Parliamentary Committees

SELECT COMMITTEE ON SCHOOL BUS CONTRACTS

The Hon. D.W. RIDGWAY (Leader of the Opposition) (15:59): I move:

That the report be noted.

As members would be aware, following a lengthy debate in the media and public debate, this chamber saw fit, on 19 October 2011, to establish a select committee. It was established and appointed:

to inquire into and report on the department of education's open procurement process for school bus contracts, with particular reference to—

(a) the impact on regional communities through the subsequent deterioration of family business operators if contracts are lost;

(b) the ability of small South Australian operators to be sustained by private contract work and the subsequent impact on South Australia's future market competitiveness;

(c) the inclination of new contractors to support small communities in the same way as previous family bus company contractors;

(d) the sustainability of benchmarks used to determine tender applications;

(e) government subsidies and the concession reimbursement scheme provided to some operators;

(f) the failure to provide certainty for school bus operators whose contracts are yet to expire; and

(g) any other relevant matter.

It was pleasing in one sense that there was a very good response; the committee received some 35 or so submissions and I think we interviewed some 21 witnesses as part of the committee process.

It is interesting to note that a number of questions were raised. The committee has handed down a report, which we are noting today, and it contains seven recommendations on which I will briefly touch in my contribution. The recommendations stated:

1. The Department for Education and Child Development incorporate regional impact statements in future tender process for school bus contracts.

2. The Department for Education and Child Development undertake a review of its school bus contracts after two years of operation, to include progress on the fulfilment of any promises made, information about regional impacts on related services, and any defaults, and report back to the Parliament.

3. The Department for Education and Child Development review its tender and associated communication process with the aim of making them more transparent, better to find and more user friendly.

4. The Department for Education and Child Development, in cooperation with the industry, review its benchmarks to ensure they provide a practical basis for negotiating viable and sustainable bus contracts.

5. The Department for Education and Child Development puts in place an independent appeals process for unsuccessful tenderers.

6. That the government investigate the case for integrating school bus services into the wider public transport system.

7. That the government investigate whether subsidies and concessions provided to operators should be linked to route rights, rather than to area rights.

The majority of the committee agreed and embraced the issues raised. Most importantly, this was the fundamental problem that caused the committee to be instigated—the impact on regional communities of bus contracts being lost. I grew up and did business in a regional community and my kids used to catch a school bus—one that would pick up from a bus stop about five kilometres from our farm. I understand the vastly different nature of doing business in the country rather than the city.

First, businesses in the country do not have the same opportunity to sustain themselves on private work if government work runs out. Sometimes the demand for their service is not there. These businesses, and to an extent the local economies, I would not say survive on government contracts but certainly it is an important part of the fabric of a rural community to have some level of regular work.

Secondly, they are not equipped to handle economy of scale processes and market forces like some big businesses are. This is an issue we need to grapple with repeatedly across a number of sectors. How do we support small businesses and protect them in the tender process with their ongoing operations, without giving undue preference? We must find a way to do this if regional businesses are to remain competitive, and even for larger South Australian city-based businesses to survive while interstate and international competitors are tendering for major projects.

On top of the fundamental problems are those which may seem like smaller details, but in the context of rural communities are imperative to their survival. The viability of these regional companies means they are available to service community-based events like excursions and functions for that local population. Failure of these companies may impact on the quality of life of local people, particularly the elderly or disabled. The sense of community could be under major threat by replacing a company whose commitment to its local area is the difference between leaving a school child by the side of the road or watching out for their safety.

For those many important reasons, the first recommendation is supported and I would encourage the minister to progress this. The Department for Education must include regional impact statements in future processes. Witnesses, almost unanimously, from regional areas said that there was a real concern about the impact of some of these new operators not fully understanding the need and the value they provide to those local communities.

There were a number of commitments given by the successful tenderers about buying local, their tyres and their fuel, providing those services to the community that the previous operators (the unsuccessful tenderers) had done. I think it is very important that we see some sort of attempt by the department to provide a report back to this place, in particular the committee, so that we can gauge whether that was just lip service or there was a genuine commitment to providing that level of service to the community.

Another area which was the subject of major criticism by the industry was the sustainability of the benchmarks used by the department to determine the tender applications. By the department, the benchmark was supposed to encompass costs and a fair profit margin. It was clear from the outset that the service providers felt that perhaps even any profit would be unachievable under such a benchmark.

The committee certainly did not find any evidence of corruption within the tendering process, but we did find that there were some major communication deficiencies between the department and the tenderers. Without understating these, a number of issues were also heard which could be described as typical for smaller businesses which come up against convoluted tender requirements. For example, there were major capital outlays made by tenderers, with the understanding that such an investment would almost definitely win the contract: for example, providers with a bus nearing the end of its useful life purchasing a new bus and then losing the contract. Effectively, they had invested $300,000, $400,000, $500,000 in a new piece of equipment, and we heard anecdotal evidence that they were likely to get their contracts renewed, but when the final tenders were let they had missed out. As you would appreciate, these buses—you buy a new car, you drive it out of the showroom, it devalues significantly, and, sadly, a number of people who failed to get contracts found that same problem.

Many witnesses also arrived at the position that the only space to decrease costs would be to significantly diminish, if not remove, their profit margins altogether. There were also misunderstandings about what an 'incumbent operator' was, as it related to the weighting received in the tendering process. This again highlighted some communication breakdown between the department and the bus service providers.

It seemed there was also no attention given to the provision for Australian made buses (often of higher quality) in the process. A figure recorded in the report for the amount of money lost by South Australia due to the importation of Asian buses was up to $80 million. Moreover, the general image painted by bus industry witnesses of DECS communications with them over these contracts was callous. We heard of a provider who had given the government 50 years of dedicated service. The termination of her contract took place via email, with no thanks or acknowledgement.

There is no doubt that the tender process must be more transparent, better defined and more user friendly, as recommended by the committee. Benchmarks must be reviewed by the department, in cooperation with industry, as they provide a practical basis for negotiating viable and sustainable bus contracts. That was clearly something where there was a significant amount of—I would say discrepancy—lack of understanding of exactly what the benchmark is. The department would say, 'Well, we need to keep that confidential because it is a confidential tendering process,' but clearly it caused a significant amount of angst for the people tendering and certainly for the unsuccessful tenderers.

The committee recommended that we need to have an independent appeal process for the unsuccessful tenderers. There really was nowhere for these unsuccessful tenderers to go. They felt that they had not been dealt with properly, and I think that was the catalyst for this select committee being formed. While I think we looked into it in a very comprehensive manner, when you are looking at the sort of nuts and bolts of a tender and you have just missed out, you really cannot wait; you want to appeal and get some further clarification.

The cumbersome process of a select committee, as you would know, Mr President, takes a while to be established. We established this committee in 2011; it is now 2013, nearly two years since it was established. There needs to be a process to which unsuccessful tenderers can turn. It may not be just for school bus contracts: it may also be for all government contracts where, if a company has been an existing supplier and they have missed out, there is somewhere they can turn just to get some comfort, if you like, or reassurance that the process has been dealt with fairly and properly.

Another issue that was raised and which was one of the terms of reference was the government subsidy and concession reimbursement scheme, which was very contentious. The issue had arisen in the media. We had an independent inquiry from the ombudsman and so the committee had an opportunity to investigate it further. As with a few other areas of our investigation, this was an area where it was found that no unlawful conduct had occurred. It was more an issue of poor business ethics, in one sense, and I think a misunderstanding from some of the operators.

There is no doubt within this place that the companies have behaved in a manner which we would prefer did not happen in the South Australian business environment. Indeed, the ombudsman reported that LinkSA was not unlawful in claiming subsidies for areas for which they were contracted to operate, despite not actually providing the service. I think that is the crux of the particular issue. As the ombudsman found, you have to provide a claim for a subsidy for a service they are not providing and the person providing the service not getting that particular support.

It certainly was not illegal, but they were able to exploit a flaw in the process or exploit what happened when a service was on-sold and there was, if you like, a misunderstanding around the subcontractual arrangements. I think most of us would agree that, if you are providing a service, somebody else should not claim a subsidy and put it in their pocket for the service that you are providing. That was certainly a very topical issue. We took a lot of evidence and we were provided with a lot of evidence.

One of the recommendations is that the government should investigate whether subsidies and concessions provided to operators should be linked to route rights rather than area rights. From my recollection, they were originally route rights, which is a particular road and route to provide that service. An area right, of course, is a blanket cover across an area. Effectively, if you are a small operator and can see a need to pick up 10 or a dozen people on another road and another particular route in that area, again, the contractual arrangements that the major contractor has with the government means that they are able to claim subsidies for those concession passengers.

I really think that that is something we need to look at. We are meant to be the state of small business. From the evidence we were given, clearly they are not services that the big companies would provide, so I think we need to make sure that we do not put any impediments in the way of a small company that can see an opportunity to make a quid and start a business.

The committee also recommended an investigation into the case for integrating school bus services into the wider public transport system. I think there are some places in some rural communities where it does happen to a certain extent, but I think we need to make sure that we look at every possible opportunity to get the maximum benefit for all of these communities and make sure that we do not have assets, such as some of these buses, lying idle. We should be able to use them over a much wider period.

In speaking on this report, we must recognise that, notwithstanding our investigation, livelihoods have been lost and small businesses and communities have been hugely affected. There should be no mistaking the relevance of these contracts to the survival of regional communities and their community culture. I was extremely disheartened to hear stories from witnesses who have lost contracts. In some cases, I believe these situations are simply a reminder of the difficulty of doing business, especially when you are a small player in a more remote area.

In almost all cases, this government has substantial room for improvement. Processes need to be improved but, more importantly, the attitude and understanding of the people who sit in government offices, perhaps having never even visited the community which is about to be so severely affected, needs to be improved. In closing, I would also like to thank the committee members—the Hon. Robert Brokenshire, the Hon. Gerry Kandelaars, the Hon. Jing Lee and the Hon. Mark Parnell—the committee secretary, Mr Anthony Beasley, and our research officer, Ms Geraldine Sladden. With those few words, I commend the motion to the house.

Debate adjourned on motion of Hon. G.A. Kandelaars.