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HUMAN RESOURCE MANAGEMENT PRINCIPLES, GUIDELINES, GOOD PRACTICE

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The Commonwealth Public Sector is striving to improve efficiency, improve customer service, be more competitive, implement best practice and to simultaneously reduce costs. Outsourcing is one means of achieving these objectives. Outsourcing, which is also known as contracting out, refers to an arrangement where an agency has an activity or function performed by a private sector provider, or by another public sector or APS organisation. Under such arrangements the original agency retains overall responsibility and accountability for the activity. The main purpose of outsourcing is to allow an agency to concentrate on its core activities and to provide better value for money. It may also be pursued as part of an industry development policy. Outsourcing of APS activities is now taking place at an increasing rate. It has been extensively used by Commonwealth agencies, mainly in the areas of construction, consultancies, business and property, transport and storage, communications, health education, museums, libraries, cleaning, gardening, training, marketing information and public relations. In April 1997, the Government agreed in principle to the outsourcing of its Information Technology Infrastructure subject to a competitive tendering process . This booklet gives managers an overview of the key principles, legal context and good practice issues that need to be addressed in managing the human resource aspects of outsourcing. The booklet makes no judgement on whether an activity should be outsourced. This is a matter for the relevant decision makers. Effective human resource management is crucial to successful outsourcing. Both the Industry Commission in its report , Competitive Tendering and Contracting by Public Sector Agencies and the Auditor-General in his Audit Report No. 45 1991-92 on the outsourcing of the Department of Veterans' Affairs National Computer Centre underscored the importance of effective human resource management in achieving a productive and efficient outsourcing process.
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Public Service and Merit Protection Commission
OUTSOURCING
HUMAN RESOURCE MANAGEMENT
PRINCIPLES,
GUIDELINES,
GOOD PRACTICE
SECOND EDITION
Australian Government Publishing Service
Canberra

© Commonwealth of Australia 1998
ISBN
This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no
part may be reproduced by any process without prior written permission from the
Australian Government Publishing Service. Requests and inquiries concerning
reproduction and rights should be directed to the Manager, Commonwealth Information
Services, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601.
Published by the Australian Government Publishing Service
2
Draft 7/30/98

FOREWORD
This second edition of the Outsourcing - Human Resource Management Principles,
Guidelines, Good Practice booklet has been revised to reflect a number of legislative and
policy changes that have occurred since the original booklet was issued in September
1996.
The most significant of these changes concern:
• changed superannuation arrangements for Australian Public Service (APS) employees
affected by the outsourcing of a function;
• the removal of the expressed preference for using the Clean Break approach;
• the introduction of mechanisms to support the Phased approach where people have
received a severance benefit;
• the clarification of the taxation treatment of redundancy benefits made to APS staff under
the Clean Break approach; and
• the inclusion of more detailed information on the ethical management of outsourcing.
This booklet emphasises the importance of developing an effective human resource
management strategy, linked to the overall corporate strategy, in each outsourcing exercise.
The management of staff affected by a decision to outsource an activity is a crucial and
integral part of any outsourcing initiative. This booklet aims to assist agencies in ensuring that
any legislative requirements are satisfied and in achieving good practice in managing the
human resource aspects of outsourcing.
The Public Service and Merit Protection Commission is also issuing a separate booklet which
deals specifically with the human resource aspects of Information Technology Outsourcing.
This booklet, called Employment Framework for Information Technology Outsourcing,
focuses specifically on the employment transition framework that has been developed to give
effect to the Government’s whole of government Information Technology initiative and it
should be read in conjunction with this publication.
I hope that you find this booklet of assistance, both in ensuring that the legislative
requirements in relation to outsourcing are satisfied, and in helping you to achieve good
practice in managing the staffing aspects of outsourcing.
Helen Williams
Public Service Commissioner
July 1998
3
Draft 7/30/98

TABLE OF CONTENTS
Foreword
Introduction
PART ONE
1.
OUTSOURCING
1.1
Definition of outsourcing
1.2
In-house bids
1.3
Transfers of functions and sales of assets
1.4
Major legislation governing outsourcing
1.5
Principles underlying the management of the HRM
aspects of outsourcing
1.6
HRM matters to be considered when outsourcing
an activity
1.7
Specific approaches for handling HRM aspects of outsourcing
1.8
Variations to the Clean Break and Phased approaches
where the new provider is an APS organisation or
a Commonwealth or State body
1.8.1
Outsourcing an activity to another APS
organisation
1.8.2
Outsourcing an activity to a Commonwealth
or State body
PART TWO
2.
HUMAN RESOURCE MANAGEMENT (HRM) -
AN INTEGRAL ELEMENT OF OUTSOURCING
2.1
The need for a specific HRM plan
2.2
Ethical management of the outsourcing exercise
2.3
Good practice in HRM in outsourcing
2.4
Developing an HRM plan for outsourcing
2.4.1 Resource allocations
2.4.2 A communications strategy
2.4.3 Staff support strategy
2.4.4 Fairness and equity
2.4.5 Effective management of excess staff
2.4.6 Contract management arrangements
2.5
Indicators of good practice in managing the human
resource aspects of outsourcing
4
Draft 7/30/98

2.6
The variables that might apply in each outsourcing
exercise
2.7
The approach to outsourcing - determining the
use of the Clean Break or Phased approach
2.7.1Clean Break approach
2.7.2 Phased approach
2.7.3 Mechanism to support the Phased approach
2.7.4 Advantages and disadvantages of the two approaches
PART THREE
3.
OTHER SIGNIFICANT HUMAN RESOURCE
MANAGEMENT ISSUES
3.1
Commonwealth superannuation benefits
3.2
Management of excess staff
3.3 Part IV mobility rights
3.4
Workplace Relations Act 1996
3.5
Affirmative Action (Equal Opportunity For Women) Act 1986
3.6
The Occupational Health And Safety (Commonwealth
Employment) Act 1991
(OHS(CE) Act)
3.7
Archives Act 1983
3.8
Taxation treatment of redundancy benefits
under the Clean Break approach
3.9
Restrictions on employment of persons who have
accepted voluntary retrenchment
5
Draft 7/30/98

CASE STUDIES
Case study 1
The importance of an effective communications
strategy
Case study 2
The importance of a structured approach
Case study 3
Planning - the need to consider all aspects
APPENDICES
Appendix A
Role of central agencies
Appendix B
Transfers of functions and sales of assets
Appendix C
Checklist : Human Resource Management plan
Appendix D
APS Values and the Code of Conduct
Appendix E
Probity protocols
Appendix F
Contractual obligation on an outsourcing contractor
Appendix G
Bona fide redundancy and concessional tax treatment
Appendix H
References and further reading
6
Draft 7/30/98

INTRODUCTION
The Commonwealth Public Sector is striving to improve efficiency, improve customer
service, be more competitive, implement best practice and to simultaneously reduce costs.
Outsourcing is one means of achieving these objectives.
Outsourcing, which is also known as contracting out, refers to an arrangement where an
agency has an activity or function performed by a private sector provider, or by another
public sector or APS organisation. Under such arrangements the original agency retains
overall responsibility and accountability for the activity. The main purpose of outsourcing
is to allow an agency to concentrate on its core activities and to provide better value for
money. It may also be pursued as part of an industry development policy.
Outsourcing of APS activities is now taking place at an increasing rate. It has been
extensively used by Commonwealth agencies, mainly in the areas of construction,
consultancies, business and property, transport and storage, communications, health
education, museums, libraries, cleaning, gardening, training, marketing information and
public relations. In April 1997, the Government agreed in principle to the outsourcing of
its Information Technology Infrastructure subject to a competitive tendering process.
This booklet gives managers an overview of the key principles, legal context and good
practice issues that need to be addressed in managing the human resource aspects of
outsourcing. The booklet makes no judgement on whether an activity should be
outsourced. This is a matter for the relevant decision makers.
Effective human resource management is crucial to successful outsourcing. Both the
Industry Commission in its report, Competitive Tendering and Contracting by Public
Sector Agencies
and the Auditor-General in his Audit Report No. 45 1991-92 on the
outsourcing of the Department of Veterans' Affairs National Computer Centre underscored
the importance of effective human resource management in achieving a productive and
efficient outsourcing process.
In response to the Industry Commission’s Report, the Government decided that Ministers
should require agencies to systematically review their activities to ensure that they are
carrying out tasks that are primarily the responsibility of the Commonwealth. Where
ongoing Commonwealth responsibility is established, managers are required to consider
ways in which performance improvement tools, such as benchmarking, business process
re-engineering, purchaser provider models and competitive tendering and contracting can
be used to improve efficiency and effectiveness. Further information is available in two
publications issued by the Department of Finance and Administration entitled The
Performance Improvement Cycle - Guidance for managers
and Competitive Tendering and
Contracting - Guidance for managers
.
The policies, principles and good practice set out in this booklet have been developed by
the Public Service and Merit Protection Commission (PSMPC) in co-operation with the
Department of Finance and Administration (DoFA) and the Department of Workplace
Relations and Small Business (DWRSB), and after consultation with other APS agencies,
in particular the Departments of Defence and Veterans' Affairs. Agencies should seek
advice from central agencies on any pending policy or legislative changes which may affect
the future management of outsourcing exercises. Appendix A provides further information
on the role of central agencies in outsourcing exercises.
This booklet deals with human resource management strategies and processes after the
decision to outsource has been made. It is divided into three parts:
Part One details the principles and legal requirements to be applied in managing the human
resource aspects of outsourcing in the APS. It covers the requirements specified in the
Public Service Act 1922 (the PS Act) and other relevant legislation, and identifies the two
approaches that have been developed for managing the staffing aspects of outsourcing.
7
Draft 7/30/98

Part Two places HRM issues in the overall context of outsourcing and provides good
practice guidance on managing the human resource management aspects of outsourcing. It
also provides guidance to agencies on the effective application of the principles and legal
requirements outlined in Part One.
Part Three focuses on case studies, based on key lessons learnt from outsourcing exercises
undertaken by agencies.
The term 'agency' is used in this booklet to mean any departments and agencies staffed
under the PS Act.
8
Draft 7/30/98

PART ONE
This Part provides advice on the principles and legal requirements to be applied by
agencies when managing the human resource aspects of outsourcing. It also outlines two
approaches to address the human resource management aspects of outsourcing.
9
Draft 7/30/98

1 .
OUTSOURCING
1 . 1
Definition of outsourcing
Outsourcing refers to the arrangement where an agency decides to have an activity or
function performed by a private sector provider, or by another public sector or APS
organisation. Under such an arrangement, the agency retains overall responsibility and
accountability for the activity. The main purpose of outsourcing is to allow an agency to
concentrate on its core activities and to provide better value for money. It may also be
pursued as part of an industry development policy.
1 . 2
In-house bids
In-house bids, although technically falling outside the definition of outsourcing, may be an
option that an agency may wish to consider. Following an in-principle decision to
outsource an activity, agencies need to decide whether to allow an in-house bid. In its
publication Competitive Tendering and Contracting - Guidance for managers, DoFA
suggests that decisions about whether to allow an in-house bid should be made on a case-
by-case basis taking into account the costs and benefits of each case. The publication also
sets out relevant issues to consider in reaching this decision and identifies two approaches
(sequential and parallel) that can be used where it is decided to allow an in-house bid.
The decision on whether or not to allow a team to prepare an in-house bid should be made
before the tender process commences, to ensure that staff carrying out the activity are not
involved in preparing tender documents, and the process is fair and equitable.
Where an in-house bid is undertaken, the Commonwealth’s Competitive Policy Neutrality
Statement requires that the principle of competitive neutrality must be observed. The key
elements of competitive neutrality include:
• the tender process not give an unfair advantage to either in-house or external tenderers,
• organisational structures ensure visible and auditable accountability arrangements;
• financial comparisons reflect full cost attribution, including taxation or a tax equivalent
regime, return on capital and overheads (including where these are notional costs to the
in-house bidder) do not give a net advantage to the in-house bid.
When an in-house bid is successful, the activity remains part of the APS, and positions are
filled in accordance with normal APS principles and practices. An implementation
directive, which is the internal equivalent of a commercial contract, is issued for the
conduct of the activity in accordance with the processes set out in the in-house bid. This
would include filling of positions, purchasing of equipment, maintenance of finances, etc.
1 . 3
Transfers of functions and sales of assets
Transfers of functions (for example, from the APS to a Commonwealth authority or to a
State or Territory Government) and sales of assets do not fall within the definition of
outsourcing. For information on transfers of functions and sales of assets refer to
Appendix B.
1 . 4
Major legislation governing outsourcing
APS staff affected by outsourcing decisions are subject to the relevant provisions of the
Public Service Act 1922 (the PS Act), the Workplace Relations Act 1996 and the
Superannuation Acts. The Redeployment and Retirement provisions of the APS General
Employment Conditions Award 1995
(GECA) and the Job Security and Redeployment
provisions of the Continuous Improvement in the APS Enterprise Agreement: 1995-96, or
the redeployment and retirement provisions included in an agency specific Certified
Agreement or Australian Workplace Agreements (collectively referred to in this booklet as
10
Draft 7/30/98

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