PROJECT APPLE
BUSINESS CASE
RELOCATION TO SYDNEY
ARPC Project Apple
VERSION CONTROL
Date
Version
Author
Change Made
25 March 2015
1
CEO, Dr Christopher Wal ace
First Draft
27 March 2015
1.1
Dr Christopher Wal ace and
First draft edits from Joan
s.47Fr rish Bergin
Fitzpatrick and s.47Fr erg in
16 April 2015
2
Dr Christopher Wal ace
Include Australian Government
Solicitor changes and other minor
changes
29 April 2015
2.4
Dr Christopher Wal ace
Revisions by Fran Raymond and
s.47Fr t Mukherjee, revisions from
PwC fol owing their review of the
accuracy and reasonableness of
the calculations within the
business case.
APPROVAL
Date
Version
Approval
Note
27 March 2015
1
Chair, Joan Fitzpatrick
Approved to seek Board Approval
after updating business case with
input from PwC (Internal Audit)
and AGS
29 April 2015
2.4
Version provided to Board for
Pending approval.
their review and approval.
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ARPC Project Apple
Contents
1
Executive Summary ................................................................................................ 4
1.1
Recommendation ..... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .. 5
2
Project Approach ................................................................................................... 5
2.1
Current office locations.... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... 5
2.2
Stakeholder locations.... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .. 5
2.3
Looking after our people .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... ..... .... .... .. 6
2.4
Increasing our productivity .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... ... 7
2.5
Increasing our efficiency .... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... ... 7
2.6
Supporting our strategy ... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... 8
2.7
Measures of success ..... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .. 9
2.8
Additional project costs .. .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... . 9
2.9
Scope ... .... .... .... ..... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... 10
2.10 Key project deliverables .. .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... ... 10
2.11 Constraints and assumptions ..... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .. 10
2.12 Timeframes .. .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... .. 11
3
Major Risks .......................................................................................................... 12
4
Costs and Savings Estimates ................................................................................. 14
4.1
Incurred Costs ... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... . 14
4.2
Avoided Costs .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .. 14
4.3
Investment Appraisal (Net Present Value Analysis) ..... .... .... .... .... ..... .... .... .... .... .... .... .... 15
5
Options Considered and Recommended Option .................................................... 16
6
New Office Accommodation ................................................................................. 16
6.1 s.T2a2r g- eIt
r roeflfeicvea lnot cations... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... 16
6.2
Example new office .. .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... 17
6.3
Map of top iconic targets and blast zones .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... .... 18
7
Approval process .................................................................................................. 19
8
Announcement Strategy and Sequence ................................................................ 19
9
Conclusion ........................................................................................................... 19
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ARPC Project Apple
1 Executive Summary
This proposal is a difficult decision. It wil likely have a significant impact on every person within
ARPC. It wil completely transform our operations. This business case recommends relocating
the Canberra and Sydney offices to a new Sydney office. ARPC is at a stage of its development
that it needs to establish itself on a long-term sustainable basis, and to position ARPC to be able
to operate for the foreseeable future in a heightened terrorism risk environment.
The business case has been prepared by the CEO. s.47Fr rish Bergin (strategic HR advisor) has
assisted the development of the strategic approach to this project. This second version of the
proposal has been reviewed by PwC (internal audit) to assess the accuracy and reasonableness
of the calculations, and has also been reviewed by Australian Government Solicitor to validate
that our approach is compliant with workplace law. The business case has also been reviewed
by Fran Raymond (Chief Operating Officer) and s.47Frit Mukherjee (Finance Manager).
The problem and opportunity for ARPC is that the current office locations are excessive in space
and cost, the Canberra office is not located close to our markets, and having a front office
(customer facing) and back office (operations) is inefficient in supporting a high performance
culture for a smal professional team.
This significant change delivers 4 expected outcomes for ARPC against our values:
1)
Stakeholders first – it aligns ARPC operations in the same market as major
stakeholders including insurers, reinsurers, industry associations, and property
groups of which the majority are located in Sydney; 65% of ARPC premium income is
sourced from Sydney based clients. Being located in Sydney is consistent with other
Treasury portfolio agencies that are located close to Stakeholders. Currently, 9 of 16
Treasury agencies are located in Sydney or Melbourne. The Treasury is also currently
establishing a Sydney Office.
2)
Empower our people – being located in Sydney wil provide ARPC with better access
to skil ed insurance and reinsurance professional staff, and wil support the future
workforce needs and reinsurance functions of ARPC.
3)
Work smart – operating from one location wil enhance ARPC’s culture by having
front and back office staff working together in a smal professional team. s.47G
Staffing wil be reduced as a result of this change, reducing the workforce to 17 ful
time equivalent (down from 20) to support current ARPC reinsurance functions.
4)
Continuously improve – the new combined office wil be more efficient. Currently
ARPC uses 1,452 m² of space in total across Canberra and Sydney, w s.47Ghich is 73
m² per person. The new Sydney office wil use about 480m² of space an s.47Gd 28m²
per person.
The project achieves a payback in 3.6 years, and has a 5 year positive net present value of
$231,683. This is based on the highest possible cost estimates including ful y writing off the
Canberra lease and making redundancy payments to al Canberra based staff. However, the
project wil actively seek to sub-lease the Canberra premises and minimise redundancy
including by retaining employees or assisting employees to find alternative employment, which
wil increase the net present value.
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ARPC Project Apple
1.1 Recommendation
The CEO recommendation to the Board is to approve the business case and to delegate an
additional budget al owance of $3.0 mil ion in the FY2015/16 budget above normal operating
expenditure to ful y implement the project, with a budget tolerance of +15%. A detailed
breakdown of costs is included later in this business case. The al owance is calculated based on
an analysis of incremental costs.
2 Project Approach
2.1 Current office locations
ARPC was established in 2003 with an office located in Canberra. In 2010, ARPC moved to 14
Childers Street, this lease expires on 31 December 2016. There is no make good obligation in
the lease (no obligation to remove the existing fit-out), and there is a three month notice
period to extend the lease (or not). The gross rent is s.47G$544 per m² per annum for 1,257
m² of space. Total per month cost including parking, cleaning, plants, security, and outgoings
is $s.47G57,007 per month plus GST ($684,089 p.a.).
In 2003, a Sydney office was also established sharing space with the Office of the Inspector
General of Taxation since key insurance skil s could not be recruited in Canberra. In 2011, the
ARPC Sydney Office moved to 56 Pitt Street, this lease expires on 29 February 2016. There is a
make good obligation for which we have already provisioned $s.47G,000. There is no notice
period (or extension period) in the lease, we are required to vacate by the termination date.
The gross rent is $s.47G954 per m² per annum for 195 m² of space. Total per month cost
including parking (none), cleaning, plants, security, and outgoings is $s.47G15,490 per month
plus GST ($185,877 p.a.).
The prosed move is to a new office utilising 480 m² in Sydney with a gross rent after lease
incentives of no more than $s.47G750 per m². This wil reduce our annual rent in the long
term from $s.47G966 p.a., to $s.47G,000 p.a., a saving of $s.47G966 (57% reduction) each
year.
2.2 Stakeholder locations
Most of ARPC’s major stakeholders are located in Sydney:
•
Of 15 major insurers, 11 are located in Sydney, 3 in Melbourne, and 1 in Singapore.
Sydney insurers account for 65% of ARPC premium income.
•
Of 10 major reinsurers, 6 have Sydney offices, with 4 based in London and Bermuda.
•
The 2 major industry associations, The Insurance Council and the Property Council, are
based in Sydney. NIBA, the association for insurance brokers is based in North Sydney.
•
Of 13 major property groups, 12 are headquartered in Sydney and 1 in Brisbane.
•
Of the 4 major banks, 2 are headquartered in Sydney and 2 are in Melbourne.
•
Our interactions with Attorney General’s Department and Geoscience Australia are
based through the ARPC Sydney office.
•
Of 16 Treasury Portfolio Agencies (including ARPC), 5 are located in Sydney and 4 in
Melbourne. APRA, a Treasury Portfolio Agency which ARPC deals with regularly, is also
located in Sydney.
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ARPC Project Apple
We hold a quarterly liaison meeting with Treasury at their office. We also interact with other
Canberra based government agencies as required such as Department of Finance, Australian
Public Service Commission, and Australian Government Solicitor. But the travel needs for
these meetings is modest in comparison to stakeholder meetings in Sydney.
Most client meetings are held in Sydney. International clients (insurers) and international
reinsurers regularly visit Sydney, but not Canberra. The proposed move puts ARPC in the
same market as our major stakeholders.
2.3 Looking after our people
The project wil provide the best possible support to our current workforce, and wil establish
ARPC in an environment to recruit reinsurance specialist skil ed staff for the best possible
future workforce.
The people strategy is to empower our people by providing each employee the choice of:
•
Transfer to Sydney office with financial support, or;
•
Career transition support, including financial advice, to help find new employment
outside of ARPC, and;
•
If a new position is not found, then termination of employment with a redundancy
payment.
For our people today, the fol owing principles are proposed:
1) Every employee wil be provided with consultation on the proposed plan for implementation of
the relocation to Sydney. The ARPC Enterprise Agreement and the executive contracts require
consultation with employees, and if they choose, their representatives about significant
workplace matters.
2) Every employee wil have the option to relocate to Sydney in a role substantial y similar to their
current role (salary and classification wil be maintained). If the employee elects to move to
Sydney, financial support wil be provided, is.47Gncluding a maximum of 3 months’ rental
assistance and relocation costs to be reimbursed by ARPC. The expected cost to transfer an
employee to Sydney is $s.47G12000 per person which wil usual y be less than the employee’s
redundancy payments.
3) Every employee wil have the option not to relocate to Sydney. Where they so elect, they wil be
provided with career transition support after termination of employment. The career transition
support wil be provided for a maximum of 2 months by Audrey Page & Associates, costs are
included in redundancy cost calculations. We wil also explore career support services provided
by Bul & Bear who ran the Treasury career centre; this wil be provided during the transition
period before termination of employment. Reimbursement for financial advice upon termination
wil also be available which wil be capped at $s.47G1,500 for Enterprise Agreement staff, and
$s.47G2,000 for Executive Managers.
4) Every employee wil have the maximum redundancy entitlements should they choose to not
relocate or where they are unsuccessful in career transition to a new external position. The
redundancy package wil include:
a) Payment in lieu of notice, which is 4 or 5 weeks for Enterprise Agreement staff (depending
on their age), and 3 months for Executive Managers.
b) Recognition of al years of continuous service while employed with ARPC.
c) Payment of accrued annual leave and long service leave.
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ARPC Project Apple
5) Every employee wil have access to counsel ing support which wil be provided by Audrey Page &
Associates, this is an experienced outplacement firm that has assisted ARPC in previous
redundancies.
6) Four positions wil be designated as key personnel for the whole transition and project period
and wil be offered a different set of arrangements (relying on the same principles). The four
positions are Chief Operating Officer, General Manager Governance Risk and Compliance,
Finance Manager, and Information Technology Manager. The arrangements for these positions
wil be as fol ows:
a) s.47Gorking from Sydney, 3 days per week (2 nights), costs borne by ARPC, from October
until
31 December 2015.
b) s.47G10% bonus payable in July 2015 and July 2016 in relation to satisfactory completion of
transition objectives.
c) s.47GCareer transition support if the employee decides not to relocate to Sydney after
31 December 2015.
7) For our future people, positions wil be advertised and fil ed against their current job level and
job description. The people change part of this project wil be managed with the principle of
taking positive steps to consult with each individual staff member about relocation to Sydney or
assisting with career transition to find a new position outside ARPC. Reasonable time needs to
be provided for staff to make decisions. A proposed timeline is set out later in this document.
2.4 Increasing our productivity
A review of positions and work load by s.47FTrish Bergin, Strategic HR Adviser, confirms that
the fol owing 3 FTE equivalent positions wil be redundant fol owing relocation:
•
Administration Officer, currently unfil ed maternity leave position (wil be performed by
CEO Executive Assistant).
•
One of the two current communications staff positions.
•
One of the two current financial staff positions.
The employees currently performing these roles wil be given the option to relocate to
Sydney. Depending on the number and composition of the staff that move to Sydney, these
employees may be required to perform new duties in the Sydney office, if they elect to move.
2.5 Increasing our efficiency
Currently, ARPC has occupational density (workspace per person) of 70 m² per person in
Canberra and 65m² per person in Sydney (counting the CEO in each location).
The Australian Government has a target for government agencies to have an occupational
density of 14m² per person (Source: Commonwealth Property Management Framework).
Actual occupational density varies by size of agency, with smal agencies with space of 500m²
to 999m² having actual occupation density in the range of 36m² per person to 19m² per
person (Source: Australian Government Office Occupancy Report 2009).
The target is not mandated for ARPC, but I propose that ARPC adopt a target of 28m² per
person in total of 480 m², which recognises our need to support board room, security airlock,
and utility rooms. A detailed bottom-up space calculation has been undertaken using a
government office space calculator published by the South Australian Government. Costs have
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ARPC Project Apple
been estimated by seeking high level cost from architects, Intermain Pty Ltd. We have been
advised by both s.47F ntermain and s.47FJsones Lang Lasal e (real estate advisors) that a
reasonable al owance for fit-out is $s.47G1,00 per square metre.
The new Sydney office wil deliver in the longer term space savings of 972 m².
The space requirement is for 20 current staff, but we have al owed some additional open
workstations to enable flexibility if we require space for claims staff to assist in responding to
a major Declared Terrorist Incident, s.47Gwith this contingency we have al owed for 25 seats.
There is capacity to move to a smal er office.
New office work space
Spaces
Square Metres
20 open workstations (6 m² each)
120
s.22 - Irrelevant
4 standard offices (12 m² each)
48
CEO office (24 m²)
24
1 smal meeting room (6 seats)
18
1 board/conference room (16 seats)
48
Smal kitchen
24
General storage (filing room)
20
Storeroom
12
Communications/server room (large utility room)
24
Airlock entry area
24
Shower/Change room (end of trip facility)
10
Class B Secure Room (smal utility room)
12
Circulation
96
Total
480 m²
2.6 Supporting our strategy
This project supports the ARPC strategic objectives. It supports our purpose and role by
establishing a single smal professional reinsurance team in the same market as our major
stakeholders:
We are here to protect Australia from economic losses caused by
Terrorism catastrophe.
And we do this by using our expertise in reinsurance and providing cost
effective cover to support the economic resilience of the nation.
It supports our strategic priorities:
•
Become a trusted advisor – by increasing our access to reinsurance skil s.
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ARPC Project Apple
•
Expand our coverage – by positioning ARPC to be able to support additional future
reinsurance functions (such as storm).
•
Increase stakeholder communications – by being accessible to stakeholders.
•
Have a high performance culture – by having a single smal professional team.
It supports our organisational values:
•
Stakeholders first.
•
Empower our people.
•
Work smart.
•
Continuously improve.
2.7 Measures of success
The move wil deliver the fol owing objectives:
1) Reduce our workforce from a current 20 FTE positions to 17 positions – a saving of 3
positions and $s.47G219,249 per annum in salaries (15% reduction in staffing). This wil be
implemented in FY2015/16 regardless of this project, but is best timed to coincide with
the office move.
2) Reduce office space from 1,452 m² to 480 m² – a saving of 972 m² (67% reduction in office
space). Reduce gross rent after lease incentives from s.47G$833,966 per annum to
$360,000 per annum (57% reduction in office lease costs).
2.8 Additional project costs
A transition team comprising key staff (with an additional financial support package for these
staff) and external consulting staff (a dedicated project manager) wil be in place to straddle
the transition and to ensure business continuity – the cost of this is s.47G23,051 for the key
staff and $120,000 for project management. These costs are non-ongoing but wil ensure
continued business operation through transition.
Lease write off costs for Canberra are s.47G$881,3. This assumes the premises remain
unoccupied from 1 October 2015 until 31 December 2016.
However, there is the possibility of sub-leasing which wil save further money. As an example,
we have been approached by Worksafe Australia who is currently looking for Canberra
accommodation at same size as our Canberra office. Jones Lang LaSal e have approach us
about packaging ARPC space with other tenant, BAE Systems Australia, which uses space on
level 1 and level 2. We have been told there is appetite for larger packages of office space for
new tenants. Whilst I have assumed a ful write-off of the Canberra office lease – there is
potential to reduce this through a concerted effort to sub-lease the premises. This would
dramatical y reduce the payback years and increase the net present value.
New office fit-out costs have been estimated using the SA Government office space calculator
and an estimate of $s.47G 1,200 per square metre as advised by architects and are estimated
to be $s.47G585,8, and this cost is amortised over the life of the lease. This is an estimate and
we have not received any actual quotes, but this estimate is reasonable as an upper limit.
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ARPC Project Apple
2.9 Scope
Included:
Canberra based back office services wil be moved to Sydney. These include:
•
Premium col ection
•
Accounts payable
•
Information Technology (desktop, RISe, intranet, internet, telephony)
•
Governance, including risk management and reporting to government
•
Board paper preparation
•
Administration and al overheads including human resources and communications
Excluded:
Sydney based front office services wil continue, largely unaffected. These include:
•
Underwriting
•
Retrocession reinsurance
•
Claims management
•
Insurance audit or cedant review.
•
Board meetings
•
The two Sydney executive positions are unchanged
2.10 Key project deliverables
Upon project approval, regular reporting wil be provided to the board of progress against the
business case. The project wil be ful y project managed.
2.11 Constraints and assumptions
The fol owing constraints should be noted:
•
The triennial review continues to recommend ARPC to continue (draft report advises
that ARPC is required for the foreseeable future).
•
There is no Ministerial Direction that changes ARPC strategic plan.
•
There is no Declared Terrorist Incident (which might require retention of resources).
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ARPC Project Apple
2.12 Timeframes
Note the timeframe assumes that the process set out in the project plan wil be adopted to
implement the transition to Sydney. The timeframes may change as a result of employee
consultation.
Timeframe
Stage
April 2015
Business case finalised and submitted to board for approval.
May 2015
Upon project approval by the Board, commence the detailed
project planning and implementation. This assumes either
out-of-session approval by the Board in May, or at the May
Board meeting.
End of May 2015
Project team formed – comprising s.47F Trish Bergin,
Strategic HR Advisor; a project manager (to be appointed);
Fran Raymond COO leading the people project stream.
s.47F Sujit Mukherjee Finance Manager leading the office
relocation project stream.
By end of June 2015
Announcement to staff of decision to relocate to Sydney no
later than 30 June 2015. If staff becomes aware of the
approved project then there would be an immediate
announcement.
By end of July 2015
One month consultation period occurs.
Employees and their representatives provided with one
month to provide comments on the proposed project for
relocation to Sydney.
At the end of the consultation period, final decision made by
the CEO on how relocation to Sydney wil be implemented
(within the parameters approved by the Board).
By end of August 2015
One month consideration period occurs.
Canberra based employees asked to elect to move to
Sydney or for career transition assistance. During this
period, consultation wil occur with each employee about
their particular circumstances including information about
car parking in Sydney and office arrangements. Employees
wil be provided with a maximum period of one month to
inform CEO, in writing, of their decision.
Key personnel asked to agree to remote working
arrangements and to inform CEO whether they elect to
move to Sydney after 31 December 2015.
For employees who make an election before the end of
August and elect for career transition, career transition
assistance wil commence immediately. Employees wil be
stil be required to perform their duties until termination of
employment.
By end of September 2015
One month transition period occurs.
For employees who are not relocating to Sydney, career
transition assistance in place. Employees who are not
successful in obtaining alternative position wil have their
employment terminated on and from 1 October 2015 with
redundancy package. This could occur earlier depending
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ARPC Project Apple
upon when staff make their election.
Key staff who agree to work 3 days per week in Sydney from
Canberra to commence remote work.
Staff transferring to Sydney (or to be recruited) wil be
performing duties in Sydney by end of September 2015.
The current Sydney board room wil be removed and fitted
as temporary desks during the transition to the new office.
An external board room wil be hired for meetings at AICD
opposite our office in Bond Street.
New Sydney office identified, lease established, and fit-out
commences to be operational before Christmas period 2015
October 2015
Canberra premises closed (continue to seek a sub-lessor).
October to December 2015
Post move - establish and settle people and processes.
By end of December 2015
Arrangements for key staff who are working remotely end.
Commence Career Transition (1 month) for key staff who
have not elected not to move to Sydney. Career Transition
may occur remotely for these staff. If employees not
successful in obtaining new position, employment
terminated on 31 January 2016 with redundancy package.
There may be discussions with key staff for individual
flexibility arrangements which may extend through to 30
June 2016, which is not material for this business case.
End of December 2015
Project closes
3 Major Risks
Likelihoo
Conseque
Risk
Rating
Controls
d
nce
Loss of key staff
Almost
Moderate
High
Key staff identified and provided financial package
certain
to support their retention through transition.
Succession plan during transition.
Adverse staff reaction
Almost
Major
High
Consultation on proposed plan for implementation
certain
of move.
Choice of transfer, career transition, or
redundancy.
Adequate timeframes for making decisions.
Counsel ing and career transition support made
available.
Prepared to make an immediate announcement if
staff becomes aware of approved project before it
is publicly announced.
Key suppliers
Unlikely
Moderate
Medium
Axe Group – Sydney based. Axe Group contract
for IT extended to support loss of IT staff during
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ARPC Project Apple
transition.
PwC – Wil need to transition partly to Sydney
team. May be higher travel and accommodation
costs. PwC already proposing a Sydney insurance
partner as potential lead for Internal Audit services.
ANAO – KPMG is Sydney based.
Finity – Sydney based.
Classified Information
Unlikely
Major
Medium
Secure room in Canberra to be decommissioned.
New secure room in Sydney to be established.
Information destroyed or transferred to Treasury
secure room until Sydney secure room established.
Disruption to IT systems
Likely
Major
High
s.47F mual Roberts, a key person, can
alternatively be engaged as a consultant for 2
years through his own IT consulting business. This
wil enable us to transition RISe to new location
and staff.
Treasury – and Interactions Unlikely
Minor
Low
No impact.
with Treasury
Inspector General of Taxation in Sydney can assist
ARPC manage interactions remotely with Treasury.
IGT executive to be nominated as an advisor
during transition.
Cedants
Unlikely
Moderate
Medium
No impact.
Market Update communication.
Reinsurers
Unlikely
Minor
Low
No impact.
Market update communication.
Minister
Unlikely
Moderate
Medium
Recent uncertainty in responsible Minister means
no current relationship.
Parliamentary Secretary to Treasurer is in
Melbourne, and Treasurer is in Sydney.
A letter to be written to advise the Minister of the
Board decision and the reasons for this.
Ability to recruit and retain
Possible
Moderate
Medium
Historical y there has been limited or no turnover.
staff in Sydney
Being based in Sydney wil be more difficult to
recruit to the salary bands and to retain staff.
ARPC salary bands are at the high end of
Australian Public Service.
OHS – Canberra and
Possible
Major
High
Counsel ing, career transition support made
Sydney
available.
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4 Costs and Savings Estimates
4.1 Incurred Costs
Description
Calculation Comments
Timing
Value
Redundancies, outplacement,
Gross payment (including accrued leave
One-off
$1,0
s.2
33,657
financials p
. l4an
7 n
G i ng
entitlements)
Less: accrued leave entitlements
From payout in provisions
One-off
- $435,146
Key staff additional support
10% bonuses in July 2015 and July 2016,
One-off
$233,051
travel weekly, 2 nights Sydney, taxis, travel
al owance
External project manager
Consulting fees
One-off
$120,000
Recruitment costs
Consulting fees
One-off
$50,000
New office fit-out
Per SA Government cost calculator
Amortised
$585,805
New Sydney office lease
480 sqm x target outgoings of $750 per
Ongoing per
$360,000
square metre after lease incentives
annum
Sydney parking costs
CEO and 4 SES executive managers $850
Ongoing Per
$104,636
per space per month plus FBT
annum
Additional costs Treasury SLA
IT support, contingencies
One-off
$20,000
Lease write-off Canberra (15
1 October 2015 to 31 December 2016 (15
One-off
$881,355
months)
months) for total surrender of lease
Review by PwC (internal audit)
Consulting fees
One-off
$20,000
Review by AGS
Consulting fees
One-off
$10,000
Business removal costs
Estimate
One-off
$50,000
TOTAL INCURRED COST
$3,023,358
Other notes:
Currently there are 8 parking spots in the Canberra Office. In Sydney, car parking wil only be
provided to CEO and Executive Managers, with al Executive Managers having an entitlement
through a commercial car park arrangement.
4.2 Avoided Costs
Description
Calculation Comments
Timing
Value
Reduction of 3 positions
Per annum salaries
Ongoing
$219,249
s.47G
Canberra office space reduction
Per annum based on Canberra outgoings
Ongoing
$724,006
1,257 sqm plus parking (approximately $576
per square meter) (based on 2016/17 rate)
Old Sydney office lease
195 sqm x $799 per square metre (after
Ongoing
$155,872
lease incentives) (based on 2016/17 rate)
TOTAL AVOIDED COSTS
$1,099,127
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ARPC Project Apple
4.3 Investment Appraisal (Net Present Value Analysis)
Present Value Analysis
Project:
APPLE
Year
0
1
2
3
4
Totals:
Items
2015-16
2016-17
2017-18
2018-19 2019-20
Incurred costs
$
Redundancies, Outplacement, Financial Planning
(1,033,657)
0
0
0
0 (1,033,657)
Less: accrued leave entitlements
s 4.3
4 57,14
G 6
0
0
0
0
435,146
Key staff additional support
(223,051)
0
0
0
0 (223,051)
External project manager
(120,000)
0
0
0
0 (120,000)
Recruitment costs
(50,000)
0
0
0
0
(50,000)
New office fit-out
(585,805)
0
0
0
0 (585,805)
New Sydney Lease (480sqm no parking)
(270,000) (374,400) (394,176) (414,743) (436,133) (1,889,452)
Parking Sydney office
(104,636) (104,636) (100,862) (100,862) (100,862) (511,858)
Additional costs Treasury SLA
(20,000)
0
0
0
0
(20,000)
Lease write-off Canberra (Total surrender of lease)
(881,355)
0
0
0
0 (881,355)
Review by PwC
(20,000)
0
0
0
0
(20,000)
Review by AGS
(10,000)
0
0
0
0
(10,000)
Business removal costs
(50,000)
0
0
0
0
(50,000)
Avoided costs
Reduction of 3 positions
16
s4.,4
4 3
77G 219,249
219,249
219,249 219,249 1,041,433
Canberra office space reduction (1257sqm plus parking)
526,188
724,006
751,881
780,828 810,890 3,593,793
Old Sydney office Lease (195sqm no parking)
49,959
155,872
162,107
168,591 175,335
711,864
Net Benefit / (Cost)
(2,192,774)
620,091
638,199
653,063 668,479
387,059
Cumulative net Benefit / (Cost)
(2,192,774) (1,572,682) (934,484) (281,420) 387,059
Payback Period:
3.42 years
PV Calcs
Year:
0
1
2
3
4
Inflation Rate*:
2.50%
2.50%
2.50%
2.50%
FV
(2,192,774)
620,091
638,199
653,063 668,479
387,059
PV
(2,192,774)
604,967
607,447
606,434 605,609
231,683
Cumulative net Benefit / (Cost) PV
(2,192,774) (1,587,806) (980,360) (373,926) 231,683
Total Present Value:
$ 2 31,683
Payback Period (PV):
3.62 years
For lease details, refer to the Current Leases Details tab in this workbook.
This table is based on incremental costs.
* Inflation rate is obtainined from the document produced by the Department of Finance titled Standard Parameters for use in
Financial Statements and is current as at 30 June 2014. The document can be accessed via the link below.
http://www.finance.gov.au/sites/default/files/Standard-Parameters-for-use-in-2013-14-Financial-Statements.pdf
Page 15 of 19
ARPC Project Apple
5 Options Considered and Recommended Option
ARPC has the fol owing options for its workforce and location strategy:
1)
Do nothing – keep a smal Sydney office and larger Canberra office. Under this option it wil
be necessary to negotiate a new Sydney lease at 56 Pitt Street, or move to another new
smal location. The current Sydney lease term is fixed and wil terminate 29 February 2016.
No objectives are achieved under this option.
The current Canberra premises are poorly designed and cannot be adjusted to need without
significant cost. It wil not be value for money to refit the premises, increasing investment
into Canberra through refitting wil be “escalating commitment” and increasing the sunk
costs. But it must be emphasised the current premises and fit-out create significant
problems in engendering good teaming behaviours.
2)
Move to 2 smal offices – have 2 offices of the same scale of about 240 m² each. This can be
achieved by transferring the governance risk and compliance function to Sydney and
retaining the operations function in Canberra. The benefit of having the GRC function in
Sydney is that staff with APRA risk management skil s could be recruited. Team harmony wil
be improved by having ‘equal’ size offices (rather than a large back office).
Having two smal offices wil give more emphasis to the Sydney location, and partly achieve
our objectives. The Sydney office would be the main office of the two.
Such an option should only be considered if the Board wishes to minimise the impact on
staff by retaining some Canberra based staff.
3)
Close the Sydney office – This would have a detrimental impact on our presence in the
market and our ability to engage with stakeholders.
4)
Move to one Sydney office – one team near our key market. The reasons for this are set out
in detail in this business case, and this is the recommended option.
6 New Office Accommodation
s.22 - Irrelevant
6.1 Target office locations
There are two options for location of a single Sydney office, either CBD fringe or North Sydney. The
advantage of being located in CBD fringe is that the office wil be accessible by al stakeholders and
within walking distance. There is also better physical security in CBD offices than North Sydney
offices. North Sydney provides close access by taxi or train, but North Sydney offices general y lack
the security features available in CBD offices.
The main difference between these two broad locations is building security. We have been unable to
find a North Sydney location which offers:
•
Ground floor security concierge
•
Gate and swipe card access to lifts
•
Lift destination control through swipe cards
North Sydney offices that are available only have door access security, as we currently have in place
in Canberra and Sydney.
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ARPC Project Apple
This level of security is inadequate in our current security environment. ARPC is speaking at
conferences and publishing information on financial management of terrorism attacks. A terrorist
s.22 - Irrelevant
could consider ARPC as a government agency being part of our national security agencies as a soft
target to attack.
In addition to the building physical security, ARPC should also have a security airlock; which is a
secure entry or reception where guests are met before bringing into the main office.
In the absence of being able to locate a North Sydney location with physical security, we have also
considered CBD fringe. We did this by identifying iconic targets and mapping 2 tonne TNT blast
radius, for these locations:
MLC Centre (US Consulate)
Pitt Street Mal
George Street Cinemas
State Law Courts
NSW government buildings
Opera House
Parliament House
Star Casino
Town Hal
Barrangaroo
York Street (Israeli Consulate)
The Rocks
Two CBD fringe locations outside the blast zones are our current office location near the corner of
George Street and Bridge Street; and also Darling Harbour near the corner of Market Street and
Sussex Street. Several office locations are available within these areas and these provide the physical
security recommended for our offices.
Our first preference is a building with the desired physical security.
6.2 Example new office
An example office which meets the target location and physical security has been identified after a
search of North Sydney and Sydney CBD offices.
Jones Lang LaSal e (JLL) have several spaces available at 1 Market Street, the BT Tower Building.
Examples at this location include s.22Level 15 with 443 m² of space at a gross rent after lease
incentives of $551 per m² per annum.
s.22Level 23 at same location has 485 m² of space at $637 per m² per annum (after lease incentives).
s.22Treasury have suggested 52 Goulburn Street (World Square, Australian Tax Office), which also
has the physical security we desire.
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ARPC Project Apple
6.3 Map of top iconic targets and blast zones
s.22 - Irrelevant
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ARPC Project Apple
7 Approval process
1.
Board considers and resolves to approve the proposal to relocate ARPC to Sydney. A time
delay is proposed to be included in the approval process to ensure al members have no
concerns about the proposal and have the opportunity to ask questions.
2.
Delegation to the CEO to undertake the project within the proposed budget.
3.
Chair signs a short letter to Minister setting out the board decision and that the project is
part of our corporate plan.
4.
A status report wil be provided to the board monthly.
5.
New Board members wil be briefed on the original proposal and project status as they are
appointed.
8 Announcement Strategy and Sequence
1.
Immediately prior to announcement, brief al Executive Managers explaining the impact on
their role (if any), and their role in assisting staff through this process according to the
established principles.
2.
Al staff meeting to announce the Board decision. Al staff wil be provided with a clear
timetable and process. Arrangements made to contact staff who are not in the office (e.g.
on leave) as soon as possible.
4.
Each staff member on the announcement day given an information package setting out the
proposed plan for implementation.
5.
One month period commences for consultation with staff on plan for implementation of
relocation.
6.
On announcement day and for the next month at a minimum, there is onsite counsel ing and
outplacement support.
6.
Market update published outlining the change and timeframes.
7.
Fol owing consultation period, staff invited to elect to relocate or elect for career transition.
One month consideration period al owed for staff to advise CEO of their decision.
8.
During consideration period, discussions held with each member of staff individual y
regarding their options.
9 Conclusion
This is a difficult decision, but one that is proposed in the best interests of ARPC in the long-term.
Stakeholders wil not be adversely affected and most (if not al ) wil support the move. The proposed
approach looks after our people to the highest standard.
Al the costs are estimated at the highest possible costs. Further reductions in costs wil be achieved
through careful selection and project management of the new office location, finding successful
career alternatives for staff, and sub-leasing the Canberra office.
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