    • Called ‘regulated accountability’

    • Replaces/extends ‘regulated competition’

    • DLO/DSO’s being disbanded v integration


Uk best value cont

UK Best Value (cont)

  • What is the council trying to achieve?

    • Ambition/ Focus/ Prioritisation

  • Delivery of priorities

    • Capacity/ Performance management

  • What has the council achieved / not achieved

    • Achievements/ Investments

  • Future Directions

    • Learning/ Future plans


Lg efficiency drivers

LG Efficiency Drivers


Worldwide trends

Worldwide trends

  • More emphasis on Accountability

  • Use of regulatory drivers & inspections

  • Convergence on comparative performance indicators (but no theory)

  • Corporatisation of larger businesses

  • Accrual Accounting worldwide

  • International Accounting Standards


Queensland lg implications

Queensland LG Implications

  • ABC-MAP Trilogy by LGAQ

  • A = Accountability and Governance

    • (LGAct Councillor responsibilities poorly implemented –> focus on strategic/policy)

  • B = Business Management (BMAP)

  • C = Community Consultation/ Corporate Planning

  • Similar to Best Value 4C’s, without inspections


Further information

Further Information

  • See Orion’s website www.orionco.net

    • Best Value

    • Australian, and International Comp policies

    • Queensland documents/ guidelines

    • Performance Indicators

    • Accounting

    • This presentation

      Or contact David on 1300 767 466 or

      [email protected]


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