Department of Human Services. DHS CSO Fleet Management Solutions Report. Final Report

Transcription

1 Department of Human Services DHS CSO Fleet Management Solutions Report R I Craigen Managing Director 27 January 2005 Victoria, Suite 12, 22 Fitzroy Street St Kilda 3182 Tel: NSW, Level 2, 55 Holt Street Surry Hills, 2010 Tel: ACT, 138 Run-O-Waters Drive, Run-O-Waters 2580 Tel:

2 Report Contents 1 Introduction Project Objectives Project Methodology Report Overview Executive Summary Summary Fleet Resource Centre Fleet Collaboration Models Lead Agency Model Fleet Network Model Major Findings Recommendations Establish a New Fleet Resource Centre Investigate New Fleet Management Models Lead Agency Fleet Manager Model Agency Fleet Network Model Investigate Commercial Fleet Manager Service Agency Fleet Resource Centre Summary Recommendation Description Benefits Implementation Business Case Lead Agency Fleet Management Model Summary Recommendation Description Benefits Implementation Business Case Agency Fleet Network Model Summary Recommendation Description Benefits Implementation Business Case Commercial Fleet Manager Service Summary Recommendation Description Benefits Implementation Business Case CSO Sector Findings & Analysis CSO Sector Fleet Population Page 2 of 50

3 8.1.1 Summary Findings CSO Fleet Requirements Take maximum advantage of Government tax concessions Take maximum advantage of vehicle discount structures Provide a Fleet Manager facility for CSO with smaller fleets Provide a facility to share fleet management information Provide a facility for CSO collaboration CSO Fleet Problems & Issues Fleet Size & Utilisation Fleet Financing & Management Fleet Age & Replacement Cycles Vehicle Specification & Selection Vehicle Acquisition Vehicle Disposal Vehicle Maintenance Fleet Fuel Management Fleet Insurance & Accidents Fleet Accounting & Reporting Taxation (FBT) State Government Fees & Duties Fleet Management Service Providers Appendix Contents Community Sector Organisation Interview List Fleet Resource Centre Information Services Guides Templates Directories Tools Supplier Links Total CSO Sector Estimates Total CSO Vehicle Population Estimates CSO Sector Fleet Size Distribution Estimate Outsource Fleet Management Business Case Introduction Business Situation Business Decisions Business Case for Outsourcing the Management of the Fleet Direct Cost Savings Indirect Cost Savings Arguable Cost Savings Outsource Business Case Worksheet Fleet Management Best Practice Principles FACTeam Outline Fleet Administration Document Page 3 of 50

4 1 Introduction 1.1 Project Objectives The objective of this project was to develop new models and services for the delivery of the fleet management functions for DHS funded CSOs to maximize their efficiency in terms of costs & outcomes. The models and services are designed to deliver a sustainable outcome that increases efficiency, reduces administration and delivers an improved service for CSOs fleet operators. The solutions are designed to address the problems & issues raised by CSOs in the Stakeholder Forums & project interviews. 1.2 Project Methodology Phone & personal interviews, combined with the Forum Report findings, provided information on the problems, issues, requirements and current CSO fleet management practices. The 30 interviews covered a representative cross section and interviewee details are provided in the Appendix. Model development and the recommendations were formulated with members of the Strategic Projects Team, HACC program and DHS Fleet Management personnel. Particular reference was made to a recent survey of DHS funded HACC agencies. The solutions recommended in this report need to be tested and reviewed with CSOs in a number of CSO Fleet Solutions Workshops. Page 4 of 50

5 1.3 Report Overview The report structure is detailed below: Section 2 The Executive Summary briefly covers the main recommendations and findings. Section 3 Recommendations are made for a new Fleet Resource Centre and the investigation of two new proposed CSO Collaboration Fleet Management Models (Agency Lead Manager Model, Agency Fleet Network Model) and a possible Commercial Fleet Management Service tailored for CSOs. Sections 4 to 7 Detailed Recommendations covering model & service descriptions, implementation issues, expected benefits and a high level business case are presented for each of the four recommendations: 1) Agency Fleet Resource Centre 2) Agency Lead Manager Model 3) Agency Fleet Network Model 4) Commercial Fleet Management Service Sections 8 to 9 Details the Research Findings, provides CSO Sector Fleet Estimates, summarizes the CSO Fleet Requirements and details the CSO Fleet Problems & Issues by fleet function used to derive the recommendations. Section 10 The Appendix contains the CSO Interview List, Total CSO Sector Estimates Worksheet, An Outsource Fleet Management Business Case, Fleet Management Outsource Checklist and Fleet Management Best Practice Principles. Page 5 of 50

6 2 Executive Summary 2.1 Summary The two fundamental concepts underlying the recommendations are: CSOs will operate their existing fleets more efficiently if they can be fully informed about best practice and where & how to obtain the best value for fleet services ( Better Practice ). CSOs collaborating together will combine experience and generate economies of scale to collectively generate better & more efficient fleet processes ( Building Scale ). The Fleet Resource Centre provides information & assistance to help CSOs build better fleet practice and reduce the cost of fleet operations. The Internet based Centre could be implemented quickly and be delivered through the Funded Agency Channel. The Fleet Manager and the Agency Fleet Network Models are two new initiatives to facilitate CSO collaboration on fleet operations & management (possibly in conjunction with other business processes raised in the CSO forums). CSO interest in the two new CSO Collaboration Models should be tested further at the proposed Fleet Solutions Workshops. If the initiatives recommended in this report were welcomed by the CSO Sector, and subsequently implemented, a CSO with a small fleet would have the following four alternatives to manage their fleet: 1) Self Manage (DIY) their fleet (with help from the Fleet Resource Centre). 2) Outsource management of the fleet to a fellow Agency (Lead Agency Model). 3) Network with other CSOs to jointly manage their fleets (Fleet Network Model). 4) Outsource management of the fleet to a Commercial Fleet Manager (Pre-agreed Package). These initiatives could be combined with other CSO Collaboration projects. Page 6 of 50

7 2.2 Fleet Resource Centre The Fleet Resource Centre is a recommendation that seeks to provide useful information and advice about strategic & operational fleet issues. This Internet facility will allow DHS funded CSOs to compare their fleet operation to best practice and facilitate access to unique discounts, concessions & exemptions related to their DHS funding & taxation status. The Centre will contain a number of Best Practice Guides and information & assistance on best value purchasing in the fleet sector. A basic Fleet Resource Centre could be implemented within 4 months for an investment estimated at $120,000. This initial set up cost would provide content development, supplier directories & links. (1) 2.3 Fleet Collaboration Models Two new models are presented to facilitate CSO collaboration and to consolidate and concentrate smaller fleets into more efficient & informed larger fleet networks. The suggested models encourage small CSOs to come together to generate critical mass & economies of scale and to concentrate expertise, buying power & systems. The central theme in these approaches is that the overall network (system) has a significantly lower total cost than the sum of costs of the individual fleet operators & operations. It builds on an existing cultural compatibility amongst CSOs and builds expertise and economies within the CSO Sector and on an inter-agency basis. The report cautions that these suggested models require further consultation with interested CSOs in a series of Fleet Solution (Collaboration) Workshops Lead Agency Model The first collaboration is the Lead Agency Model, where a larger agency, Local Government Authority or Health Service provides a fleet management service to smaller fellow CSOs. This allows over 1,000 CSOs running fleets of 25 vehicles or less to outsource their smaller fleet operation to a larger Agency with a Fleet Manager Fleet Network Model The second collaboration is the Fleet Network Model where CSOs with small and medium fleets cluster together to form a fleet network for the management and acquisition of fleet services. This model is expected to be attractive to an estimated 100 CSOs running fleets of vehicles. These medium sized CSO fleets could cluster their fleet operations into larger networks to drive the economics and efficiencies associated with larger fleet operators. Page 7 of 50

8 2.4 Major Findings Our estimates indicate that the 1,154 DHS funded CSOs operate approximately 11,000 vehicles, with consolidated sector vehicle expenditures approaching $100 million per year. It is further estimated that over 77% of the CSOs (890 CSOs) operate small fleets with 10 vehicles or less. (8) Our research investigated the current problems experienced by CSOs. A summary of what CSOs require includes: Take maximum advantage of Government tax concessions (FBT, Registration) Take maximum advantage of vehicle discount structures (Manufacturer, Dealer) Provide a Fleet Manager facility for CSO with smaller fleets Provide a facility to share fleet management information Provide a facility for CSO collaboration The recommendations seek to address all of the requirements discovered during the CSO interviews and forums. Page 8 of 50

9 3 Recommendations 3.1 Establish a New Fleet Resource Centre The principal recommendation is to establish a basic Fleet Resource Centre for CSOs to access useful fleet information quickly allowing CSOs to improve the way they select, finance, manage and operate their fleets. The cost to design, develop and implement the basic (Phase 1) Fleet Resource Centre is initially estimated at $120,000. This cost includes content development and Web site design & implementation, but does not include the cost of hosting & access. The Fleet Resource Centre could be hosted under the umbrella of the existing Funded Agency Channel at a low incremental cost. (1) The Fleet Resource Centre content could be progressively developed & presented in accordance with CSO information priorities. Phase 1 development of the Fleet Resource Centre could be available within 120 days of approval. 3.2 Investigate New Fleet Management Models These recommendations revolve around trying to use collaboration to better use resources and tap the culture within the sector, and to build economies and expertise within the CSO sector. The models are tentative and require the CSOs to embrace, develop and adopt these new business models Lead Agency Fleet Manager Model The recommended approach is: 1) Conduct a Lead Agency Fleet Management Model Workshop with CSOs identified as potential Lead Agency Fleet Managers to access their interest in the Business Model and investigate the business & implementation issues. 2) Consider conducting a CSO Client Recruitment Campaign to determine the level of CSO interest & commitment to an Agency supplied fleet management service. 3) Consider two pilot programs under the announced CSO Collaboration Project. These pilots would be used to determine contract, operational, cultural and commercial issues surrounding the fleet management arrangements Agency Fleet Network Model The recommended approach is: 1) Conduct a small number of Regional Agency Fleet Network Workshops with potential network members to determine their interest in forming an Agency Fleet Page 9 of 50

10 Network and investigate the business & implementation issues with the potential members. 2) Consider two pilot programs under the announced CSO Collaboration Project. These pilots would be used to determine contract, operational, cultural and commercial issues surrounding the fleet management arrangements. 3) Consider development of the Agency Fleet Network Infrastructure Package to provide the necessary contract environment between the parties and between the network and external third parties. 3.3 Investigate Commercial Fleet Manager Service Consider negotiating an Agency Commercial Fleet Manager Package that CSOs could use if they wished to outsource their fleet operations to a professional commercial fleet manager. This pre-agreed CSO Fleet Manager Package would include a standard fleet management agreement and an agreed fee for service arrangement. This option would provide CSOs with a safer commercial environment with a lower fee structure. Page 10 of 50

11 4 Agency Fleet Resource Centre 4.1 Summary The Fleet Resource Centre provides most of the information needed by CSOs to assist in the cost effective operation of their fleet. The purpose is to assist CSOs in migrating towards best fleet management practices ( better practice to best practice ). The Fleet Resource Centre could be delivered through the Funded Agency Channel. The site content will be determined in consultation with the CSO sector. The construction and maintenance of the Fleet Resource Centre will be provided by a third party, possibly the Funded Agency Channel. A basic Fleet Resource Centre could be implemented within 4 months for an investment estimated at $120,000. This would provide CSOs with easy access to fleet information and services. The site will give CSOs access to information on manufacturer discounts, government fuel contracts, FBT concessions, registration exemptions, Best Practice Guides and supplier directories & links. 4.2 Recommendation The principal recommendation is to draw together available modern fleet information systems to establish a Fleet Resource Centre for CSOs to access useful fleet information quickly, so CSOs can improve the way they finance & manage their fleets. The Fleet Resource Centre content could be progressively developed & presented in accordance with CSO information priorities. 4.3 Description The Fleet Resource Centre should provide CSOs with easy access to fleet information, fleet knowledge, market intelligence and a range of tools to assist in the fleet strategy formulation & fleet operations. The facility would ideally allow CSOs to easily compare the costs, strategies & performance against other CSO results & fleet industry best practice. The online content development would be developed to meet CSO information requirements developed further in the CSO Fleet Solution Workshops. It may be possible to develop content cost sharing models with other Victorian Government Departments or Agencies. The Centre could also provide CSOs with a facility to share fleet management information between CSOs and possibly provide a CSOs Online Forum (Web log & IM Chat). The Fleet Resource Centre could provide a range of Internet Information Services to assist CSOs in the management and operation of their fleets. The services provided by the Fleet Resource Centre are detailed in the Appendix 2.0: Fleet Resource Centre Service Specification. Page 11 of 50

12 4.4 Benefits CSOs will be able to determine easily whether they are receiving their full entitlement to vehicle manufacturer discounts & dealer discount entitlements. CSOs will be able to access concise information to take maximum advantage of Federal and State Government tax concessions. This will facilitate CSOs receiving the full benefit of FBT and registration concessions. The initial implementation of the Fleet Resource Centre would be an Internet based service. However, it could be extended to allow phone access to a fleet management professional to get experienced and trusted fleet management advice on operational problems & issues. 4.5 Implementation The Fleet Resource Centre content will be developed by a Fleet Resource Centre Manager in consultation with CSOs in a series of half day Fleet Solution Workshops. A program to increase the awareness and benefits of the Fleet Resource Centre would be conducted to encourage CSOs use. The cost to design, develop and implement the basic Fleet Resource Centre is estimated at $120,000. This cost includes content development and Web site design & implementation, but does not include the cost of hosting & access. The Fleet Resource Centre could be hosted under the umbrella of the existed funded Agency Channel at a low incremental cost. The Phase 1 development of the Fleet Resource Centre could be available within 120 days of approval. (1) A subscription service for advanced tools, software & real time services could be investigated to cover recurring site costs and maintaining a personal fleet support and help line. Demand & CSO interest in the Fleet Resource Centre could be tested in a Fleet Solutions Workshop. The content development priority could also be established in the proposed Fleet Solutions Workshop. Indicative Fleet Resource Centre content could include: Information on Entitlements CSO entitlements to Federal Government FBT concessions. CSO entitlements to State Government Manufacturer Discounts. CSO entitlements to State Government Fuel Contracts. CSO entitlements to State Government Registration concessions. Fleet Management Services CSO Vehicle Cost Benchmarking Service. CSO Vehicle Cost Forecast Service. Page 12 of 50

13 New Vehicle Buyers Information Service. Used Vehicle Sale Price Information Service. Fleet Management Guides How to select the best finance for your fleet. How to decide the best replacement cycle for your fleet. How to minimise the FBT costs in selecting & operating your fleet. 4.6 Business Case The basic Fleet Resource Centre will require an initial investment estimated at $120,000 and could be implemented within 120 days. The cost to maintain and update the content would cost of about $60,000 per year. (1) The Fleet Resource Centre will assist the small CSOs looking for fast access to a comprehensive fleet information service. The Fleet Resource Centre should either save CSOs time or money or hopefully both. The quantification of the time or cost savings of the new information service is difficult. However, if 25% of CSOs (300 CSOs) used the Fleet Resource Centre information to reduce their direct fleet costs by 5% ($400), the Sector savings could be estimated at $120,000 per year. This seems a reasonable return for the Fleet Resource Centre investment costed at an annual average cost (amortised over 4 years) of $90,000 for a fully implemented Fleet Resource Centre. (1) Page 13 of 50

14 5 Lead Agency Fleet Management Model 5.1 Summary Some larger CSOs interviewed (with full time fleet managers) indicated that they might have capacity and would consider acting as a fleet manager for smaller local CSOs. CSOs operating more than 100 vehicles, with a full time fleet manager, could consider adopting the Lead Agency Fleet Management Model. A number of CSOs interviewed expressed their interest in a fleet management service supplied by a fellow Agency. Estimates indicate that there about 900 CSOs with fleets of less than 10 vehicles that might consider outsourcing the management of their fleet to another Agency. (8) CSOs with micro, mini & small fleets (up to 25 vehicles) would probably benefit most from the outsourcing the management of their fleet to a DHS funded Agency Fleet Manager or a Commercial Fleet Manager. Further research is required to determine the level of commitment from the potential providers and clients for a within sector or inter-agency fleet management service. 5.2 Recommendation Conduct a Lead Agency Fleet Management Model Workshop with CSOs identified as potential Lead Agency Fleet Managers to assess their interest in the Business Model and investigate the business and implementation issues. Consider two pilot programs (one in the metropolitan area and one in the rural area) under the announced CSO Collaboration Project. These pilots would be used to determine contract, operational, cultural and commercial issues surrounding the fleet management arrangements. Consider conducting a CSO Client Recruitment Campaign to determine the level of CSO interest & commitment to an Agency supplied fleet management service. 5.3 Description The Lead Agency Fleet Management Model consists of a Lead Agency providing a "commercial" fleet management service to fellow CSOs "clients, probably in a particular region. The Lead Agency would need a full time experienced Fleet Manager with the required fleet management capability to provide an external fleet management service. The Lead Agency would need to recruit sufficient clients to maintain a total fleet size exceeding 200 vehicles, and hopefully closer to, 250 vehicles. The Lead Agency Fleet Manager would need to put in place the necessary Fleet Management Services Agreements and would probably need a Fleet Management System to support the provision of the required fleet management services. (2) Page 14 of 50

15 The Lead Agency would provide an "a la carte menu" of Fleet Management Services that can be selected as required by their CSO Clients. The Lead Agency may also wish to provide a pool (shared) vehicle service to their CSO clients. This will allow selected CSO clients to request, book and hire a pool vehicle for temporary use. 5.4 Benefits The CSO benefits derived from outsourcing their fleet to a Lead Agency Fleet Manager are estimated to be up $1,000 per vehicle per year in direct costs and a time saving of about 1.5 person weeks per year per CSO. This assumes the Lead Agency direct savings are 50% of those expected from a Commercial Fleet Manager Service. (3) A Central Lead Agency Fleet Manager would ensure maximum access & use of manufacturer and dealer vehicle discounts & government fuel contracts, maximise use of government FBT concessions & registration exemptions, ensure competitive rates for maintenance and insurance and maximise the sale price of used vehicles. The Manager would provide improved vehicle cost control & reporting. 5.5 Implementation The requirements to implement a successful Lead Agency Fleet Management model are: Supportive Lead Agency CEO and Board CEO and Board support & sign off a 3 year Fleet Management Business Plan. Agency provides sufficient priority, resources & funds to underwrite Fleet Management Business Unit success. Experienced Lead Agency Fleet Manager The Lead Agency would need a full time experienced Fleet Manager with the required Fleet Management Facilities & Systems. Existing Agency has at least a 3-year contract with the experienced Fleet Manager to manage Agency Service Delivery. Fleet Management System Requires a cost effective Fleet Management System that supports flexible web service delivery to clients. Budget initial investment of $40,000 for a fully implemented Fleet Management System allowing $6,000 per year in software support & ongoing training (2). Viable Business Model & Plan Lead Agency would develop a 3-Year Inter-Agency Fleet Management Business Plan & would need to recruit sufficient clients to maintain a total fleet close to 250 vehicles (100 Agency vehicles plus 150 client vehicles) (4). Page 15 of 50

16 5.6 Business Case The Lead Agency may need to invest up to $40,000 to establish or upgrade existing facilities to a commercial Fleet Management operation. Annual management client fees are estimated at $300 per vehicle annum with a 150-vehicle client fleet should return additional revenue of about $45,000 per year. (2) CSOs would need to pay about $300 per vehicle per annum to have their fleet managed by a larger Agency. A CSO 10 vehicle fleet would pay $3,000 per year for the Agency to manage buying, selling, servicing, registration, insurance, fuel & vehicle replacement management. The CSO benefits derived from outsourcing their fleet to a Lead Agency Fleet Manager are estimated to be up $1,000 per vehicle per year in direct costs and a time saving of about 1.5 person weeks per year per CSO. This assumes that the Lead Agency direct savings are 50% of those expected from a Commercial Fleet Manager Service. (3) Lead agencies would be able to offer CSOs a range of fleet management services. CSOs would then be able to select the particular services they wished to outsource to the lead agency, in accordance with organisational requirements. Page 16 of 50

17 6 Agency Fleet Network Model 6.1 Summary The CSO interviews indicated some CSO interest in the formation of Agency Fleet Networks that could purchase fleet services collectively or where one Agency acts as a purchasing & managing agent for the other network CSOs. A Fleet Network Infrastructure Package could accelerate the development of these Agency Fleet Networks, where a number of CSOs with small to medium fleets in a close geographic area, would benefit from operating as a network. (5) Further research is required to determine the level of interest and commitment to a network model from potential network members. 6.2 Recommendation Conduct a small number of Regional CSO Fleet Network Workshops with potential network members to determine their interest in forming an Agency Fleet Network and investigate the business & implementation issues with the potential members. Consider two pilot programs under the CSO Collaboration Project. These pilots would be used to determine contract, operational, cultural and commercial issues surrounding the fleet management arrangements. Consider development of the Agency Fleet Network Infrastructure Package to provide the necessary contract environment between the parties and between the network and external third parties. (5) 6.3 Description The Agency Fleet Network Model consists of a network of CSOs collaborating to provide a combined fleet management service to network members. One Agency could coordinate fleet management activities for the other network members. The Network may also wish to investigate a Virtual Pool Vehicle Service where idle network member vehicles could be hired to other network members/clients. A web based system would allow them to select, request, book, hire & bill the use of a pool vehicle from the network member s virtual vehicle pool. This service assumes a high proportion of work (rather than allocated) vehicles and no research data exists to determine the non-work vehicle to work vehicles ratio. 6.4 Benefits Shared centralised fleet management & administration should reduce the total CSO direct costs and time involved in fleet management activities from the use of "consolidated" purchasing and improved fleet management practices. Page 17 of 50

18 The CSO benefits derived from the Fleet Network Model could be up $1,000 per vehicle per year in direct costs and a time saving of about 1.0 person weeks per year per CSO. This assumes that the direct savings from operating a Fleet Network are 50% of those expected from a Commercial Fleet Manager Service. (3) A Fleet Network Model will help members gain access to & use of manufacturer and dealer vehicle discounts & government fuel contracts, allow more competitive rates for maintenance and insurance and possibly improve the sale price of used vehicles. An Agency Fleet Network would benefit most from economies of scale where the total network fleet is 250 vehicle or more. CSOs with small to medium fleets operating 25 to 75 vehicles that would probably benefit most from the network model. Estimates indicate there over 100 CSOs operate fleets between 25 to 75 vehicles. (8) 6.5 Implementation One Agency could act as Coordinating Fleet Manager and where the Agency Network fleet membership is over 250 vehicles, a full time Fleet Manager could be justified. The Agency Fleet Network Infrastructure Package could consist of a Fleet Network Membership Agreement, Shared Fleet Management & Pool System and Fleet Network Outsourced Services Agreements. The cost of the Agency Fleet Network Infrastructure Package could be shared amongst network members on a monthly vehicle fee basis. CSOs could use a hosted Fleet Management & Pool System to maintain all network member vehicle details and individual members could access their fleet information online. CSOs could access a hosted Pool Management System that allows all members to request, book, hire & possibly bill, pool vehicle use. This would allow members to maintain a "virtual pool", enabling CSOs to share vehicles & better utilise idle pool vehicle capacity. 6.6 Business Case Fleet Network members may collectively need to invest up to $60,000 to initially establish Fleet Network Infrastructure & Agreements. The CSO benefits derived from the Fleet Network Model could be up $1,000 per vehicle per year in direct costs and a time saving of about 1.0 person weeks per year per CSO. The return is potentially up to $250,000 per year for a network fleet of 250 vehicles, assuming the average of up to $1,000 per vehicle per year plus reduction in the total amount of time involved in fleet administration. (5) & (6) Page 18 of 50

19 7 Commercial Fleet Manager Service 7.1 Summary CSOs can decide whether to self manage their fleet or outsource the management of their fleet to a third party. CSOs could decide to outsource to a fellow agency or contract with a Commercial Fleet Manager. The Commercial Fleet Manager option has already been adopted by a number of CSOs. 7.2 Recommendation This report suggests a CSO Commercial Fleet Manager Service Package is negotiated on behalf of any CSO wishing to use the service. 7.3 Description Details of a Commercial Fleet Manager Service are freely available and not repeated in this report. The cost of a fully managed fleet would typically be around $30 per month per vehicle or $360 per year per year and would normally incorporate the use of a fuel card. The cost to outsource a 12 vehicle fleet would be about $4,300 per year. A number of Commercial Fleet Manager Service Providers have tailored their services to more closely meet the needs of the CSO sector. 7.4 Benefits The umbrella contract will save CSOs needing to individually negotiate contracts, fees, services and performance measures (KPI s) with fleet managers and provide a more competitive standard and fairer contract environment. Some commercial Fleet Managers could also assist in providing fleet finance facilities and a comprehensive vehicle insurance facility. An analysis of the Outsource Fleet Management Business Case is provided in the Appendix. In summary this analysis suggests net direct and indirect savings after fees of about $7,750 on a fleet of 10 vehicles. (3) 7.5 Implementation DHS could consider the possibility of negotiating an umbrella CSO Fleet Management Service Package. DHS could negotiate an Agency Fleet Management Contract, Service & Fee Package with Professional Fleet Managers that provides services suitable to the CSO Sector. Page 19 of 50

20 CSOs could use the CSO Fleet Management Contract Service & Fee Package if, and when, they wish. 7.6 Business Case The CSO benefits derived from outsourcing their fleet to a Commercial Fleet Manager are estimated to be up $2,000 per vehicle per year in direct costs and a time saving of about 1.5 person weeks per year per CSO based on a fleet of 12 vehicles. (3) A generic Outsource Fleet Management Business Case has been developed and presented in the Appendix. This shows that CSOs could expect to reduce their total direct costs by up to $2,000 per vehicle per year or an annual average savings of 15% of pre managed costs. Page 20 of 50

21 8 CSO Sector Findings & Analysis 8.1 CSO Sector Fleet Population Summary Our estimates indicate that the 1,200 DHS funded CSOs operate approximately 11,000 vehicles, with consolidated sector vehicle expenditures approaching $100 million per year. It is further estimated that over 77% of the CSOs (890 CSOs) operate small fleets with 10 vehicles or less. (8) Findings Estimates based on Activity to Vehicle ratios and FTE to Vehicles ratios combined with DHS estimates suggest that DHS funded CSOs operate in total about 11,000 vehicles (with estimates ranging from 10,400 to 11,500 vehicles). (8) Assuming a CSO fleet population of 11,000 vehicles and using an average annual vehicle operating cost of $8,600, it appears that the sector s aggregate vehicle expenditure is in the region of $100 million per year. These estimates suggest that the CSO Sector purchases about 5,000 vehicles per year based on a relatively short average changeover cycles of 2.5 years. (8) Estimates based on the ratios above suggest about 890 (77%) CSOs operate 10 vehicles or less, about 260 (20%) operate between 10 and up to 100 vehicles and 4 or more CSOs operate 100 vehicles or more. (8) In general, the CSO Sector operate a large number of small fleets with the expected constraints of insufficient time, expertise or funding to acquire or operate the most cost effective fleet. Smaller fleets typically have very little power in any fleet negotiation and little time or incentive for process improvement or innovation. CSO fleets are often dispersed over a significant number of locations and CSO fleets seem to operate on relatively short replacement cycles between 18 and 36 months. Micro, mini & most small CSO Fleets (25 vehicles or less) want help with a range of fleet issues. Larger CSO fleets and Local Government operated fleets are reasonably self sufficient and may have some excess fleet management capacity. Some large CSOs (with professional fleet managers) seem willing to offer small CSOs an inter-agency fleet management service. Most CSOs believe they do a good job on fleet operations, but lack knowledge & a strategic approach on the bigger fleet issues. Many require assistance with certain fleet management issues detailed below. A recent HACC vehicle survey, reported that 129 Agencies operate between them 120 buses, 235 cars and 19 other type vehicles; average vehicle size per Agency is just less than three units.(9) Page 21 of 50

22 8.2 CSO Fleet Requirements Take maximum advantage of Government tax concessions Facility to assist CSOs to receive the full benefit of FBT concessions for exempt organisations. Facility to help CSO to receive the full benefit of registration concessions. (7) Take maximum advantage of vehicle discount structures Facility to ensure CSOs receive the maximum manufacturer & dealer discount entitlements. (7) Facility to simplify CSO access to manufacturer & dealer discount entitlements. (7) Provide a Fleet Manager facility for CSO with smaller fleets Facility to give CSOs access to experienced & trusted fleet management advice. Facility to easily contact a fleet management professional to get quick answers on operational problems & issues. Facility to enable CSO access to experienced & trusted Fleet Manager Provide a facility to share fleet management information Facilitate a regular CSO information interchange, perhaps a Fleet Manager Forum chaired by a Fleet Manager Professional. Facility to easily access the fleet information, fleet knowledge, market intelligence and a range of tools to assist in the fleet strategy formulation & fleet operations. Facility to easily compare the costs, strategies & performance against other CSOs results & fleet industry best practice Provide a facility for CSO collaboration System to encourage small CSOs to come together to generate critical mass & economies of scale to concentrate expertise, buying power & systems. A fleet network aimed at significantly reducing the total time and costs involved in the buying, operating and disposal of vehicles. Page 22 of 50

23 8.3 CSO Fleet Problems & Issues Fleet Size & Utilisation Significant idle vehicle capacity exists in CSOs collectively that could be liberated to meet temporary demand for vehicles for other CSOs and reduce total CSO fleet sizes Fleet Financing & Management CSOs fund their vehicles mostly using outright purchase. There is a significant variation in funding methods, funding length & funding costs & rates. CSOs generally seek external funding due to insufficient internal capital. CSOs experience problems selecting the appropriate external vehicle financiers, finance type and funding period. CSOs want flexibility in fleet finance periods as programs change in length & nature (and so, vehicle requirements). Smaller CSOs are not generally aware of the benefits & drawbacks of the different funding options available and the funding decision is based primarily on available capital or DHS program funding. A mismatch between the DHS funding period & vehicle finance period sometimes occurs when programs change. Introduction of the GST in 2000, and the decline in used car values, has created a significant funding gap to be financed on vehicle changeover. The vehicle replacement funding gap was generally reported to be between $4,000 and $7,000 (depending on age & kilometres) on typical fleet vehicle changeover. Most small CSOs did not know off the top what it was costing to operate a vehicle for a year, indicating poor information systems or lack of interest. Most CSOs expressed a strong interest in having a relative measure of their fleet performance against their fellow CSOs or other industry benchmark to determine how well (or not so well) they are performing Fleet Age & Replacement Cycles CSOs report significant uncertainty about determining the distance travelled & kilometre limits at the time of new vehicle acquisition, reflected in significant variation in vehicle changeover periods within CSOs and between CSOs. Most CSOs have no apparent basis or framework for making vehicle changeover decisions and deciding future replacement cycles. Most decisions seem based on intuition, or following other agency practices (VicFleet, DHS) or the used car market movements or new vehicle releases Vehicle Specification & Selection Some CSOs interviewed expressed the need for data & research to help decide the best vehicle to purchase for their particular transport requirement. Page 23 of 50

24 8.3.5 Vehicle Acquisition Nearly all CSOs experience considerable difficulty in accessing State Government manufacturer discounts. The problems include authorisation letters for every vehicle purchase, confusion at manufacturer & dealer levels on CSO entitlements to various discounts and difficulty in accessing and enforcing discount entitlements Vehicle Disposal Nearly all CSOs expressed their difficulty in understanding ( reading ) the current used vehicle market, pricing used vehicles & determining the best method of disposal. Some CSOs use a Fleet Manager for vehicle disposal, but complain of high fees & costs Vehicle Maintenance Some CSOs have experimented with manufacturer scheduled service schemes and most now take the (low) maintenance risk themselves. Maintenance costs are not seen as a major issue for most CSOs as most CSOs vehicles do not operate high kilometre vehicles Fleet Fuel Management CSOs have experienced considerable difficulty & delay in accessing the State Government Fuel Contract. CSOs in regional & remote areas often need to carry multiple (up to 3) fuel cards to purchase fuel in remote locations Fleet Insurance & Accidents Most CSOs used brokers to obtain (and sometimes manage) their comprehensive vehicle insurance policies, premiums & claims Fleet Accounting & Reporting Most small CSOs do not generate, or use, vehicle budgets and most CSOs do not report vehicle actual costs or vehicle performance against budgets. Most CSOs do not generate or use cash budgets & forecasts for vehicle acquisition or replacements and do not generate or use cash budgets or a sinking fund for vehicle replacements. Page 24 of 50

25 Taxation (FBT) Most CSOs appear to understand and use the FBT concessions to reduce or eliminate the FBT liability arising from the private use of vehicles. Most CSOs (understandably) complain about the administration involving in logbook completion & processing, kilometre tracking and completing FBT Returns & reporting FBT Reportable Fringe Benefits Returns State Government Fees & Duties Most CSOs interviewed mentioned problems with registration fee exemption administration & conditions Fleet Management Service Providers CSOs occasionally mentioned they would like to access the State Government or DHS service providers. The service providers included car dealers (vehicles & maintenance), windscreen suppliers, tyre outlets and possibly professional fleet lessors. Notes (1) Initial Basic Fleet Resource Set Up & Operating Cost: Modern fleet information systems are available to meet the needs of A future Fleet Resource Centre. It will only be necessary to draw the systems together to meet the requirements of the CSO s. These cost estimates are made to identify the steps required to bring together the systems required. The FRC cost estimates are based on content research ($10,000), content authoring & development ($70,000), content formatting & presentation ($20,000) and content integration ($10,000) and initial server download hosting & configuration ($10,000). Ongoing content refresh & updating including some online assistance is estimated a 1 Contract Fleet Manager FTE at $60,000. The initial set-up cost amortised over 4 years ($30,000 per year) combined with a running cost of $60,000 per year results in an annual average running cost of $90,000 per year. (2) Lead Agency Business Infrastructure Costs: These are estimated at a minimum of $40,000 consisting of software licence fees $20,000, software implementation & consultancy $7,500, data conversion & interfaces $7,500, training & other $5,000. Software support fees & some limited ongoing training would cost about $6,000 per year recurring. (3) Fleet Managed Client Business Case: This commercial outsource business case needs to adapted for a 5, 10, 15, 25 & 50 vehicle CSO fleets to move to a Lead Agency Fleet Manager Service. A case study of 3 existing CSOs fleets would more accurately estimate the actual time & cost savings possible using an external fleet manager. A Best Practice Cost Matrix available on the Fleet Resource Centre would allow CSO to determine how close their fleet costs are to best practice. The Appendix contains an Outsourced Fleet Management Model that provides indicative savings. (4) Lead Agency Fleet Management Business Case: This needs to be developed with an existing Agency to understand the actual (incremental) costs & revenues involved in their role as an external fleet manager. However, the minimum economic fleet size to justify a full time fleet manager is generally considered to be about 250 vehicles. Page 25 of 50

26 (5) An Agency Fleet Network Infrastructure Package: The components are a Fleet Network Membership Agreement, Outsourced Fleet Services Agreement, Fleet Management & Vehicle Pool System. Agreement preparation costs are estimated at $20,000 and Fleet Management Systems costing $40,000. No allowance is made for Process Facilitation costs. Ongoing costs for consultancy & software support & training fees would cost about $10,000 per year recurring. (6) An Agency Fleet Network Business Case needs to be developed to with an existing informal Fleet Network(s) to understand the structure, time & cost savings available to network members under this model. Prepare the Network Member Business Case for CSOs with 25, 35, 50 & 75 vehicles to move to a Fleet Network Manager Service. A Best Practice Cost Matrix available on the Fleet Resource Centre would allow CSO to determine how close their fleet costs are to best practice. (7) Maximum CSO Benefit Analysis: For example, access to State Government vehicles discount (compared to the general fleet discount available to fleets of more than 10 vehicles) would reduce the average annual finance costs by 17% and result in a 12% annual operating cost reduction on a $30,000 fleet vehicle. Access to the registration concession could save $150 per year. Use of the FBT concession could be worth $3,300 to $7,800 per vehicle per year depending on FBT calculation method and distance travelled. (8) The CSO Total Fleet Size Estimates are provided in the Appendix. (9) Summary from HACC Fleet Survey conducted in July, DHS funds roughly 500 HACC Agencies and a recent survey revealed that 300 HACC CSOs operate about a total fleet of 500 vehicles, with 60% of CSOs running micro fleets (<6 vehicles). The survey also indicated that about 25% of these agencies obtain Government Vehicle Discounts, 50% use local dealers, 15% external fleet management & 12% use external (lease) finance. 5% of HACC CSOs use a Government fuel card and over 80% of the fleet is replaced at less than 80,000 kms & 3 years old with a normal manufacturer distribution. Page 26 of 50

27 9 Appendix Contents The Appendix consists of the following sections: 1. Contents Community Sector Organisation Interview List Fleet Resource Centre Information Services Guides Templates Directories Tools Supplier Links Total CSO Sector Estimates Total CSO Vehicle Population Estimates CSO Sector Fleet Size Distribution Estimate Outsource Fleet Management Business Case Introduction Business Situation Business Decisions Business Case for Outsourcing the Management of the Fleet Direct Cost Savings Indirect Cost Savings Arguable Cost Savings Outsource Business Case Worksheet Fleet Management Best Practice Principles...41 Page 27 of 50

28 10 Community Sector Organisation Interview List The following CSOs were interviewed as a representative sample of the type and size of organisations, based on the number of Service Plans by type and the spread of DHS funding. Table 1 List of Agencies Interviewed Interviewed Agency Indicated fleet size Rural City of Mildura Turning Point Alcohol Drug Centre 8 St Vincent de Paul 40 Royal District Nursing Service 30 Frankston City Council 14 Eastern Volunteer Resource Centre 6 Bendigo City Council 10 City of Boroondara 14 City of Monash 9 The Salvation Army 355 City of Geelong 9 Ballarat District Nursing 26 Child & Community Service Ballarat 33 HomeGround Services 25 Mallacoota District Health 6 Quantum Support Services 50 Ramahyuck District Aboriginal Service 12 Wimmera Volunteers 4 Wesley Mission 120 Berry Street 180 City of Kingston 30 Community Connections South West Alliance 10 United Care 100 plus Aspire 15 Australian Home Care Services Scope Vic Page 28 of 50

29 11 Fleet Resource Centre Introduction This section details the types of services that could be available on the Fleet Resource Centre. The site content, detailed by fleet management subject area s are detailed below. The purpose of this facility is to move CSOs, who self manage or outsource management, to an improved level of fleet performance as measured by lower costs per kilometre per vehicle and less CSO time in fleet management functions. The FRC will allow CSOs to compare their fleet performance against best practice vehicle cost management. CSOs could determine their performance gap and decide their strategy to reduce the gap. These service definitions are still work in progress and can be further refined during the CSO Fleet Workshops. Below is a comprehensive list of information services, practice guides, templates, templates, tools, directories and supplier links Information Services New Vehicle Specification Information Service New Vehicle Performance Review Service New Vehicle Manufacturer Discount Information Service New Vehicle Fleet Intelligence Service Used Vehicle Market Intelligence Service Vehicle Warranty & Recall Programs Service Salary Packaged Vehicle Information Service Page 29 of 50

30 11.2 Guides Vehicle Selection: How to select & specify the right vehicle for your requirements. Vehicle Discounts: How to determine your eligibility and get access to government new vehicle manufacturer discounts. Vehicle Sale: How to sell used vehicles to maximise the resale value. Vehicle Insurance: How to arrange the best comprehensive vehicle insurance policies for your vehicles & fleet. Vehicle Registration: How to access the Victorian Registration fee exemption. Fleet Reporting: How to account & report on your fleet operations. Fleet FBT: How to minimise FBT & access FBT concessions. Fleet Manager Selection: How to select & manage a Fleet Manager. Fleet Replacement Cycle: How to decide the best replacement cycle for your vehicles. Vehicle Packaging: How to use salary packaged vehicles to hire and retain the best employees. Vehicle Maintenance: How to select the best vehicle maintenance plan for your fleet Templates CSO Vehicle Accounting & Reporting Templates. CSO Fleet Management Best Policies & Practice Templates Directories New Vehicle Dealer Directory Comprehensive Vehicle Insurance Broking Services Directory. Novated Lease Service Provider Directory. Professional Fleet Lease Service Provider Directory. Commercial Fleet Management Service Provider Directory. Page 30 of 50

31 11.5 Tools New Vehicle Whole of Life Cost Facility CSO Fleet Performance & Benchmarking Facility Fleet Replacement Planning & Budgeting Facility Fleet Comprehensive Insurance Comparison Facility Independent Used Vehicle Pricing Facility New Vehicle Future Maintenance Costs Information Facility 11.6 Supplier Links New Vehicle Whole of Life Costing Services Fleet Management Training Services New Vehicle Buying & Delivery Services Used Vehicle Price Guide & Auction Price Services Used Vehicle Disposal Services Maintenance Plans & Services Novated & Vehicle Packaging Services Page 31 of 50

32 12 Total CSO Sector Estimates 12.1 Total CSO Vehicle Population Estimates The total vehicle population was estimated using two approaches. The first basis was based on the Employee Vehicle Ratio and the second basis was the Activity to Vehicle Ratio. The first estimate provided an estimate of 10,400 vehicles and the second basis provided an estimate of 11,538. The report uses an estimate of 11,000 vehicles, a mid point between the two values. CSO SECTOR ESTIMATES DHS Employee Vehicle Ratio Estimate Total DHS CSO Funding $1,251,184,796 DHS Total DHS Funded CSO Population 1,154 DHS Employee Costs Ratio 80% DHS Total CSO Employee Costs $1,000,947,837 Calculated Average FTE Employee Cost $55,000 Estimate Estimated CSO Sector FTE's 18,200 Calculated Vehicles per FTE 1.75 Estimate Estimated CSO Vehicle Population 10,400 Calculated DHS Activity Vehicle Ratio Estimate Non Local Government CSOs Total Number of Activities 23,076 DHS Estimated Vehicle to Activity Ratio 2.00 Estimate Estimated CSO Vehicle Population 11,538 Estimate Page 32 of 50

33 12.2 CSO Sector Fleet Size Distribution Estimate The recommendations were strongly influenced by the estimated distribution of CSO Fleet Size. The table below presents a summary of the estimated distribution of CSO fleet size by number of CSOs and the aggregated number of CSO vehicles. It is based on the detailed table below the summary table. CSO SECTOR FLEET SIZE DISTRIBUTION ESTIMATE Fleet Proportion Proportion Number Proportion Proportion Number Size CSOs CSOs CSOs Vehicles Vehicles CSOs Cumulative Cumulative Vehicles 1 to 4 56% 56% % 14% 1,624 6 to 10 21% 77% % 30% 1, to 25 14% 91% % 55% 2, to 50 7% 98% 78 25% 80% 2, to 100 2% 100% 25 15% 95% 1, % 4 5% 100% % 1, % 100% 11,538 Page 33 of 50

34 CSO SECTOR FLEET SIZE DISTRIBUTION ESTIMATE Sector Service Plans Number of CSOs Assumed Fleet Size Number Vehicles Fleet Size Cumulative CSOs Cumulative Vehicles Cumulative CSOs % 8% % 14% % 20% % 25% % 30% % 34% % 37% % 41% % 43% % 46% % 49% % 51% % 55% % 58% % 60% % 61% % 64% % 65% % 68% % 70% % 72% % 75% % 77% % 78% % 80% % 81% % 82% % 83% % 84% % 86% % 88% Cumulative Vehicles % 90% % 91% % 92% % 93% % 94% % 95% % 96% % 97% % 100% Page 34 of 50

35 13 Outsource Fleet Management Business Case 13.1 Introduction CSOs have the option to outsource their fleet management to a Commercial Fleet Manager. The business case for a small fleet to outsource their fleet operations to a Commercial Fleet Manager or to a Lead Agency Manager should be very similar. The business cases will be similar if the fee structure and delivered direct service costs are similar. The Network Fleet Model will share some of the benefits of the outsource model, but will probably deliver weaker returns. A nominal business case is presented for a small fleet of 12 vehicles. It compares the economics of do it yourself self management to the outsourced fleet management model. The model shows significant savings in the move a professional fleet management service Business Situation A company operating a small fleet of 12 passenger vehicles is probably spending about $116,000 per year in vehicle finance & operating expenses and an additional FBT liability of $72,000 (assuming the company is not entitled to the FBT exemption). These estimates and this analysis excludes GST. The 12 vehicles are typically financed over a 3 year period and each vehicle is used for mixed private & business use and normally covers about 17,500 kilometres per year. The fleet financial position is a monthly lease commitment of $7,500 covers expected depreciation and interest costs. The monthly variable costs of maintenance & fuel probably average $2,400 per month and fixed (time based) costs are $1,300 per month to cover registration, insurances (personal, property) and motor club fees. A small fleet is typically managed by a combination of the Managing Director (vehicle selection, vehicle acquisition, vehicle financing), Accountant (vehicle payments for fuel, registration, insurance, maintenance, accidents, vehicle disposals) and Receptionist/PA/Assistant (processing & filing vehicle paperwork, contracts, invoices, certificates). There are typically about 150 fleet invoices to process each year. The total management time involved in fleet management including vehicle acquisition & disposals, fleet accounting & administration is probably about 15 man days per year. The 15 days could be costed at about an average $75 per hour or an annual indirect cost of about $9,000 per year. This equates to about $750 per vehicle per year in management time. Page 35 of 50

36 In summary, the fleet statistics are: capital consumed $300,000 annual financing costs (depreciation & interest) $62,000 annual (fixed) costs registration & insurance $11,000 annual (variable) costs fuel & maintenance $24,000 unexpected costs accidents (excess) $500 management time consumed (at cost) $7, ,000 kilometres travelled 145 vehicle invoices processed & paid In summary, the fleet operations are characterised as: No dedicated fleet manager with fleet responsibilities spread across various roles & people. No dedicated fleet control or management reporting. No guide to how well they are managing fleet costs & fleet processes. No access to future vehicle operating costs to make cost effective vehicle selection decisions. No rational basis for deciding most economic vehicle replacement cycle Business Decisions How can a company reduce the direct & indirect costs of owning, managing, operating & administrating a small fleet of 12 vehicles compared to the traditional self managed approach? The main alternative commercial solution is to outsource the management of the fleet could be outsourced to a Commercial Fleet Manager or a Commercial Fleet Lessor & Manager Business Case for Outsourcing the Management of the Fleet. What is the business case for outsourcing the fleet management to a Commercial Fleet Manager? And, what are the issues influencing the decision to outsource fleet management? The initial questions are: How much money can I really save after paying the fleet management fees? How much management time can I really save after spending time managing the manager? What are the other benefits from using a professional fleet manager? A detailed Outsource Business Case spreadsheet is provided below. Page 36 of 50

37 Direct Cost Savings In theory, the direct cost savings from using a professional fleet manager will arise from: Lower finance costs based consolidated & packaged funding. Better maintenance control by reducing unnecessary, unauthorised & over servicing, non-maintenance item expenditure and lower maintenance purchase prices. Better fuel management & control utilising exception reporting & non-fuel prepurchase control and probably better fuel purchase price. Improved comprehensive vehicle insurance cover with lower premiums & excesses. In summary, the probable direct cost savings are about $21,000 per year or $1,750 or about 13.5% savings after fleet management fees Indirect Cost Savings Self Management Cost You can reasonably assume it takes about 15 FTE days per year at an annual indirect cost of about $9,000 per year. This equates to about $750 per vehicle per year in management time. Outsource Management Cost You can reasonably assume that management time involved in managing the fleet manager and interacting with the fleet manager is probably (still) about 7 FTE days per year (50% reduction) at an annual indirect cost of about $4,000 per year. The issue is does this cost reduce when the fleet is outsourced? And, if so, how? Indirect Savings from Outsourced Fleet Management The simple argument is that 8 FTE days per year are liberated to focus on (more important) non-fleet issues. It is hard to argue that the money is saved in that there is no reduction in cash expenditure (unless the work is done by a contractor!). Theoretically, the indirect saving could be up to $3,300 per year Arguable Cost Savings Better Vehicle Selection Better Vehicle Selection results in a number of vehicle lifecycle benefits and potential cost savings. These differential benefits costs result from the difference between the Owner (Original) Vehicle Choice and the more informed vehicle selection made in the Managers Vehicle Choice. Page 37 of 50

38 The primary cost savings will be in lower vehicle depreciation resulting from higher retained value & improved timing of the vehicle sales to take account of higher resale prices in certain months and direct vehicle disposal methods. Better vehicle selection could deliver further savings on variable costs [maintenance, fuel] through better fuel consumption & fewer servicing cycles & lower service costs/service. Better vehicle selection could deliver a further saving on some fixed vehicle costs such as insurance through lower insurance premiums & excesses & lower accident repair costs in the event of an accident. Better fit between vehicle application & vehicle requirements. Driver Safety Better vehicle selection influences passenger & driver safety (primary & secondary vehicle safety) and driver comfort & related injuries & other OH&S concerns Better Vehicle Selection Outsource Business Case Worksheet This worksheet details the approach and assumptions used to determine the possible savings that could be expected from outsourcing a 12 vehicle fleet to a commercial fleet manager. The first table is a summary of the direct and indirect savings and the associated fees to deliver the expected net saving. The second table shows the estimated saving by vehicle cost type and the third outlines the assumptions used to determine the estimates. Inhouse vs Outsource Business Case Saving Saving Saving SUMMARY Vehicle Fleet (12 Vehicles) % Inhouse Cost Total Direct Savings $2,131 $21,310 Total Indirect Savings $335 $3,350 FM Fee ($360) ($3,600) Total Saving (Net of Fees) $2,106 $21, % Direct Cost Component Breakdown Component DIY Outsource Saving Saving Lease Cost $6,176 $5,846 $ % Depreciation (New) ($583.15) $ % Depreciation (Used) ($321) $ % Interest ($659) $ % Registration $550 $550 Insurance $650 $618 $33 5.0% Maintenance $525 $473 $ % Fuel $1,663 $1,629 $33 2.0% FM Fee $360 ($360) Page 38 of 50

39 FBT $6,022 $5,902 $ % MotorClub $100 $100 Total $15,685 $13,914 $1, % Assumptions Fleet Parameters Note Fleet Size 12 Assumed Vehicle Replacement Cycle 3.00 Assumed 1 Annual Kilometres $17, Assumed 2 Vehicle Parameters (Base Case) Vehicle Cost $29, Average 3 Retained Value (%) 55.00% Average 4 Used Vehicle Sale Price $16, Average Interest Rate 8.00% Normal Interest Cost $5, Annual Lease Term Months Lease Cost $ Monthly Depreciation $4, Annual Registration $ Normal Insurance $ Normal Maintenance $ Normal 5 Fuel Consumption (litre/100 km) 0.10 Normal Fuel Cost ($/litre) $0.95 Normal Total Fuel Cost $1, Calculated FBT Statutory Band 20% Normal 6 FBT Factor Formula 7 FBT Cost $6, Calculated MotorClub (RACV) $ Normal Fleet Management (Outsource Costs) FM Purchase Discount 2.00% Expected FM Interest Rate 7.50% Expected FM Lease Cost $ Expected FM Interest Cost $4, Expected FM Used Sale Premium 2.00% Expected FM Maintenance Discount 10.00% Expected FM Insurance Discount 5.00% Expected FM Fee $ Annual FM Fuel Discount 2.00% Expected Indirect Costs Administration - Cost/Hour $50.00 Estimate 8 Management - Cost/Hour $75.00 Estimate 9 Opportunity Cost (Admin) $ % Recovery 10 Opportunity Cost (Mgmt) $ % Recovery 11 Page 39 of 50

40 Note Description Analysis based on a fleet of 10 BA11 Falcon Sedan 1 Typical average replacement cycle 2 Typical average annual kilometres per year Based on 2004 BA11 Falcon Sedan Retail $31, (excl. GST) 3 less General Fleet Discount of $2,500 Based on Consultants Estimate for a 3 year old vehicle with 52,500 4 kilometres 5 Based on an average of 3 cents/kilometre 6 Statutory FBT Band 15,000 to 24,999 kpa is 20% FBT payable on grossed up taxable value Gross up factor x 7 tax at 48.5% = Based on the hourly contract rate for a CSO Adminstration 8 Manager Based on the hourly contract rate for a CSO Managing Director 9 (conservative) Assumes Employee recovers & uses 50% of the time saved by 10 outsourcing fleet management functions Assumes Employee recovers & uses 50% of the time saved by 11 outsourcing fleet management functions Page 40 of 50

41 14 Fleet Management Best Practice Principles The following FACTeam Best Practice Principles and Key Performance Indicators provide the foundation for establishing a Service Agreement between the CSO s and the Fleet Resource Centre. REQUIRED SERVICES PERFORMANCE INDICATORS PERFORMANCE BENCHMARKS Vehicle Specification Fleet specification skills are employed to assure the purchase of safe and functionally efficient vehicles which meet O H & S obligations and represent the whole of life cost interests of the end user Organisation requires an indication of the whole of life cost options for a range of vehicles suitable to meet the future tasks to be carried out. Replacement Planning An indication of the comparable whole of life costs for the range of vehicles suitable to replace the retiring unit is provided. The whole of life cost for the vehicle selected is reconcilable to within reasonable limits at the later end life termination. The replacement plan is linked to the Organisations business plan. A process is required that ensures Organisation receive sufficient advice to enable considerations to be given to the future use of the vehicle due for replacement Periodic replacement schedules are provided to the relevant Organisation along with an indicative quote for the supply of vehicles of the same specification as the one coming due for replacement. The replacement schedule provided to the appropriate manager at least 14 days prior to the date approval response is required to reach the Fleet Services contractor Page 41 of 50

42 Purchasing The purchasing process ensures the right vehicle is delivered on time at the minimum cost. Periodic (and not less than once each year) advice is required that the purchase strategy of appropriate to the fleet size of Organisation. Delivery Vehicles are delivered on time and to the location agreed with local organisation. Maintain control over the order/delivery process to ensure that sufficient time is available to consider the replacement options and for the order to be placed and the new vehicle delivered at the replacement due date. Best price on offer is negotiated. Selected dealers have a proven quality process to meet expectations. Vehicle delivered on time to specification as ordered and compliance plate date of manufacture is less than two weeks prior to delivery. Non-achievement of best price. Unreasonable variance to quote. Delivery timing and accuracy of related documentation. Disposal Disposal sale profits, above pre-determined residuals, are passed to end users, as are all losses. The disposal process is linked to the pre-determined residual set at the time of delivery. A vehicle condition report is completed in the presence of a organisation representative and unfair wear and tear suitably costed. Resale price is greater than $750 less than the residual determined at the time of purchase. Poor resale pricing due to unfair wear costs not identified at the time of return. Page 42 of 50

43 Fuel Card Fuel on-cost is minimised by the use of an oil company fuel card and information system to distribute costs, report usage exceptions and provide odometer readings required for efficient fleet administration. A fuel card is to be supplied with or immediately after delivery and a record kept of all fuel purchases and costs. Service & Repairs Delivery of fuel card within 5 days of delivery of new car or of a report of lost/damaged card. Maintain an electronic data link with fuel supplier to capture odometer, cost and usage information. Claims for petty cash reimbursement because of failure of fuel card to be issued to driver. Consumption rates maintained within acceptable standards. Service & repair costs are minimised by control measures that do not increase repair authorisation or administration costs. Manage the costs to the advantage of the Organisation. Fringe Benefits Tax Fleet costs are contained within industry standards for major fleet owners. Repairs subject to the maintenance agreement are not passed to Organisation for payment. Repairs required as a result of faulty workmanship & warranty failures are rejected. FBT cost is minimised by applying usage controls, recording days not available for private use and employees making a contribution toward private use. Maintain records to enable timely advice surrounding FBT cost reduction opportunities and completion of the FBT report. Maintain record of current odometer readings Quarterly report to Organisation with advice on any action required reducing FBT costs. Page 43 of 50

44 Registration & Traffic Infringements The fleet information system identifies vehicles due for re-registration and drivers of vehicles subject to traffic infringement notices. Address for registration is to be that of the fleet Organisation contractor All vehicles are registered on time and traffic infringement notices passed expeditiously to the driver concerned. The fleet is registered in accordance with local State requirements. Receive and administer the various notices. Fleet Management Information Systems Evidence is maintained that the driver received an Infringement notice. The Fleet MIS is used to record essential information, to aggregate costs to assist the Organisation who can influence fleet cost reductions, for the electronic allocation of costs to the business activities involved and to individuals responsible for sharing the costs. Maintain an accurate record of the fleet detail including vehicle information, driver name and cost centre. Information base is interpreted & monthly exception reports provided to indicate the action required to improve fleet administration efficiency &/or reduce costs, including in the areas of replacement planning, fuel consumption, repair costs, cumulative costs by vehicle and ad hoc as required Reports are self-explanatory requiring limited interpretation. Reports are timely and reflect benefits from actions indicated. Fleet Strategy The Organisation fleet strategy is to ensure that the business objectives, control measures, administration and information flow, minimise the fleet component of the activity cost. Twice each year to consider options for reducing fleet ownership costs Costs associated with the administration of the fleet are minimised. Departments are not required to supplement fleet administration processes or to intercede in the interpretation of reports or in concerns from drivers or line Organisation. Page 44 of 50

45 14.1 FACTeam Outline Fleet Administration Document The purpose of this document is to provide an outline of fleet management tasks and the techniques that when employed will provide opportunities to minimise total fleet ownership costs. The foundation for each of the items is reflected in the Best Practice Principle BPP statement. The sequence in which items are discussed here is intended to describe the flow of activity involved. Fleet Specification BPP Fleet specification skills are employed to assure the purchase of safe and functionally efficient vehicles that meet OH&S obligations and represent the whole of life cost interests of the end user. The task is to develop a schedule of comparable vehicles from which the business unit manager may select from. The schedule is normally developed after consultation with end users as to the business practices and future business plans. The total ownership cost specified is to reflect the different operating conditions and utilisation / distances that may apply between different users. For example, one user may travel 40,000 kms in 18 months while another may not reach 40,000kms until 24 months have been passed. In some other case a vehicle may operate in extreme conditions and the future sale value will need to be planned to be less than normal so a different depreciation figure should be recognized. The important aspect in developing the Fleet Specification Schedule is to have taken the various business contingencies in to account. Vehicle replacement plan selection BPP The replacement plan and selection process is reflected in the organisation s business plan. End user / cost centre managers are to be provided with timely advice as to the actions needed to consider the issues surrounding making a selection for acquisition of a new or replacement vehicle. The manager concerned is provided with printouts of the total ownership cost calculations of the vehicles available for selection. Note that the calculation will include the estimated resale value of the vehicle when it reaches retirement, the time of disposal. That will be the amount sought in the replacement negotiations. Page 45 of 50

46 The manager prepares an acquisition business case based on: The utilisation levels of the group of similar vehicles that operate from the same location, and The best cost fit for the tasks the vehicle will be employed on. The cost schedule is signed approving the acquisition and acceptance of the cost. Vehicle Purchasing BPP The purchasing process ensures that the right vehicle is delivered on time and at minimum cost Establishing the basis of new vehicle discounts: If the government discount contract is available, negotiate with local dealers on any available extra discounts on offer. This step can be by way of discussions or if preferred by way of tender. If access to government contract is not available establish discount arrangements with local dealers either by way of discussions or tender as appropriate. It important to set out the rules for purchase in terms of: Build date; require that vehicles delivered have a build date not greater than 30 days prior to delivery. Deliveries are to be precisely as ordered unless a formal variation to the order is provided. The delivering dealer is to provide an opportunity for a detail briefing to be given on operation and controls of the new vehicle. Raising the purchase order: Each purchase order must detail precisely the detail of the vehicle being purchased including the agreed pricing, specification, colour, date required for delivery and the registration type/address requirement. In regard to registration specify exemptions if applicable. Taking delivery: Complete a detail check of the vehicle against the order specification. Page 46 of 50

47 Preferably the person allocated as the vehicle custodian accepts the vehicle so that the person can be fully familiarised on the vehicles operational characteristics and controls. A detail check is to be made of all equipment including tools and spare tyre. A detail check of the internal / external finish looking for defects in paint or other detrimental effects. It is preferable that acceptance of delivery is deferred until any defects noted are restored. Following Delivery If the vehicle make / type / size is one with which the operator is unfamiliar the vehicle should be driven first in the company of the delivering dealer to ensure the operational characteristics are clearly understood. At the earliest opportunity wash the vehicle to establish there are no leaks. During the initial operation of the vehicle note any unusual noises or rattles. Provide a detail report of any matters that require attention during the first any subsequent services. Keep good records of information provided to the servicing dealer. Disposal BPP Disposal sale profits, above pre-determined residual are passed to end user cost centres, as are all losses. Where the retiring vehicle is being used as a trade-in on the new car it is essential that quotes from dealers is in two parts: The new car price based on the discount arrangements that have been established as noted in the section above on purchasing. The price offered for the retiring vehicle. The amount offered is to be compared to the amount indicated in the original selection decision and is the foundation for disposal negotiations. Where the amount on offer is unacceptably less than the residual indicated originally consideration must be given to alternate disposal methods unless the condition of the vehicle justifies the difference. Accounting for the difference could be by way of: An insurance claim for damages as the consequence of collision or other insurable incidents; Unfair wear and tear that may be attributed to custodian duty of care in which case it becomes a management issue. Page 47 of 50

48 Where the difference is identified as being related the normal operating conditions of the vehicle that are different to normal it will be necessary to recognize that and ensure that future cost calculations recognize such differences. Fuel BPP Fuel on-cost is minimised by the use of an oil company fuel card and information system to distribute costs, report usage exceptions and provide odometer readings for efficient fleet administration. The government fuel contract provides an opportunity for Agencies to access discounts and the fuel card system for allocating costs and reporting usage exceptions. The Agency establishes an arrangement with the contracted oil company for the provision of the services required. The fees for service under the current contract are: Service and repairs Service and repair costs are minimised by control measures that do not increase repair authorization or administration costs. Increasingly organisation senior executives are being brought to account concerning OH&S risk involving the provision of equipment to staff, including the business motor vehicle. Nothing in these instructions or inferred in any other instruction or information should impact the requirement that each vehicle is to be maintained to the standard detailed by the manufacturer and in accordance with the accepted standard of road-worthiness. It should be noted that a repairer is obligated to report any un-roadworthy aspects to a vehicle and can deny the release of a vehicle that does not comply with the required road safety standards. Vehicle custodians are required to arrange for services to be carried out in accordance with the specifications of the manufacture. In making the arrangement: Ensure that any defects are reported. The repairer is advised to complete that manufacturers handbook service. The repairer signs that the works has been completed satisfactorily. Page 48 of 50

49 The charges do not include any items that have been included in the vehicle purchase arrangement (pre-paid maintenance) or are covered by the manufacturers warranty. Fringe Benefits Tax BPP FBT cost is minimised by applying usage controls, recording days not available for private use and employees making a contribution toward private use. Fringe benefits tax is payable by the organisation to reflect the benefit available to an individual using a business vehicle for private purposes. The tax payable is the least of either a calculation based on a statutory formula or on apportionment of actual ownership costs (including a notional interest cost of funds) between business and private use. The statutory method is based on the taxable value of the vehicle given the following annualized distances travelled: 1 to 15,000 kms 26% of the vehicle purchase cost 15,001 to 25,000 kms 20% of the vehicle purchase cost 25,001 to 40,000 kms 11% of the vehicle purchase cost greater than 40,000 kms 6% of the vehicle purchase cost The tax payable is at the highest marginal rate plus the Medicare levy. Examples of the FBT cost using the statutory method given that the vehicle purchase price is 25,000 are: The vehicle travels less that 25,000kms $3,880 The vehicle travels more than 25,000kms $2,134 From this example it will be seen that managing the distances travelled is an important feature of FBT management. To match the cost against the actual cost method it is necessary for the vehicle custodian to keep a 12 week log sheet each five years (more regularly if the usage pattern significantly changes) to record business / private use to apportion the costs accordingly. That is if total annual ownership cost is $13,000 then the FBT payable would be apportioned: If private use is 50% of the distances travelled $5,044 If private use is 25% of the distances travelled $2,522 FBT may be further reduced by the payment of an after contribution from the employee toward the cost of ownership. It is common practice in local government for example for the contribution to be paid and a weekly rate of around $75 is often paid. Page 49 of 50

50 One other technique commonly used is to place an obligation on the custodian to ensure the distance traveled is not less than 25,000kms. This policy encourages vehicles to be made available for increased business use as the additional FBT payable for less kms is to the account of the custodian concerned. Registration & Traffic Infringements BPP A system is required to identify when vehicle are due for re-registration and for recording driver traffic infringements. It is policy that a vehicle is not to be driven un-registered or without current compulsory third part insurance coverage. It is also policy that a driver is not permitted to drive a vehicle without that required diving license. Staff are required under the terms of employment and the allocation or approval to drive a vehicle to advise the detail of any loss of driving license. Custodians should be aware of the due date and if the renewal certificate has not been provided then it should be addressed as a matter of urgency. Traffic infringement notices that arrive at the office will be recorded into an individual driver record. The record continues with the employ of the individual and is not related to the changeover of the vehicle. The driver record may be referred to as part of employment annual reviews or at such time as significant loss of safe driving points are apparent. The loss of more than six safe driving points will cause a review of the authorised use of a company vehicle. Collision & damage incidents BPP Effective administration and cost reductions are achieved where accountability is at first level line management Collision and damage incidents are to be recorded into the driver file that included details of traffic infringements. The collision and damage incident report form is to be completed by the driver concerned in the company of the first level manager who will have available the driver incident file. Where the incident is significant or is the 2nd or more event the report form should be completed in the company of two levels of management. Page 50 of 50