Shared services to decommission in WA

The West Australian government will decommission its shared services body, following a report from the Economic Regulation Authority (ERA) which advised the state's shared service firm to cease rolling-in new agencies, and further, to disband entirely.

In an inquiry into the costs and benefits of shared services in the public sector, the independent economic regulator for the state found the Department of Treasury and Finance Shared Service Centre (DTFSSC) was not operating effectively or efficiently under the existing setup.

“Without substantive reform the effectiveness of the DTFSSC is likely to deteriorate further as more agencies are serviced,” the report reads. “Rolling-in to the DTFSSC has had a detrimental impact on the operations of the majority of rolled-in agencies.”

Shared services were initially introduced in the state in 2003, which were estimated to provide savings of $56.6 million each year through the consolidation and standardisation of “back office” functions including finance, human resources, payroll and procurement across the whole-of-government.

“It sounds on the surface like a good idea, but it simply has not worked out,” WA State Government Premier, Colin Barnett, said in a press conference.

“The original estimate for setting up the office of shared services was $82 million and it was meant to save $57 million a year thereafter.

“As we stand today, the cost of this project so far has been $444 million."

Read more about shared services in Australian government in shared services navigate a rocky road.

Barnett said the program was meant to be completed in 2007. So far some 58 agencies have been rolled into the Office of Shared Services (OSS) — slightly more than a third of all WA government departments and agencies.

“There has been increasing dissatisfaction with government departments about the quality of the level of services provided by the OSS. It is simply failing to deliver what it promised,” he said, adding many departments had continued to maintain duplicate systems.

“It was becoming increasingly evident that this was a flawed project from the beginning,” he said.

“The West Australian government accepts that recommendation and will now start the process of closing down the office of shared services. That in itself will not be easy – it will take some time.”

It is expected to take up to 12 months to bring services back within individual departments. Payroll to those agencies will continue, Barnett pledged.

“It is going to be expensive and time consuming and complex in its own right,” he said. “To try and bring up to 150 government agencies with dozens and dozens of award agreements, all sorts of differences and complexities into a single system was probably bound to fail from the beginning.”

In April this year, the WA Department of Treasury and Finance and its service provider picked up an award for ‘Excellence in People and Communication’ at the Shared Services and Outsourcing Network awards. ASG runs the entire shared services delivery program across the whole of government in WA, including application support for all back office activities such as HR, payroll and financials, with infrastructure housed in its data centre.

Despite this, the ERA report found that shared services in the state had to date delivered a net present value of $345 million to the WA Government between 2005-06 and 2010-11. As a result, rolling-in additional agencies under the current arrangements would be unsustainable and without benefits.

“The Authority examined a range of approaches, including continuing the current arrangements, providing HR/payroll services through an alternative provider or by agencies, and decommissioning,” the report reads. “The Authority concluded that decommissioning DTFSSC is the least cost and most certain option for delivering corporate services, across a range of assumptions.”

The findings

• The DTFSSC is not operating effectively or efficiently under existing arrangements;
• Without substantive reform the effectiveness of the DTFSSC is likely to deteriorate further as more agencies are serviced;
• Rolling-in to the DTFSSC has had a detrimental impact on the operations of the majority of rolled-in agencies;
• As implemented thus far, the provision of shared services within the public sector has resulted in a net cost to Government. Between 2005-06 and 2010-11 the DTFSSC component of the project has delivered a net present value of −$345 million; and
• Rolling-in more agencies under the current arrangements is unsustainable, as it would result in a net cost to the State, rather than a net benefit.

Additional reporting by Georgina Swan