7.12.2 In late March/early April 2009, the proposed model for the delivery of the HIP was changed in a material way. Up until that point, the HIP was to delivered be via a regional brokerage model, with large and experienced firms in the insulation industry being engaged to effect installations, or to subcontract with others to do so.306 As Mr Rudd
announced on 3 February, all householders would have to do would be to call one telephone number and the insulation installation would be arranged for them. This was the model that had been proposed to SPBC before the January long weekend, and accepted by it on 28 January. This was the model that DEWHA had developed for almost two of the six months prior to scheduled commencement of the program.
7.12.3 Mr Keeffe had prepared a visual depiction of that model explaining its design (including the brokerage model) to senior officials in the OCG, DEWHA and DEEWR and the States and Territories.307 He had spoken to some of the large organisations that may well have
been tenderers to carry out the role of regional brokers.308 DEWHA also engaged KPMG
to advise on program delivery models.
7.12.4 A risk list prepared by Ms Coaldrake listed eight separate potential locations of risk.309
Under the heading “Delivery” the risk was in contract management: • tender process
• implementation • contract management
• termination/cessation processes
7.12.5 It is evident that the delivery model was a concern to the OCG, particularly whether the Program would be ready to commence on 1 July. In an email sent by Andrew Wilson to Mike Mrdak on 23 March 2009 regarding an email from Mr Gow of the Master Builders’ Association, he said: ‘I will go back with a holding pattern response but we will need to discuss overall program design with Environment.’ 310
306 Transcript (25 March 2014) 775 (S Cox).
307 Statement of Keeffe at [62], STA.001.015.001, 28 March 2014 and KEE.002.001.0011, 1-8. 308 AGS.002.078.03241, 2.
309 MIN.002.001.6217, 1-4. 310 AGS.002.008.3556, 1.
7.12.6 On 25 March Malcolm Forbes wrote to Ross Carter and Kevin Keefe and copied Robin Kruk:
In follow up to my email to Matt Levy the other issues Mike Mrdak raised included his strong interest in the program design and risk assessment—we already knew this. He indicated that Terry Moran was also interested and would seek a meeting with the Secretary and ourselves to ascertain progress in the next week or so….I also asked him for any names of consultants that would be helpful in program design and delivery (the fat controller).
7.12.7 On 26 March, Mr Keeffe sent to Mr Mrdak and other OCG staff an email adapting the draft business model paper to reflect a discussion ‘earlier that afternoon with your [OCG’s] emphasis on the need for a business model that as a priority protected smaller operators’.311 This occurred, Mr Carter explained, in the context of concerns that in
regional, remote and less populated areas, it was less likely that firms would travel to complete only a small number of installations. The email went on to say:
This would leave us with a range of potential approaches (and hybrid approaches) to be explored through a business model process mapping (with KPMG) and the formal risk analysis (with Minter Ellison Consulting). Our decisions on “the kind of business model” we want will inform a procurement exercise that needs to commence early in April. Some models may require Ministerial decisions to change the agreed and announced policy settings. I would welcome your comments on the draft as we intend to discuss the potential models with KPMG tomorrow.
7.12.8 The attachment to that email is a Minute entitled ‘Business Models for Insulation Phase Two’.312 It was noted by Mr Keeffe and dated 26 March 2009.313 The Minute refers to a
draft Risk Management Plan to be provided to Mr Arbib ‘next week’ and to KPMG having been commissioned to assist with the development of ‘our’ overall business model for Program design and delivery. A ‘hybrid’ business model was envisaged which was both to meet low income rental accommodation, rural and remote residence and indigenous communities and also ‘achieve a balance between the competing Government objectives of effectiveness and efficiency and job creation/wide access by market participants’. Mr Keeffe accepted that, at this stage the model had not been ‘nailed’.314 It remained to
decide who would be the brokers. The procurement process was yet to be finalised and the risk management model was still being worked through.315
7.12.9 Mr Hoffman’s response (by email) was:
… undoubtedly we’re heading towards a hybrid model … It might be useful to state at the start of the Delivery Models section the principle of the need to preserve the relationship of choice between the householder and any qualified installer—large medium or small. A model that creates an exclusive or monopoly or even preferred brokerage system in a given metro area may struggle not to infringe this principle.316
311 AGS.002.008.3206, 1. 312 AGS.002.008.0664, 1-4. 313 AGS.002.008.0434, 4.
314 Transcript (31 March 2014) 1405 (K Keeffe). 315 Transcript (31 March 2014) 1405 (K Keeffe). 316 AGS.002.008.0419, 1.
7.12.10 This email was the first time Mr Keeffe formed the view that ‘we were in trouble with the brokerage model’. The ‘principle’ referred to was one that Mr Keeffe had not heard mentioned before in connection with HIP.317 But he did not regard the email as a ‘sinking
shot’, but as a ‘shot across our bow.’318
7.12.11 In the business model sent by Mr Keeffe to Mr Forbes (through Mr Carter), it is stated:
Phase 2 of both HIP and LEAPR rollout is scheduled to commence on 1 July. In order for that deadline to be met key decision points include:
• the overall business model for the programs;
• selecting a model for national/state/regional brokerage as appropriate; • developing a national or state register of trained installers;
• developing an audit evaluation program for installers and installation materials;
• design business systems for payment processing;
• design monitoring system for job creation and employment maintenance.” We have commissioned a risk assessment (Minter Ellison) which has analysed and prioritised risks for the Program. As anticipated the Program overall has a high level of overall risk with serious consequences. OCG attended the workshop. • we will present the draft risk management plan to Senator Arbib next week. We have commissioned KPMG to assist with the development of our overall business model for program design and delivery. At this point we envisage the potential for “hybrid” business models, particularly in response to low income rental accommodation, rural and remote residences and indigenous communities but also to achieve a balance between the competing
government objectives of effectiveness and efficiency and job creation/wide access by market participants.
…
Given the scale, speed and significance of program implementation our early preference (as discussed) is to go to market seeking interest and the supply of an end-to-end process that can deliver with minimal execution risks for government.
…
A procurement strategy that tested the market may give rise to partnerships that could deliver (especially in the metro market) an end-to-end business solution with low transaction costs and risks for government. Our preliminary estimate is that such a solution could meet up to 60% of program demand, particularly in metropolitan and densely populated areas of Australia. Care would need to be taken to ensure that a large market based approach provided adequately for competition and access amongst installers (down to the micro-business scale) as well as insulation manufacturers and suppliers. There is a difficult tension to resolve between efficient and effective delivery, job creation and market access/function. This may mean “hybrid” models that provide for broader business opportunities, target more difficult to service
317 Transcript (31 March 2014) 1406-1407 (K Keeffe). 318 Transcript (31 March 2014) 1407 (K Keeffe).
clients but also provide for certain and rapid rollout through “major” integrated business model procurement . . .
An alternative model which also needs to be examined would see States and Territories with existing household services…deliver the full range of services for the Commonwealth. South Australia has done some initial thinking on such an approach which they have agreed to provide us on a confidential basis…. There is some urgency in arriving at an early decision on the most likely preferred model for the program as other decisions (call centre design and development and especially procurement) will be shaped by that decision.
7.12.12 As late as 26 March DEWHA was advocating a regional brokerage model, and the potential involvement of the States and Territories.