NCP

1. NCP From Full Cost Pricing to Better Business Management and Decision-making by David Spearritt

2. Outline • Context and history • Progress before BMAP • Outline of BMAP • Decision-making & business management • Best practice examples • Experience overseas and interstate • Future directions

3. 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)

4. 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

5. Queensland Incentives • Unique $150 million incentive package • Legislative reforms • Extensive training and guidelines • Queensland Competition Authority (QCA) oversight

6. 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

7. 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

8. 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

9. 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

10. 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

11. Myths Dispelled • No Outsourcing required/ No CCT • No service reduction requirement • No exorbitant price increases required • No increased ongoing administration

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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)

19. 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.

20. 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

21. 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

22. 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

23. 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

24. LG Efficiency Drivers

25. 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

26. 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

27. 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 david@orionco.net