4 Current Model Analysis

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1 Service Delivery and Performance Commission Page 17 4 Current Model Analysis 4.1 Introduction Chapter 3 provided an overview of fleet management operations in the Queensland Government including identifying the scope of QFleet s operations. Also included in chapter 3 is a comparison of interstate approaches to fleet management. This chapter analyses the key components of centralised fleet management, leasing and ownership issues and addresses QFleet s current fleet management model including policy, systems and processes. 4.2 Centralised fleet management Introduction The BDO Kendalls report concluded the centralised model was the preferred model for fleet management as it enabled better focus on efficiency and cost savings. BDO Kendalls noted the effectiveness of the centralised model would be dependent on the efficient operation of the fleet management organisation [7] Stakeholder perspective Stakeholder consultation during the Review indicated agencies place value on the centralised management model. It is perceived the QFleet model generates better value for government than other models through control of the fleet mix, belief that QFleet obtains better contractual prices from manufacturers, and control through whole-of-government reporting allowing for informed decision making. There is considerable support from stakeholders for the continuation of the centralised model for procurement and management of the Queensland Government fleet. Manufacturers, motor vehicle dealers and repairers confirmed the centralised model is the most efficient to service. It is not their preference to deal with individual government agencies. Centralised management ensures costs to government are negotiated and managed based on industry standards. In considering the implications for a decentralised model for the management of the fleet, it is anticipated additional costs to government would be incurred for the purchase and maintenance of motor vehicles. For example, additional costs are to be expected through disaggregated forecasting, duplication of processes and systems across agencies and additional costs for manufacturers and suppliers to service the government Findings BDO Kendalls identified QFleet s centralised approach to fleet management to be the most effective approach. The centralisation of the management of vehicles as a specialist function, allows a better focus on efficiency and cost savings. With the concentration of skills, knowledge and experience, best practice procedures can be developed and implemented [7]. All other government jurisdictions operate some form of centralised fleet management to manage the risks associated with a large fleet.

2 Page 18 Service Delivery and Performance Commission The Queensland Government s centralised fleet management model is operating effectively, with QFleet as the whole-of-government fleet manager for its leased assets. 4.3 Leasing and ownership Overview The establishment of QFleet and the transfer of vehicles from agency ownership to QFleet ownership took three years from QFleet s inception in The transfer was made on the basis of agencies receiving equity in QFleet at the time that owned assets were surrendered for leased assets [6]. Prior to QFleet s establishment, each agency controlled its own fleet and the decision to lease or own the fleet. The SDPC has not been able to ascertain if any agencies elected to lease their fleets prior to the establishment of QFleet. Government benefits from ownership The Queensland Government receives the following benefits from fleet ownership: control over assets; risk minimisation through fleet mix and disposal management; client responsiveness; control over fleet management reporting data; ability to respond to emergencies and disasters; and access to funding at lowest rates Leasing versus ownership analysis Government agencies consulted during the review had strong opinions in relation to QFleet s lease price. Government agencies were not satisfied with receiving leasing costs without the components of the lease charge being transparent. Stakeholders consulted during the Review raised the issue that leasing companies often offer reduced costs in the first few years of a leasing agreement to secure the contract. To validate this information, the Review conducted an analysis of a GOC fleet leasing arrangement to provide a reasonable comparison of actual leasing costs. Data provided by leasing companies during the Review revealed that QFleet s internal leasing methodology and cost structure was competitive with the private sector in most vehicle segments. GOC case study The GOC analysed utilises services from two private leasing companies in addition to QFleet. GOCs are not tied specifically to using QFleet for acquisition of vehicles. Information provided by the GOC on its lease costs with the two private leasing companies and QFleet is provided in Figure 2. The information within Figure 2 reveals that QFleet s average lease cost provided to the GOC is $23, This is August 2007 Report on Review of QFleet in the Department of Public Works

3 Service Delivery and Performance Commission Page 19 $3, less than Leasing Company A, and $11, less than Leasing Company B. Figure 2: Comparison of lease prices 40, Full-term lease price 35, , , , , , , , , , Leasing Company A Leasing Company B QFleet Source: SDPC QFleet Review Team This analysis is premised by a sample of approximately 200 vehicles distributed across the two leasing companies and QFleet with a sample of vehicles and lease terms that are comparable, but with different average kilometres. Analysing the same set of data based on an average cents per kilometre cost, QFleet is marginally more expensive than the private leasing companies. Figure 3 provides this comparison. Figure 3: Cents per kilometre comparison Leasing Company A Leasing Company B QFleet Source: SDPC QFleet Review Team The trend in the other state jurisdictions was to move towards a leasing model. NSW is an example where this occurred, however NSW is now reverting to an owned model. The decision for the NSW government to own its fleet was based on: the lending rate through NSW Treasury being more economical than rates available through the private sector; ownership being easier to manage centrally than a leased fleet; each agency not being required to maintain asset registers, as this is done centrally; and

4 Page 20 Service Delivery and Performance Commission a 2002/03 review recommended a centralised ownership model (based on some of the above factors). If the Queensland Government was to move to a leasing model, it would be extremely difficult to revert to an ownership model. The capital investment required to purchase 14,000 vehicles would be approximately $312 million. Ability to respond to emergency/disaster situations If QFleet was to enter into a leasing arrangement for its current fleet requirements, it may reduce government s ability to respond promptly to disasters and emergencies, and may increase costs. These events normally require an immediate supply of additional vehicles to support the response effort. If the fleet was leased, not owned, vehicles would need to be sought from the lessor. Leases with private companies are time and kilometre based, with cash flows from the lease ceasing as the lease ends. An external provider will recover the asset and liquidate it as soon as possible. If the provider did agree to re-lease the vehicle, the following risks would need to be assessed and managed accordingly: a secondary lease on a vehicle may be very expensive when the lessor is not quoting in a competitive market; and emergency/disaster situations do not have identifiable start and end dates and these are the basis of the lease. It is likely an additional cost for retention or early surrender of vehicles will arise. These costs are not able to be quantified but they would not be insignificant. Under a leasing model, another option for responding to emergency/disaster situations would be for agencies to increase their fleet numbers across the state with the surplus being surrendered for deployment to the affected areas. This would be costly and an over-commitment of resources. The government s responsiveness for the provision of vehicles was demonstrated by the response to Cyclone Larry, Fire Ants and Citrus Canker outbreaks. QFleet worked in cooperation with agencies to deploy vehicles to enable agencies to meet their objectives. Approximately 250 vehicles were removed from auction lots and end-of-lease processes for deployment [6] Findings The current centralised model for fleet management is working effectively and offers the best value for government through aggregation of services and activities. The ownership of the fleet enables the Queensland Government to ensure control of associated risks. If the Queensland Government was to move to a leasing model, it would be extremely difficult to revert to an ownership model. The capital investment required to purchase 14,000 vehicles would be approximately $312 million. QFleet s internal leasing methodology and cost structure is competitive with the private sector, but is not transparent to clients resulting in criticism from agencies. QFleet should actively market their services to GOCs and other government organisations. August 2007 Report on Review of QFleet in the Department of Public Works

5 Service Delivery and Performance Commission Page 21 The ownership arrangement should be reviewed on a regular basis to ensure it remains the best model for government. Recommendation 1 It is recommended that the Director-General of the Department of Public Works: i. continues to provide an ownership model for fleet management in the Queensland Government through QFleet; ii. continues the tied arrangements, whereby all Departments of the Queensland Government, except where exempted by Cabinet, are tied to QFleet s vehicle leasing and fleet management services and the continuation of its operations as a broker of fleet leasing; iii. arranges an independent review of the ownership model, occurring every three years to ensure it remains the optimal model for the management of the Queensland Government fleet; iv. ensures the lease price components are transparent to government agencies by 31 December 2007; and v. commences active marketing of fleet services to government owned corporations by 31 December Whole-of-government fleet policy Introduction This section outlines the governance processes in place for whole-of-government fleet management policy. The application of policy relates not only to QFleet owned vehicles but also the additional agency owned vehicles Whole-of-government policy overview Historically fleet management policy within the Queensland Government has been developed and implemented at two levels: whole-of-government policy endorsed through Cabinet and at Ministerial level; and individual agency creation and application (operational policy). Whole-of-government policy ensures consistent application of processes and enables the discharge of reform. Fleet management policy development and monitoring enhances the operational effectiveness of the Queensland Government fleet by: management of fleet mix; ensuring vehicles are fit-for-purpose; vehicle utilisation; ensuring vehicle accessories are fit-for-purpose; and future vehicle requirements are known in advance.

6 Page 22 Service Delivery and Performance Commission Whole-of-government reporting Historically, for reporting purposes the whole-of-government fleet has encapsulated the 14,000 vehicles owned by QFleet. The Review identified additional vehicles owned by government agencies that are not included for reporting purposes. Without a central body collating whole-of-government fleet information there is the potential to mislead government on policy development, review and compliance QFleet s policy role QFleet has assumed the whole-of-government policy role to progress the government s priorities and objectives in the absence of a central owner. QFleet assumed this role to control the Queensland Government s risk exposure with the fleet mix profile. QFleet has demonstrated that it has the fleet management expertise and systems to undertake this activity Policy Advisory Group The Whole-of-Government Fleet Management Review (WOGFMR) undertaken by DPW with QFleet as the lead agency in 2005, identified savings of $8.5 million per annum to be maximised across the Queensland Government fleet by mid WOGFMR recommended the establishment of the Policy Advisory Group (PAG), comprising agency and SSP representatives to address the lack of a fleet policy group in Queensland Government. The PAG was formed in October 2005 to develop and review government fleet management policies for fleet composition, safety, environment and to monitor the resulting whole-of-government fleet savings. PAG members expressed a number of concerns to the Review regarding fleet policy: a central organisation within government should be responsible for establishing fleet policy a central organisation needs to be given the mandate to develop policies; there is no governance structure above PAG; PAG is an information sharing forum only; PAG sub-committees are ineffective as there have been no outcomes; and some policies are made without the input of QFleet or PAG that have had significant impacts on QFleet s operational performance. PAG has existed for 18 months without a policy being forwarded to the Director- General of the Department of Public Works for endorsement Findings There is no coordinated control over the development, implementation and monitoring of whole-of-government fleet policy. The PAG was established to undertake this activity on behalf of the Queensland Government, but has been ineffective due to lack of governance. August 2007 Report on Review of QFleet in the Department of Public Works

7 Service Delivery and Performance Commission Page 23 As the Queensland Government s fleet manager, QFleet has the capability and systems to perform a fleet policy and reporting role on behalf of government. A whole-of-government approach is reliant upon collaboration with government agencies with owned vehicles. Recommendation 2 It is recommended that the Director-General of the Department of Public Works establishes a policy capacity within QFleet by 31 March 2008 to: i. develop, implement and monitor policy across the sector; and ii. extend the role of the policy unit to encompass the 19,000 vehicles owned by the Queensland Government. Recommendation 3 It is recommended that the Director-General of the Department of Public Works: i. disbands the Policy Advisory Group by 31 December 2007; ii. creates a steering committee to monitor the development and implementation of whole-of-government policy by 31 December 2007; iii. enhances QFleet management systems to include reporting for all the Queensland Government vehicles by 30 June 2008; and iv. be responsible for whole-of-government fleet reporting by 30 July Recommendation 4 It is recommended that the Director-General of the Department of Public Works provides strategic advice to agencies in framing agency based fleet policies that are aligned with the whole-of-government policy requirements by 31 March This will include: i. fleet planning, profiling and modelling; and ii. strategic, tactical and operating performance reporting. 4.5 Environmental initiatives and policy Introduction Protecting the environment for a sustainable future is a key government priority. The Queensland Government has provided leadership for a number of years in reducing the environmental impact of its motor vehicle fleet. Outlined in this section are QFleet s environmental initiatives implemented on behalf of government and the future plans to reduce the effects of emissions Fleet environmental management QFleet acknowledges its responsibility to the government s environmental priorities and actively seeks to minimise the environmental impact of the fleet through the following strategies: reducing the number of vehicles in the fleet by promoting greater utilisation; maximising the environmental efficiency of vehicles in use;

8 Page 24 Service Delivery and Performance Commission neutralising greenhouse emissions of the fleet; promoting the selection of fit-for-purpose vehicles with the best environmental performance; and subscribing to a greening organisation for the planting of trees to reduce carbon in the atmosphere. In 2000, QFleet appointed a full-time Environmental Manager to develop and coordinate fleet-oriented environmental obligations and initiatives. QFleet has improved environmental practices during this period including partnering with vehicle manufacturers and suppliers in trialling alternate technologies and fuels. QFleet gained the recognition of its peers in the fleet management industry when awarded the Australasian Fleet Managers Association s National Fleet Environmental Award for Environmental future for QFleet QFleet is providing fuel consumption figures online for all new vehicles enabling agencies to consider fuel consumption and CO 2 emissions when making vehicle selection decisions. This will soon be augmented by the inclusion of the environmental star-rating system developed by the Commonwealth Department of Transport and Regional Services. The intention is to promote environmental issues as an additional factor in the client vehicle selection process. Recent government policy directions have positive linkages to environmental management. Two of these policy directions were the banning of eight cylinder vehicles and the move from six to four cylinders. While it is generally accepted that smaller engines produce fewer emissions, this is not always true. Developments in engine technology and improvements in fuel quality standards are narrowing the environmental performance gap between some six and four cylinder vehicles. QFleet s focus in terms of vehicle selection policy is shifting from the broad application of cylinder number criteria to scientifically derived, vehicle specific emissions data. Despite QFleet encouraging agencies to move to smaller, more fuel efficient vehicles, agencies presently determine the composition of their fleets. QFleet and government agencies could further reduce greenhouse emissions and demonstrate leadership by: rationalising the government fleet; pooling government owned vehicles to maximise their utilisation; considering new alternative technologies; ceasing unnecessary home garaging; using taxi vouchers when attending nearby events such as conferences and training courses as opposed to taking a vehicle for the day; better utilisation of teleconferencing and video conferencing; continuing high level whole-of-government reporting on the government fleet in relation to environmental management; and ensuring vehicles are being maintained e.g., tyre pressure to improve economy. August 2007 Report on Review of QFleet in the Department of Public Works

9 Service Delivery and Performance Commission Page 25 Recommendation 5 It is recommended that the Director-General of the Department of Public Works: iv. continues to invest in environmental fleet management strategies; v. extends environmental fleet management strategies to all government owned vehicles by 30 June 2008; and vi. through development and implementation of policy further reduces the government s fleet greenhouse emissions by December Fleet Management Information Systems Introduction This section explores the information technology solutions used by QFleet and agencies to facilitate fleet management and reporting of the Queensland Government fleet. QFleet relies heavily on information to manage and inform government on fleet issues. With its new policy role, this will become increasingly important. The information that QFleet requires will need to be extended to include the agency owned vehicle fleet Overview of QFleet fleet management information systems QFleet s core fleet management system, Kerridge, was implemented in The systems design is aged and proprietary technologies used in Kerridge make it difficult to integrate with external systems. Such inter-operability is an increasingly important requirement for business systems. QFleet is participating in a large and growing number of business-to-business processes that need to be facilitated by system-tosystem integration. While the system does provide adequate functionality to support core fleet processes, the identified deficiencies and risks associated with its continued operation within QFleet confirm it is now technically obsolete and at the end of its effective life. The tender process for the replacement of Kerridge is well advanced and is expected to allow the preferred solution to be successfully implemented by early This aligns with the current planned rollout of the Shared Services Solutions for finance and human resources (HR) within DPW. QFleet has two client interfacing systems running in parallel. These systems are the Client Access System (CAS) and Fleetscape, and are explained in more detail below. Both systems use Kerridge to draw data to provide fleet reporting and perform fleet functions.

10 Page 26 Service Delivery and Performance Commission Client Access System Developed by QFleet in 1996, CAS was one of the first online fleet reporting systems available to the Queensland Government. CAS reporting functionality includes: details of active vehicles leases; returned vehicle data; electronic invoice downloads; insurance reporting; vehicle utilisation; accident management; electronic acceptance of lease agreements; fines management; lease rate calculator; online vehicle auction; and fringe benefit entry, reporting and calculation. Reports can be extracted from CAS at the agency and regional level. QFleet is in the process of decommissioning CAS and arranging the transfer of its functionality into Fleetscape to enable one whole-of-government fleet management system Fleetscape On 6 July 2006, Cabinet endorsed that QFleet develop a single fleet system, Fleetscape to provide a consistent approach to fleet management across government to support the outcomes of WOGFMR. Fleetscape s technical environment (including programming language and database) allows the system to be scalable, secure, and exchange and use information from a variety of sources. This is suitable for large-scale deployments such as online ordering. Fleetscape is supported by an integrated protocol to enable incorporation with external systems running in disparate environments and on disparate platforms. It also supports a range of other integration techniques that can be used to develop efficient business to business processes. To date 83% of agencies are connected to Fleetscape [6]. QFleet s implementation plan includes quarterly regional training, weekly training in Brisbane and ongoing telephone support. The current functionality of Fleetscape is facilitated by the following modules: policy module: allows QFleet to embed whole-of-government and agency policy into the system. This governance process ensures agencies order only those vehicles that comply with policy; online ordering module: allows agencies to compare vehicles and whole-of-life costs, approve and order a vehicle online via workflow; FBT module (previously in CAS): will enhance data integrity, improved probity of process via exposure of home garaging and private use of government motor vehicles and provides FBT entry, reporting and calculation; August 2007 Report on Review of QFleet in the Department of Public Works

11 Service Delivery and Performance Commission Page 27 business activity monitor module: allows QFleet to monitor turnaround times at various stages of processes, it reports against the key performance indicators for clients and QFleet staff. QFleet s intention is to incorporate this tool across a majority of operational processes; and return vehicle inspection module: in use by QFleet return agents across the state, allows return agents to print Return Vehicle Inspection forms with vehicle and accessory details (for inspection) and notifies QFleet staff to terminate a lease. The future functionality of Fleetscape is depicted in Figure 4. The following modules will be developed: reporting; maintenance management; accident management; pooling and parking; and interfacing with SAP finance. QFleet identified the commercial potential for Fleetscape when introducing the system into government agencies. DPW has identified an industry partner with both the interest and capability to progress the product commercially. This led to the commercialisation of the system and subsequent selling to private sector fleet managers. Figure 4: Future functionality of Fleetscape Source: QFleet

12 Page 28 Service Delivery and Performance Commission Stakeholder feedback regarding CAS and Fleetscape Throughout the consultation phase of the Review both QFleet staff and clients identified the following issues: QFleet staff are required to update rate tables in both CAS and Fleetscape creating inefficiencies through duplication of data entry; data inaccuracy such as incorrect operating locations and odometer readings being recorded in CAS; delays in loading vehicle pricing into both systems by QFleet for client viewing which causes delays to clients ordering vehicles; vehicle quotations are no longer valid within Fleetscape after 14 days, resulting in lost data for the users; and available training manuals or procedures are inadequate Findings QFleet s core fleet management system, Kerridge, does not provide a cost effective or functional platform to support QFleet s business. QFleet is operating parallel client interfacing systems. There is duplication of effort and increases possibilities for inconsistent information. Fleetscape will provide government with enhanced governance and reporting capability when developed to its full potential however there are outstanding functionality issues that must be resolved. Recommendation 6 It is recommended that the Director-General of the Department of Public Works: i. removes the duplication of effort by converting the Client Access System s reporting capability to Fleetscape by 31 January 2008; ii. corrects the functionality issues within Fleetscape by 31 March 2008; and iii. reviews its internal processes and key performance indicators for loading vehicle data into Fleetscape by 30 November SSPs and Fleet Management Introduction Across the sector there are 129 FTE staff engaged in fleet management activities. These activities are undertaken by approximately 550 QFleet, agency or SSP staff SSP role in fleet management Stakeholders consulted during the Review raised the issue of role clarity between QFleet, agencies and SSPs. Stakeholders perceive the pressure on SSPs to return dividends to government has led to fragmented and inconsistent operating level agreements for fleet functions across government. The Review noted that prior to the August 2007 Report on Review of QFleet in the Department of Public Works

13 Service Delivery and Performance Commission Page 29 Shared Service Initiative (SSI) QFleet was providing many of these services directly to agencies. Under the SSI, some agencies transitioned staff to SSPs to provide fleet administration activities. There is duplication between some SSPs and agencies, where transitioned services are also being undertaken in the agency. In considering roles and responsibilities the Review identified two main areas of fleet administration duplication: vehicle selection and ordering; and pooling and parking. Both of these areas of fleet administration involve duplication of fleet information systems or processes Vehicle selection and ordering Some agencies order their vehicles through their SSP. The SSP then utilises Fleetscape and/or liaises and negotiates directly with QFleet. The SSP then provides information to the agency for approval prior to placing the order with QFleet. A diagram of this process is provided in Figure 5. Figure 5: Current model for vehicle ordering QFLEET FLEETSCAPE FLEETSCAPE SSP Various methods AGENCY Source: SDPC QFleet Review Team CorporateLink, as a Queensland Government SSP, sources vehicles through QFleet for agencies and adds a management fee per month onto each vehicle lease. This charge recovers administration costs and an FBT liability estimate. For CorporateLink clients, the final charge the agency receives from the SSP is greater than QFleet s lease charge, but is representative of fleet management resources transitioned to CorporateLink. Conclusions identified in the WOGFMR and approved by the Cabinet Budget Review Committee regarding vehicle selection will lead to: a standard approach to streamlining the process resulting in efficiencies; an electronic system to support and capture the requirements of all clients; whole-of-government standardisation of the principles and approaches to vehicle selection policies; and improvement in vehicle utilisation delivering savings by reducing fleet size across whole-of-government, which in turn will reduce the effort required in ordering vehicles.

14 Page 30 Service Delivery and Performance Commission Pooling and parking Within the Queensland Government, agencies and SSPs operate parking and pooling services. A.T. Kearney identified approximately 2,070 passenger vehicles that are currently underutilised. It is estimated approximately 1,000 of these vehicles could be pooled. Although more difficult to implement, additional opportunities exist within the commercial range. Preliminary estimates indicate savings to government of between $2.2 million and $5.3 million [8]. CorporateLink provides a pooling and parking facility for some of their client agencies, both in the CBD and in regional Queensland through the Asset Management Information System (AMIS). The main functionality of AMIS is facility and telecommunications management. AMIS also provides some fleet management activities. AMIS interfaces to SAP downloading cost allocations to cost centres in the general ledger. A project has been established to look at the integration points between Fleetscape and the AMIS pooling and parking module. The purpose of this review is to ascertain the best whole-of-government solution for pooling and parking. This initial review is expected to by completed by August Findings There is some duplication of activities between QFleet and SSPs. There are agencies that deal directly with QFleet for the provision of motor vehicles, and others that source this service through their SSP. There are opportunities for additional savings to government for the pooling of motor vehicles. The issues surrounding the implementation of the pooling and parking solution in the Queensland Government is currently being investigated by QFleet and the Shared Services Agency. The use of a single common system to order vehicles will allow a seamless, consistent and efficient process for ordering vehicles directly with QFleet. Recommendation 7 It is recommended that Directors-General ensure: i. their agencies use Fleetscape, particularly the online vehicle ordering module, to support QFleet in the procurement process by 31 December 2007; and ii. that where the agency has transitioned fleet administration activities to the Shared Service Providers, there will not be a fleet coordinator or equivalent in that agency. Vehicle drivers will deal directly with the SSP for vehicle specification requirements. Recommendation 8 It is recommended that the Director-General of the Department of Public Works ensures Fleetscape is the fleet management system and QFleet is the information owner for all QFleet leased vehicles. August 2007 Report on Review of QFleet in the Department of Public Works

15 Service Delivery and Performance Commission Page 31 Recommendation 9 It is recommended that the Director-General of the Department of Public Works and the Managing Director of the Shared Service Agency establish a protocol to ensure there is a single parking and pooling solution for the Queensland Government by 31 December Human resources Introduction The General Manager of QFleet reports to the Deputy Director-General (Services) within the Department of Public Works. The workforce falls into three main categories being Fleet Operations, Business Strategy and Development, and Leasing and Procurement Services. Figure 6 shows QFleet s current position allocation. Figure 6: QFleet organisational chart Office of the General Manager 5 Director, Fleet Operations 1 Business Strategy and Development Branch 13 Leasing and Procurement Services Branch 12 Fleet Client Services Branch Business Support Branch Vehicle Remarketing Branch (Workshops) 73 = Number of positions in Branch Source: SDPC QFleet Review Team QFleet has 145 positions. Of these, 114 are FTE occupied positions; 10 positions are occupied by apprentices hired through an external arrangement; five positions are occupied by contractors employed for labour activities, and 16 are vacant positions. There are a further 22 occupied positions provided through the DPW Corporate (11) and Shared Services Agency (11) for which QFleet pay a fee to manage finance, human resources and information technology. The Review has undertaken a fleet management industry comparison of QFleet s current staff numbers. To facilitate the comparison, QFleet s staffing numbers have been adjusted to account for the differing service model to the private sector (i.e., workshop and positions directly attributable to achieving government priorities). DPW Corporate and CSQ service provision has been included in the adjusted workforce number. QFleet s adjusted workforce of 75 confirms one FTE equates to 186 vehicles managed per person (based on approximately 14,000 vehicles). This compares unfavourably to information collected through consultation with the private sector suggesting one FTE equates to 225 vehicles managed per person.

16 Page 32 Service Delivery and Performance Commission Findings In order for QFleet to meet industry comparisons of one FTE per 225 vehicles, it needs to reduce staffing numbers by 13 FTEs. The reduction in FTEs is to include a review of the services provided by DPW Corporate and the Shared Services Agency. In view of the additional initiatives stemming from the implementation of this report particularly in relation to leading various reforms, progressing information systems implementation, and establishing performance management arrangements, the additional 13 FTE positions could be utilised to assist QFleet in the short to medium term. Once these initiatives are implemented QFleet would need to adjust its staffing profile consistent with industry comparisons for the number of vehicles managed at that time. Based on current estimates this could realise recurrent savings of $0.8 million per annum. Recommendation 10 It is recommended that the Director-General of the Department of Public Works adjusts the staffing numbers within QFleet, and those agencies supporting QFleet, to ensure one Full Time Equivalent per 225 vehicles by 30 June August 2007 Report on Review of QFleet in the Department of Public Works

17 Service Delivery and Performance Commission Page 33 5 Fleet Operations 5.1 Introduction The focus of previous chapters was to profile the Australian Automotive Industry, identify the Queensland Government s fleet management model, and provide an overview of the current model. QFleet s new policy role recommended in chapter 4 will have a direct impact on the future strategic procurement of the fleet. This aspect of QFleet s future operations, as well as in-service fleet management, and end-of-lease processes are the three key components analysed in this chapter. Later chapters focus on QFleet s financial position and assessment of these services against the CBU principles. 5.1 Fleet acquisition Strategic procurement of fleet Whole-of-government purchasing enables the government to achieve discounts on recommended retail pricing for its motor vehicles. Discounts can be a reduction from the recommended retail price depending on the manufacturer, type of vehicle, and whether that vehicle is locally manufactured or imported. QFleet s mandate is to purchase passenger and light commercial vehicles for the Queensland Government excluding QPS. Agency owned vehicles are currently purchased through contracts separate to the QFleet arrangement. This is potentially impacting on the Queensland Government s ability to negotiate bulk buy savings in the procurement of the whole-of-government vehicle fleet. A bulk buy is a commitment by QFleet to the manufacturer to purchase a certain volume of vehicles over a pre-determined period. From 2001 to 2007, QFleet negotiated vehicle bulk buys that reduced government s motor vehicle spend by $5.4 million compared to the government contract price negotiated for these vehicles. When negotiating bulk buy arrangements QFleet forecasts the government s forward requirements over a period of time, usually three months. QFleet does this by reviewing vehicles due for return and assuming that agencies will replace like for like. This exposes QFleet to a risk as there is no certainty agencies will take the lease on these vehicles. This is a reactive approach to purchasing, confirming QFleet does not have sufficient control over the procurement process. During this Review, the SDPC in conjunction with Queensland Purchasing, commissioned a private consulting firm (A.T. Kearney) to undertake analysis on potential savings on strategic fleet procurement. A fleet sourcing strategy developed by A.T. Kearney is provided in Appendix 4. The preliminary findings from A.T. Kearney for the passenger fleet are an estimated: 1 to 2% economic benefit through providing volume guarantees to suppliers (approximately $1.1 to $2.2 million per annum);

18 Page 34 Service Delivery and Performance Commission 1 to 2% economic benefit through providing a consolidated supplier base and increasing individual supplier volumes (approximately $1.1 to $2.2 million per annum); and 10% cost benefit on options (equivalent to 0.5 to 1% of total cost) with rationalised specifications and forward orders [8] (approximately $500,000 to $1.1 million per annum). These preliminary findings indicate potential savings for government through a consolidated approach to vehicle and accessory procurement. The commercial fleet was excluded from initial analysis, but is scheduled to be considered by the end of As the commercial fleet is approximately 43% of the total QFleet owned vehicle, it is likely greater savings will be achieved through the strategic procurement of the commercial fleet. Strategic procurement also has an environmental benefit. The reduction in the large vehicle segment, and assuming the fleet size remains constant over the next three years, the Queensland Government can expect to save approximately 7% in emissions by A.T. Kearney s preliminary findings indicate optimisation and procurement initiatives could boost the expected 7% emissions reduction by a further 7%. This estimate is based on kilo-tonnes of CO 2 per annum [8]. A summary of procurement benefits identified by A.T. Kearney is provided in Appendix 5. QFleet is currently consulting with the QGCPO of the Department of Public Works to establish a new Standing Offer Arrangement (SOA) with manufacturers Fleet mix When considering the fleet profile there are a number of elements to consider, including: make, model, and badge (i.e., Ford, Falcon, XT, Sedan) segment (i.e., large passenger vehicle) cylinders (six or four cylinder - encompasses commercial and passenger vehicles); vehicle configuration (i.e., new technology) fuel type (i.e., diesel, LPG, petrol or hybrid), and average age of fleet and kilometres travelled. Appendix 6 outlines the current fleet mix profile for the Queensland Government fleet. In October 2005, there was considerable concern and media attention regarding QFleet s stock holding, particularly with the large passenger six cylinder segment which represented 36.8% of QFleet s vehicles. The large proportion of large passenger six cylinder vehicles in the fleet was of concern to QFleet given the drop in the sales in the new car market and the subsequent impact on the used car market. Figure 1 in section 2.3 depicts the steady decline in this segment from mid August 2007 Report on Review of QFleet in the Department of Public Works

19 Service Delivery and Performance Commission Page 35 Recognising the issues in relation to the shift in the used car market for the large passenger six cylinder segment and luxury vehicles, QFleet set reduction targets for the composition of the fleet from 36.8% to 27.5% by 30 June 2009 (Appendix 7). QFleet recommended a policy change to support this transition which included the four cylinder preference policy and the broadening of the Senior Executive Services (SES) Officers range of vehicles. This range now includes lifestyle type vehicles such as four cylinder Subaru Foresters that were not previously available to SES. To date, government is ahead of expectations in meeting the 2009 target of 27.5% with the large passenger fleet currently at 29.74%. QFleet believes that its four cylinder preference policy has demonstrated by exceeding the change targets, that agencies allowed a user-chooser approach to determine which vehicles were acquired. This process affects the government s fleet mix profile. Agencies do not provide QFleet with planned forecasts. Fleet mix is mainly determined by local decisions made through discussions with vehicle drivers regarding their personal and fit-for-purpose requirements on a vehicle-by-vehicle basis. This approach is commonly known as user-chooser and does not support QFleet in accurately predicting the future vehicle requirements, monitor fleet mix at a point in time or forecast the government s future fleet mix profile with certainty. Information provided by QFleet shows that in 2005 QFleet purchased approximately 3% of all the new passenger and light commercials sold in Queensland. Being one of the biggest owners of vehicles in Queensland [9], QFleet has volume risk exposure that can affect the used car market. The user-chooser model in government agencies conflicts with QFleet s risk management responsibility on behalf of government. Product Risk Committee The Product Risk Committee (PRC) is the management forum within QFleet used to manage the composition of the fleet and set residual values. The PRC calculates the cost of maintenance for vehicles over ownership periods. These costs are calculated based on manufacturer s recommended servicing schedules, with QFleet negotiating the labour rate at a benefit to government. The PRC has limited decision making authority but is responsible for making recommendations to QFleet s Executive Management Team. When the Review met with the PRC there was recognition of the importance to manage the exposure to risk. QFleet believe government has a leadership role and social responsibility to ensure that vehicles are both environmentally sound and safe. QFleet reviews the safety specifications of vehicles and may elect to choose safety packs Findings The Queensland Government procures a significant number of vehicles. For the strategic procurement of fleet there are opportunities to further increase government discounts through volume by including vehicles owned by agencies.

20 Page 36 Service Delivery and Performance Commission To facilitate these savings QFleet must be responsible for the centralised vehicle selection decisions on behalf of government for the QFleet owned fleet. This strategy will improve the potential sourcing benefits by providing improved predictability for manufacturers and suppliers. The Queensland Government has a major impact on vehicle manufacturer s market share. As a result of this market share, government could potentially impact on the used vehicle market. The Queensland Government requires improved practices for managing the fleet mix to minimise the risk to the market. QFleet s ability to manage the fleet mix is affected by agencies user-chooser approach to vehicle selection. Current behaviours indicate government agencies do not consider the impact of their vehicle purchases on the market or the fleet mix. The SOA QFleet is currently negotiating with manufacturers is for three years, with a further three year extension. Recommendation 11 It is recommended that the Director-General of the Department of Public Works ensures: i. vehicle procurement processes are integrated between the Queensland Government Chief Procurement Office and QFleet to maximise savings for government by 30 June 2008; and ii. consolidation of the vehicle contract negotiation for all agencies, including owned fleets, be conducted through the Queensland Government Chief Procurement Office in accordance with the principles of the Service Delivery and Performance Commission Review of Purchasing and Logistics in the Queensland Government by 30 June Recommendation 12 It is recommended that Directors-General of agencies with owned vehicle fleets negotiate fleet contracts in conjunction with QGCPO and QFleet, in accordance with the principles of the Service Delivery and Performance Commission Review of Purchasing and Logistics in the Queensland Government by 30 June Recommendation 13 It is recommended that the Director-General of the Department of Public Works ensures QFleet manages the fleet mix profile through the selection of vehicles to meet the fit-for-purpose requirements for vehicles managed by QFleet by 30 June Recommendation 14 It is recommended that agency Directors-General collaborate with QFleet regarding their fit-for-purpose requirements for all specification requirements for vehicles managed by QFleet and not base decisions on make, model or badge by 30 June August 2007 Report on Review of QFleet in the Department of Public Works

21 Service Delivery and Performance Commission Page In-service fleet management Overview of in-service fleet management In-service fleet management includes those activities between vehicle acquisition and vehicle disposal. Predominantly, those activities are: leasing; accident management; environmental management; statutory renewal of the government fleet; strategic fleet management advice and reporting; maintenance and repairer network management; and operational and technical fleet management advice Accident management Jardine Lloyd Thompson manages the risk of accident damage to the Queensland Government s fleet and arranges comprehensive motor vehicle insurance on behalf of government. QFleet s current model of managing insurance related issues through a broker for the approximate 14,000 vehicles in the fleet is effective and has resulted in significant savings to government. The current arrangements are exclusive of the remaining estimated 5,000 vehicles owned by the Queensland Government. An aggregation of all 19,000 vehicles into the one insurance policy has the potential to result in considerable savings to government. Recommendation 15 It is recommended that the Director-General of the Department of Public Works: i. continues to arrange the brokering of insurance arrangement for QFleet vehicles through QFleet; and ii. engages Jardine Lloyd Thompson to undertake an analysis of the benefits of aggregating all 19,000 Queensland Government vehicles into the one insurance policy by 31 December Short-term vehicle hire QFleet s Vehicle Hire Service (VHS) is the Queensland Government s short-term hire facility and also provides booking services on behalf of the Queensland Government with AVIS for short-term rentals. VHS has six vehicle hire outlets across Queensland with a total of 159 vehicles. These vehicles are leased by VHS from QFleet. VHS agency locations are: Brisbane - 83 vehicles; Toowoomba - 2 vehicles;

22 Page 38 Service Delivery and Performance Commission Maryborough - 2 vehicles; Bundaberg - 5 vehicles; Townsville - 7 vehicles; and Cairns - 60 vehicles. The additional vehicles in Cairns are due to the supply of vehicles for the Cyclone Larry relief effort, and the supply of four-wheel drive vehicles for the Far North Queensland region. These outlets offer short-term hire vehicles to agencies for a period of one day to two years. Vehicles offered range from small four cylinder sedans to large four wheel drive vehicles to support government agencies in their service delivery. The Brisbane VHS office provides a number of management services to Queensland Government departments including car pooling and parking, visitor car park, fuel card management and vehicle servicing. The agency plays a role in deployment of vehicles for emergencies/disasters where vehicles need to be deployed quickly and managed. VHS remains profitable at the utilisation rate of 80%. QFleet is currently exceeding this key performance indicator. Recommendation 16 It is recommended that the Director-General of the Department of Public Works ensures: i. QFleet operates the Vehicle Hire Service on a full cost recovery basis, maintaining a utilisation rate above 80%; and ii. the Vehicle Hire Service remains in QFleet Maintenance QFleet undertakes an outsourcing model for maintenance and repair of vehicles throughout Queensland. Scheduled maintenance and repairs occurs through dealerships and a state-wide repair network. Maintenance fees are charged to clients in accordance with the manufacturers recommended price schedule. Vehicle repair fees are negotiated on a case-by-case basis. Recommendation 17 It is recommended that the Director-General of the Department of Public Works ensures QFleet, in collaboration with the Queensland Government Chief Procurement Office, develop Standing Offer Arrangements with vehicle maintenance and repair suppliers for those activities inside and outside of warranty by 30 June August 2007 Report on Review of QFleet in the Department of Public Works

23 Service Delivery and Performance Commission Page Colchester Street workshop The Colchester Street workshop provides the following services to government: on-site scheduled services within and outside of warranty; on-site vehicle washing and cleaning; on-site fuel sales to those who have access to the Government fuel contract; and emergency fuel for response to emergencies/disasters. These services are provided for QFleet leased vehicles. Approximately 24 vehicles a week are serviced at the Colchester Street workshop through eight staff positions. The Colchester Street workshop recorded a loss of $196,000 during 2005/06, and is currently forecasting a loss for 2006/07 of approximately $200,000. Revenue for the same period will be approximately $630,000. Consequently, the Colchester Street workshop would need to increase its revenue base by approximately 30%, without increasing expenses, to improve its financials to a break even position. The Review found that the Colchester Street workshop provides some services to government below cost. This is a significant factor contributing to the Colchester Street workshop s financial losses. The land valuation for the site occupied by the Colchester Street workshop is estimated at more than $2 million. The 2004 land valuation [10] report includes the following relevant market comments: the commercial market in South Brisbane is currently characterised by limited stock available for sale and an unprecedented level of demand; a mix of retail, residential, commercial and cultural uses has resulted in strong developer interest and activity with South Brisbane; and land values have been rising and investment yields have lightened over the past few years resulting in increased property prices across all sectors. It is understood that the site has redevelopment potential for affordable housing or expansion of other government activities. Due to the provision of fuel services, the land would require decontamination prior to redevelopment and the anticipated timeframe ranges from 12 months to two years. The services undertaken by the Colchester Street workshop are also provided by alternative suppliers locally. However, in the absence of an alternative use for the site it could remain operational due to its convenient location to the city and ease of access for current users. However all services need to be on a full cost recovery basis to ensure the site breaks even from a financial perspective. Once an alternative use is determined for the site it should be closed and not relocated to another location. Recommendation 18 It is recommended that the Director-General of the Department of Public Works, in the absence of an alternative use for the site, provides the suite of services through Colchester Street on a full cost recovery basis, ensuring it breaks even from a

24 Page 40 Service Delivery and Performance Commission financial perspective by 30 June Once an alternative use is determined for the site it is to be closed and not relocated to another location Pineapple Street workshop The Pineapple Street workshop is located at 69 Pineapple Street, Zillmere and occupies hectares. The site is owned by the Queensland Government represented by the Department of Public Works. The Pineapple Street workshop employs a total of approximately 70 trade and administrative officers. The cost to government of running the Pineapple Street workshop is approximately $6.3 million annually. The workshop provides a range of functions, including: return vehicle inspection station; panel and paint section; mechanical service inspection and repair; vehicle detailing; regional return agents; auction of vehicles; new car delivery section; fuel sales; and administration and reception. A combination of outsourcing and in-house repairs has been implemented by the Pineapple Street workshop. Due to the specialised nature of some work, the following activities are outsourced to the private sector: upholstery repairs; windscreen replacements; paint-less dint repairs; and installation of mobile phones and accessories. Other services that are outsourced, are determined by work volumes and the capacity of workshop staff. These services include: safety certification; insurance work; paint and panel work; and mechanical services. The Pineapple Street workshop manages regional vehicle sales. QFleet utilises an outsourcing model in regional Queensland locations. Some of the activities outsourced in regional Queensland are: coordination of vehicles through the end-of-lease process including preparation for auction which is undertaken by RoadTek on QFleet s behalf; and August 2007 Report on Review of QFleet in the Department of Public Works

25 Service Delivery and Performance Commission Page 41 repairs to panel and paint and detailing, which is performed by private providers. 5.3 Fleet end-of-lease Introduction The end-of-lease process encompasses vehicle repairs upon cessation of the lease, and the vehicle sale process. This section analyses QFleet s selling strategy and the linkages to the end-of-lease repair and vehicle sales processes QFleet s selling strategy In 2000, QFleet adopted a strategy to position itself as a retailer of motor vehicles. QFleet obtained a motor dealer s licence, promoted the brand and closely monitored the retail market. In order to meet retail market expectations QFleet adjusted its preparation sale standard to ensure vehicles were repaired to a high standard. QFleet closely monitored the standard of vehicles on auction lots and shifted its market to approximately 85% public buyers, dropping dealer participation to approximately 15% from the previous 50/50 participation. This strategy resulted in increased sale prices after 2000 and account, in part, for the strong profit performance of QFleet until 2003/04. This benefited agencies through lower lease rates and a profit sharing arrangement where 70% of the profit was returned to the agency when vehicle sale price exceeded a nominated value. The end of 2003 saw the beginning of the decline in the used vehicle market. QFleet continued to operate at the retail end of the market which resulted in a large stockpile of used vehicles reaching 2,353 at 30 June In early 2006, QFleet adjusted its sales strategy back to the previous good wholesale market applied prior to This decision encouraged dealers back to the auctions and dropped public buyer participation back to 64%. QFleet ceased its profit sharing arrangements with clients, reviewed its residual value setting process and improved the governance structures supporting the business. On 4 May 2007, QFleet commenced a trial selling vehicles without being repaired. The only work undertaken on the vehicles prior to selling was assessment for roadworthy certificates and an eco-wash. Preliminary findings indicate that on average QFleet is receiving approximately $750 less than the average net return on vehicles fully prepared for sale (i.e., after preparation expenses are subtracted from the sale price) End-of-lease repairs Stakeholders consulted during the Review identified QFleet s end-of-lease repair process as inconsistent with private practices. The overall consensus from these consultations was that QFleet repaired vehicles to a standard greater than what was required. Overview of repair model The Pineapple Street workshop outsources some work depending on its workload and capacity. In regional Queensland RoadTek, on behalf of QFleet, engages a repairer network in excess of 600 individual service agents.

26 Page 42 Service Delivery and Performance Commission Return agents coordinate the repair of vehicles to the QFleet repair standard. The information in the standard has been compiled to provide guidance to repairers so that vehicles are presented for sale at a consistent standard [11]. The vehicles are repaired to the industry s good wholesale [12] standard, which is described as: Good: vehicles are maintained, with a higher degree of originality than average. Body and interior should be original with minimum signs of wear. Only minor work should be needed to bring the vehicle to a suitable condition for sale; and Wholesale: the final cost of the vehicle on the lot ready for sale. Allowance must be made for any amount to get the vehicle up to the selected condition. The desired standard of preparation varies depending on the age of the vehicle, kilometres travelled and the type of vehicle (i.e., a Calais would be repaired to a better standard than a utility vehicle) [11]. QFleet includes a fee in each lease to cover minor damage. This fee is pooled to cover the cost of incidental wear and tear for end-of-lease damage for those vehicles where the damage is less than $500. This approach has resulted in approximately 50% of vehicles being returned that do not attract a recharge for repair. If the repair cost exceeds the $500 threshold, the client is charged the full amount of the repair. In some instances agencies could potentially pay for repair costs in addition to the fee included in the lease charge. Further explanation of this process is provided in Appendix 8. The average cost of end-of-lease vehicle repairs between July 2006 and March 2007 was $1,650 per vehicle. GOC case study Further to the earlier case study in chapter 4, the GOC provided information on endof-lease repairs on vehicles leased through the same organisations for the 2006 calendar year (Figure 7). Figure 7: Average end-of-lease repair cost comparison $1,600 $1,400 $1,200 $1,394 Value of Repairs $1,000 $800 $600 $658 $632 $400 $200 $0 Leasing Company A Leasing Company B QFleet Source: SDPC QFleet Review Team August 2007 Report on Review of QFleet in the Department of Public Works

27 Service Delivery and Performance Commission Page 43 Leasing Companies A and B dispose of their vehicles through private auction houses in Brisbane. The weighted average of end-of-lease repairs through a private leasing company is $655 per vehicle. The average difference in end-of-lease vehicle repair costs between QFleet and Leasing Companies A and B is $739 per vehicle. The Review identified wholesalers have a different repair standard to QFleet, as their vehicles are aimed at a different market. This analysis is premised on a sample of approximately 200 vehicles distributed across the two leasing companies and QFleet, with a sample of vehicles that are comparable. The analysis in chapter 4 highlighted the same two leasing companies provided higher lease costs which could be attributed to lower anticipated sales returns, resulting in costs being amortised throughout the lease term. Regional versus Brisbane repair standards The Review Team s regional visits to Toowoomba, Cairns, Townsville and Rockhampton highlighted there were distinct differences in repair standards, with regional vehicles often being repaired to a higher standard. Vehicles in regional locations are often subjected to different conditions to those experienced in Brisbane, resulting in a higher proportion of repairs. The difference in repair standard contributes to the difference in the average cost of end-of-lease repairs between each region and Brisbane (Figure 8). Figure 8: Average cost of repairs by region July 2006 to March 2007 $2,500 Repair Value $2,000 $1,500 $1,000 $1,458 $1,714 $1,997 $2,137 $2,171 $1,669 $1,506 $500 $0 Brisbane Cairns Townsville Rockhampton Toowoomba Mackay Maryborough Interstate $212 Region Source: SDPC QFleet Review Team The inconsistency in the end-of-lease vehicle repairs conducted by QFleet and private repairers occurs even though all locations complete repairs to the QFleet Vehicle Preparation and Presentation Standard. Inter-jurisdictional comparison The Review analysed data from four NSW government agencies to determine whether QFleet s average repair cost was excessive. The data provided in Figure 9,

28 Page 44 Service Delivery and Performance Commission indicates the average end-of-lease repair cost of the Queensland Government vehicles is not excessive in comparison to NSW Government agencies. Figure 9: Repair cost comparison between NSW Government agencies and QFleet Repair Costs ($) QFleet average 0 A B C D NSW Government Agency Source: SDPC QFleet Review Team NSW agencies repair vehicles prior to return from lease and continue to pay for the lease until the vehicle is repaired and ready for sale. Under the current QFleet arrangements, Queensland Government agencies have the opportunity to repair vehicles prior to return, however very few agencies undertake this activity Vehicle sales process QFleet disposes of all vehicles through public auctions conducted by the Public Trust Office of Queensland (PTO). Public auction is considered the most transparent and efficient manner to dispose of government vehicles, and ensures ex-government vehicles are offered to the Queensland public through various locations in Queensland. The auctions are held weekly in Brisbane, and monthly in Cairns, Townsville, Rockhampton, Mackay, Bundaberg, Toowoomba and Maryborough. Vehicle turnaround times through auction The average time QFleet has held a vehicle from the time it is returned to the time it is lotted for sale is 35.6 days. This timeframe is significantly higher than the 14 day target that private auction companies set. The additional timeframe has a financial impact for the Queensland Government through interest charges, and additionally FBT liability. Within Brisbane, the average turnaround time is 34 days with the regional turnaround time being 36 days. Some reasons attributable to the longer timeframes at QFleet compared to private auction companies are: QFleet reports when vehicles are lotted for sale, not prepared ready for sale; and a number of vehicles require insurance work that should have been undertaken during the life of the vehicle. Sales data comparison between QFleet and private auction companies The Review analysed the current costs incurred by QFleet for the selling of vehicles through the PTO and compared these to estimated costs in selling through a private auction company. The locations for available auction sites regionally is not consistent August 2007 Report on Review of QFleet in the Department of Public Works

29 Service Delivery and Performance Commission Page 45 between the PTO and private auction companies. The results of this comparison are provided in Figure 10. Figure 10: Comparison of estimated annual cost of auctions 3,000,000 Estimated annual cost ($) 2,500,000 2,000,000 1,500,000 1,000, ,000 0 QFleet Private Auction Company Source: SDPC QFleet Review Team The derived difference from this analysis is that the private auction company is approximately $600,000 cheaper per annum than the PTO. A factor to consider outside of this comparison is that private auction companies often charge the buyer (public) a fee. The Queensland Government could mitigate the impact of this cost on the buyer through contract negotiations. Inter-jurisdictional comparison The SDPC contracted an independent assessment of QFleet s sales figures to provide a statistical analysis of gross sale values between QFleet and the vehicle sale operations in NSW and Victoria [13]. The finding was that QFleet achieved slightly higher gross sale values than comparable sales in NSW and Victoria. The outcome of this statistical research indicates QFleet is selling vehicles at an appropriate price and is recovering end-oflease repairs expenditure during the auction process Findings There is a direct correlation between maximising sale price and a vehicles condition at sale. The used car market is dynamic and QFleet must be flexible and adjust its sales avenues and repair standards to meet market expectations. Additionally, QFleet must balance these with the repair costs it on charges to agencies. Throughout the consultation process, it was evident that issues surrounding vehicle repairs and vehicle standards are subjective. Agencies have the opportunity to repair vehicles prior to return to QFleet, but are concerned the repairs will not meet the required standard, so few agencies take up this opportunity. Currently, the average cost of repair is being recovered by QFleet in the sale price. Where damage is more then $500, QFleet charges the agencies for the full cost of repairs. This approach results in the agency having the potential to pay twice for this aspect of the repair. This approach was taken to reduce invoicing to clients by 50%. The decision to repair a vehicle prior to auction is done to ensure the seller obtains the best possible price without over capitalising. For example, it is not financially sound to spend $3,000 repairing a vehicle to obtain an additional $2,000 at auction. The Review identified very few organisations have undertaken a cost/benefit analysis

30 Page 46 Service Delivery and Performance Commission for end-of-lease repairs. Stakeholders also indicated to the Review that it is very difficult to document a cost/benefit analysis on the end-of-lease vehicle repair due to the number of variables that need to be taken into consideration. Some of these reasons are related to the irregularities and fluctuations within the motor vehicle market. Additionally, sometimes the purchase of a vehicle is made purely on emotive grounds rather than financial (e.g., colour rather than price). The data analysed by the Review and independent statistical analysts shows QFleet achieves a slightly better gross sale price compared to interstate jurisdictions, taking into consideration the average repair cost. It is possible that QFleet may be able to further maximise the return on sale of motor vehicles through opening up selling opportunities through a multi-vendor sales process. This would be dependent on the successful negotiation of contacts with suppliers. The benefits of selling through alternate sales channels are: encouraging competition between auctioneer businesses to maximise returns for government; providing flexibility to move and adapt to market fluctuations; ensuring government motor vehicles are auctioned in the appropriate market; opening different avenues for the public to purchase government vehicles; and reducing auction expenses. Regional auctions held by the PTO on behalf of QFleet are operating effectively and should continue. It is estimated the PTO net revenue will decrease by approximately $360,000 per annum through the multi-vendor sales model in Brisbane assuming 42% of vehicles are directed through three channels (PTO and two firms) as compared to all vehicles they direct through PTO only. After a period of 12 months, the effectiveness of the Brisbane multi-vendor sales model should be assessed to determine the possible extension into regional areas and agencies with owned fleets where it is deemed appropriate. The Review was informed that the revenue generated by the PTO from vehicle auctions was also utilised to subsidise other unrelated PTO activities. Accordingly any flow on affects from the multi vendor role model to other unrelated activities provided by the PTO should be identified by the PTO and considered as part of the normal budget process. The Review identified there is a lack of key performance indicators monitoring: cost of repairs against industry benchmarks and the private sector; throughput of workshop sections; and quality of the repairs undertaken compared to private sector. Accordingly there is not adequate evidence available to inform a decision to outsource the functions of the Pineapple Street workshop in line with the regional model. August 2007 Report on Review of QFleet in the Department of Public Works

31 Service Delivery and Performance Commission Page 47 Recommendation 19 It is recommended that the Director-General of the Department of Public Works: v. establishes a standing offer arrangement for a multi-vendor sales model for QFleet managed vehicle sales by 30 June 2008; vi. allocates vehicles to each of the auctioneers based on best likely return for government by 31 December 2008; vii. continues auctions in regional locations to ensure the public has access to government vehicles. These auctions are to be held by the Public Trust Office of Queensland on behalf of QFleet; and viii. assesses the effectiveness of the multi-vendor sales model in Brisbane by 31 December 2008, to determine the possible extension of this model into regional areas and to those agencies with owned fleets. Recommendation 20 It is recommended that the Director-General of the Department of Public Works: vi. implements an assessment and quoting service for agencies prior to vehicle returns enabling agencies to arrange for their own repairs at a QFleet recommended repair agent. The fee for this service will be charged at cost recovery and is to be established by 30 June 2008; vii. ensures QFleet remove the fee for incidental damage for all new leases created after 1 November 2007; viii. ensures QFleet consolidate vehicle invoices for each agency per month to mitigate invoice transaction volume by 31 December 2007; ix. ensures QFleet applies a consistent application of the repair standard throughout Queensland by 30 June 2008; and x. ensures QFleet implements arrangements to ensure the repair standard for vehicles prior to auction is in continuous synchronisation with sales prices and market demands by 30 June Recommendation 21 It is recommended that the Director-General of the Department of Public Works develops, by 31 March 2008: i. key performance indicators for QFleet to report on cost, throughput and quality for the vehicle repair and sale process as well as times between return of vehicles and when they are lotted for sale; and ii. an annual industry repair benchmark performance indicator report is made publicly available to government agencies.