Politicians unearthing seemingly scandalous expenditure to embarrass incumbents just prior to an election is an old trick, New South Wales opposition MP Mike Baird was not shy about using a couple of weeks ago ahead of the Australian state’s parliamentary elections in March.
The figures highlighted by Baird do indeed seem large for a regional government – Aus$378 million (£236 million) on flights and accommodation in the financial year 2009-10. The NSW Department of Health alone spent $40 million (£25 million) on just domestic flights and accommodation.
This government travel spending is in a state with a population less than that of Greater London. But when you consider that that population is spread over an area three times the size of the entire UK, it begins to makes some sense.
Grasping the size of Australia is a tough proposition for the Eurocentric traveller. In a country where it takes four days to cross the 2,500 miles between Perth and Sydney by train, the rail versus air question is moot. And you could fly from London to Baghdad in the time it takes to fly from one coast of Australia to the other.
Accordingly, public sector business travel in Australia presents some unique challenges, particularly for the Commonwealth (federal) Government in Canberra. A ‘government town’ situated roughly between Sydney and Melbourne, Canberra is home to the Australian Parliament, the High Court and all the associated central government departments such as defence, foreign affairs, agriculture and the treasury – a total of 105 institutions in all.
These 105 institutions make up the largest purchasers of corporate travel in Australia, spending roughly Aus$500 million (£313 million) a year. According to figures supplied by the Commonwealth Government a huge 51% of that figure (£173 million) goes simply on domestic air travel. A much smaller 21% goes on international air travel, a further 21% on international and domestic accommodation, 4% on TMC fees, and 3% on car hire.
John Grant, the Australian Government procurement co-ordinator and head of the procurement division of the Department of Finance and Deregulation, says: “[Until recently] there was a decentralised approach to travel procurement, with no over-arching whole-of-Australian government co-ordination and strategic management.
“This had resulted in a fragmented approach with some inconsistent practices, duplication of effort and different policing levels across agencies.”
During 2008 the Department of Finance conducted a study of the government’s procurement arrangements for travel services and recommended a consolidated whole-of-government programme to “leverage the government’s buying power, open the market to greater competition, consolidate supplier numbers and standardise travel policy, processes and technology across agencies”, says Grant.
In response to the study the government set up a Travel Arrangements Taskforce under the aegis of Grant and the Department of Finance and Deregulation. The taskforce’s responsibility is to review the existing arrangements and implement new ones where necessary. In addition, the Travel Contracts Management Section was established to manage the tendering and contract awards process. The target the taskforce set itself was saving the Commonwealth Government somewhere in the region of Aus$160 million (£100 million) over four years.
Calls to tender were announced in September 2009, and on 1 July 2010 the air travel and travel management services contracts were implemented, naming American Express International, CWT Australia, FCm, HRG Australia and Qantas Business Travel as the preferred travel management companies and some 13 airlines, including Qantas, Virgin Atlantic, United Airlines, Cathay Pacific and Etihad as preferred air travel suppliers.
Grant was understandably nervous, given “a travel project of this scale and nature had never been undertaken in the Australian public or private sector.
“There is scepticism about the resolve of government to deliver such a change in approach and the support of the departments and agencies in the implementation.”
In an effort to overcome that scepticism, Grant says “the travel suppliers quickly became aware that this was not simply a small move to achieve minor savings. This required a considerable education and engagement process that commenced early in the process.
“The Travel Arrangements Taskforce undertook a roadshow and industry briefings to involve market players in the planning process.”
Grant feels that this engagement was crucial in overcoming one of the major problems facing public sector travel buyers in Australia – the lack of domestic competition. Essentially there are only five airlines operating domestically within Australia: Qantas, JetStar, VirginBlue, Tiger Airways and Regional Express. Regional Express covers smaller regional destinations and Tiger operates only a limited number of flights on major routes. So for the major metropolitan sectors there’s only a choice of three airlines, and given JetStar is Qantas’ low-cost brand there is only really a choice between two operators.
“The project team was acutely aware of the limited number of suppliers (airlines and travel management companies) in the Australian domestic market and the high level of market share held by some of them.
“Early engagement of the industry prior to the release of the RFP assisted with building relationships and minimising the risk of any surprises, such as a key supplier not tendering or signing up to the standard deed,” says Grant.
However, the suppliers did not have it all their own way, explains Grant, “The airline industry was changing with the impact of the GFC (global financial crisis). This meant that a regular scan of the industry and engagement of advisers with extensive market knowledge was important to understanding not only the risks posed to the new arrangement, but also the opportunities.”
Carlson Wagonlit Travel Australia managing director David Greenland is happy with the outcomes and believes the Commonwealth “will achieve its stated goals of bringing greater efficiency and value to their travel programme”.
He is also clear on the importance of the deal to CWT, saying it is “of global significance to CWT as it not only continues our deep involvement around the world in government travel but will enable further best practice sharing across governments”.
As is so often the case in travel procurement the key to the savings is the data. The problem facing the taskforce says Grant, was “bringing together the travel data of the agencies that would be affected, which came in different formats and based on different definitions.”
A problem which was resolved, he explains, by “having the right people that understood the data”, and “the allocation of ample resources and time for data gathering and manipulation”.
Once he and his colleagues had the data though, it meant they could sit down with suppliers confident of their position.
“It was based on extremely good knowledge and data, ranging from details of every air travel event undertaken in 2007-08 by government officials to understanding contemporary air travel methods.
“This provided the basis of a well-defined and achievable strategy that would lift the Commonwealth Government’s negotiating position. The Travel Arrangements Taskforce demonstrated to business that they were experts in the area,” he explains.
The process is far from over with phase two currently underway – reviewing hotel and car hire spend as well as credit card arrangements – and Grant is confident that so far he is on track: “Based on a sample of the top five routes in respect of economy class travel, savings of about 30% were achieved in the first quarter of operations of the new arrangements.”To receive our free weekly round-up of all news stories from our site, click here
Filed Under: Features