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HUMAN RESOURCE MANAGEMENT KIT FOR IT OUTSOURCING

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HUMAN RESOURCE MANAGEMENT KIT FOR IT OUTSOURCING

     Human Resource Management Kit for IT Outsourcing

    HUMAN RESOURCE MANAGEMENT KIT FOR IT

    OUTSOURCING

The Human Resource Management Kit for IT Outsourcing is a compilation of documents to

    assist APS Agencies with the Human Resource Management (HRM) aspects of IT outsourcing.

    The purpose of the Kit is to develop and expand on the employment transition framework and to

    provide an overview for Agencies on the management of staff affected by IT outsourcing. The

    Kit is not intended to replace legal or detailed advice on individual situations as they arise, but

    provides a workable framework within which Agencies can manage human resources when

    outsourcing.

    This version of the Kit updates the material originally developed by the former Office of Asset

    Sales and Commercial Support (OASACS) and the Public Service and Merit Protection

    Commission (PSMPC) drawing on information provided by the Australian Tax Office (ATO),

    the Department of Employment, Workplace Relations (DEWR) and the Department of Finance

    and Administration (Finance).

    The PSMPC has also prepared more detailed advice on the human resource aspects of

    outsourcing - Outsourcing - Human Resource Management Principles, Guidelines, Good

    Practice (Second edition, July 1998) and Employment Framework for Information Technology

    Outsourcing (July 1998), both of which are available on the PSMPC's website. The PSMPC is

    currently updating and consolidating these publications into a single booklet that will be issued

    as part of the Working Together series. The reference material provided in the Kit may change as legislation and Public Service

    procedures are amended. The PSMPC aims to provide links to updated documentation through

    its internet site at www.psmpc.gov.au.

    1.

     Human Resource Management Kit for IT Outsourcing

Table of Contents

Introduction

    Importance of Human Resource Management issues

    Ethical management of outsourcing

    Restrictions on key decision makers

    Staff support strategies

    Employment framework for IT outsourcing

    Phased approach

    Clean Break approach

    Advantages and disadvantages of each approach

    Workplace relations issues

    Superannuation arrangements

    Staff entitlements

Attachments

    1. FREQUENTLY ASKED QUESTIONS BY MANAGEMENT 2. FREQUENTLY ASKED QUESTIONS BY STAFF 3. PROJECT OUTLINE OF HR STEPS TO BE TAKEN UNDER THE PHASED

    APPROACH

    4. PROJECT OUTLINE OF HR STEPS TO BE TAKEN UNDER THE CLEAN BREAK

    APPROACH

    5. PROTOCOLS FOR AGENCY EMPLOYEES AND CONSULTANTS 6. SAMPLE CLAUSES FOR INCLUSION IN REQUESTS FOR TENDER AND

    SERVICES AGREEMENTS

    7. TRANSMISSION OF BUSINESS - SAMPLE CLAUSES FOR INCLUSION IN

    REQUESTS FOR TENDER AND SERVICES AGREEMENTS

    2.

     Human Resource Management Kit for IT Outsourcing

Introduction

    In May 1997, the Government agreed in principle to outsource its Information Technology (IT) infrastructure services subject to competitive tendering processes. This decision applies to all budget funded Agencies and relates specifically to their mainframe, midrange and desktop platforms and includes wide area and local area networks.

    A whole of government approach to outsourcing IT infrastructure services, involving Agencies subject to the Financial Management and Accountability Act 1997 (FMA Act) and Agencies

    subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act) being arranged

    into groups was agreed because of the significant benefits to be realised through consolidation principles in the form of:

    ? economies of scale;

    ? common IT platforms across Agencies; ? reduced contract administration costs; ? less duplication in developing solutions, procurement and support services; and

    ? leverage in negotiations with new service providers. At the time, the Minister for Finance and the Minister Assisting the Prime Minister for the Public Service were charged with developing an employment transition framework to assist participating Agencies to manage the human resource dimensions of the IT Infrastructure Initiative. The Office of Government Information Technology advised Agencies of the key elements of that framework in August 1997.

    Following the Review of the Implementation of the Whole Of Government Information Technology Outsourcing Initiative (the Humphry Review) in December 2000, the Government will continue to set the overall direction for IT outsourcing with responsibility for implementation devolved to APS Agency Heads. Agencies can now determine the appropriate outsourcing model to adopt within the bounds of the Initiative. The outcomes of implementing the policy will be included in the performance assessments of Agency Heads and the Public Service Commissioner will report on progress of the Initiative annually in the State of the Service Report.

    All budget-funded Agencies are required to take part in the Initiative, regardless of whether they are Australian Public Service (APS) Agencies, FMA Act Agencies, or CAC Act bodies. Not all Agencies taking part in the Initiative will be APS employers (i.e. Agencies which employ staff under the Public Service Act 1999 (the PS Act)). Where Agencies are APS employers, the

    employment transition framework developed in 1997 will continue to apply. Where Agencies are not APS employers, they may consider this Kit as a guide to good HRM practice noting, however, that the employment transition framework is intended to apply to all Agencies taking part in the Initiative.

    Importance of Human Resource Management issues

    Careful attention to HRM issues is crucial to fair and equitable outcomes for staff affected by outsourcing and to achieving positive outcomes for the Commonwealth, new service providers, and clients.

    A carefully planned, structured, and executed HRM strategy is built around several key principles, namely: 3.

     Human Resource Management Kit for IT Outsourcing

    ? ensuring that all staff affected by outsourcing decisions are treated fairly and equitably; ? providing a degree of certainty about the staffing approach to be adopted; ? seeking to maximise a harmonious industrial environment and to minimise the potential for

    industrial disputation prior to, and during, the changeover to the new service provider; ? maintaining the viability of the function and continuity of business during the outsourcing

    process;

    ? ensuring that related processes are focused on achieving best value for money; and ? ensuring that staff are aware of what constitutes ethical standards and behave ethically in

    relation to the outsourcing of an activity.

    Two publications issued by the PSMPC, Outsourcing: Human Resource Management Principles,

    Guidelines, Good Practice (Second edition, July 1998) and Employment Framework for

    Information Technology Outsourcing (July 1998) emphasise the importance of developing a

    specific HRM plan, linked to the overall corporate strategy. The development of an HRM plan

    will assist in ensuring that attention is given to the broader aspects of an outsourcing decision.

    The PSMPC is currently updating and consolidating these publications into a single booklet.

    The PSMPC‟s publications stress the importance of involving an Agency‟s human resources and

    workplace relations specialists early in the outsourcing process. The development of an effective

    HRM plan and communications strategy will result in staff and their representatives having a

    greater understanding of the processes involved in the outsourcing process. As a result, staff will

    be better informed to make decisions about their future and better able to contribute in a positive

    sense to the outsourcing process.

    Ethical management of outsourcing

    The APS Values and Code of Conduct are included in the PS Act and apply to all APS staff. The

    APS Values describe the standards and outcomes that are necessary to maintain public

    confidence in the integrity of the public service and the professionalism of public servants. The

    Code of Conduct provides a clear statement to those within the APS, and the public, of the

    conduct and behaviour that is expected of APS employees. APS employees are required to

    behave at all times in a way that upholds the APS Values and the integrity and good reputation

    of the APS.

    Certain provisions of the Values and the Code of Conduct are relevant to outsourcing exercises

    and to the handling of the HRM aspects of outsourcing. For example, the APS values include

    statements about the ethical standards and accountability requirements of the APS while the

    Code of Conduct requires APS employees to behave honestly, to disclose, and take reasonable

    steps to avoid, real or apparent conflicts of interest and prohibits the improper use of inside

    information to gain a benefit for an employee or any other person.

    In outsourcing an activity, an Agency should ensure that:

    ? staff perform their functions in a professional manner;

    ? services are delivered to the Australian public in a fair and impartial way; ? decisions are made in the interests of the Commonwealth; and

    ? staff observe the highest ethical standards and that all staff are aware of and understand the

    APS Values and APS Code of Conduct.

    4.

     Human Resource Management Kit for IT Outsourcing

A set of probity protocols for Agency employees and consultants which Agencies may use to

    ensure that proper ethical standards are maintained is at Attachment 5.

    Some of the measures that might be adopted to assist in ensuring the probity of the outsourcing

    process include:

    ? all significant decisions and recommendations are subject to review by peers and senior

    management;

    ? comprehensive evaluation and negotiation processes are established to inform decision

    makers about the respective merits of each tender;

    ? a comprehensive probity plan is established and external independent probity advisers are

    used to advise on all probity aspects of the tender process including the evaluation and

    decision-making processes;

    ? in-scope staff are generally excluded from the evaluation and negotiation processes thereby

    limiting the prospect of any real or apparent conflict of interest, or potential conflict of

    interest;

    ? this does not prevent in-scope staff from participating in evaluation processes where

    they have specialist knowledge and experience that is essential to a full and proper

    evaluation of tenders. In cases where it is not practicable to exclude such specialist

    staff from the process entirely, care should be taken to limit their role to those areas

    where their involvement is essential; ? all persons involved in the tendering process are subject to probity protocols; ? the use of an independent probity auditor to advise decisions-makers on the integrity of the

    process and to assist in ensuring that all relevant processes are fair, equitable and

    transparent; and

    ? the inclusion of a contractual provision in Requests for Tender (RFT) and in Services

    Agreements that restricts the subsequent employment, or engagement as a contractor, of

    key decision-makers in the outsourcing process for a certain period. Restrictions on key decision makers

    One particular issue that has arisen in the context of ensuring probity in the outsourcing process

    is how persons in authority might be restricted from taking up employment with a tenderer.

    To maintain the integrity of the process, key decision makers should not be employed or engaged

    by the successful tenderer within 6 months of the completion of the tendering process.

    Advice has been received from the Australian Government Solicitor (AGS) to the effect that

    contractual arrangements can be put in place to prohibit identified APS employees from taking

    up employment, or being engaged on a contract for service, in these circumstances. It is not

    intended that such a contractual provision would affect in-scope staff who may in the normal

    5.

     Human Resource Management Kit for IT Outsourcing

    course of events seek and/or be offered employment with the successful tenderer - rather it is clearly aimed at persons in authority in a tender process who are influential in selecting who will be the successful tenderer. For clarity, it is suggested that these key Agency employees would be named in the Services Agreement.

    In addition to the contractual provision for the Services Agreement, a similar provision has been developed for inclusion in the RFT which precludes the solicitation, enticement or engagement of key Agency employees during this process. Sample clauses for inclusion in RFTs and Services Agreements are at Attachment 6. Agencies may also wish to seek their own legal advice in the drafting of any contractual or RFT clauses.

    Further information on the ethical management of outsourcing exercises, and on the use of contractual provisions to restrict the employment of key decision-makers, is available from the PSMPC and will be included in the revised version of the PSMPC's Outsourcing publication. AGS Advice No. 51 of 25 October 1999 also deals in some detail with the probity aspects of tendering.

    Staff support strategies

    An effective HRM plan should include appropriate support strategies for staff affected by the outsourcing of an activity. This could include financial and career counselling services, retraining, assistance with interview techniques, preparation of resumes, etc. (There may be specific obligations under awards, an Agency‟s Certified Agreement or Australian Workplace Agreements in respect of these matters which need to be addressed).

    In order to be effective, staff support mechanisms need to be adequately resourced with appropriate budget allocations made for dedicated support staff, financial and other counselling services, retraining courses, and the relevant redeployment, reduction and retrenchment (RRR) processes. A range of frequently asked questions, and answers, from both management and staff perspectives are at Attachments 1 and 2.

    Employment framework for IT outsourcing

    As noted above, an employment transition framework for IT outsourcing has been developed. The key aims of this framework are to:

    ? achieve consistent, fair and equitable outcomes for staff; ? ensure continuity of service delivery by enhancing the opportunities for sufficient staff to

    take up jobs with a successful tenderer; and ? manage the outsourcing project to achieve the optimum value for money by minimising

    transition costs.

    The framework, which is designed to facilitate cost-effective implementation of IT outsourcing, allows Agencies, or, where relevant, groups of Agencies a choice between two staffing approaches, the Phased approach and the Clean Break approach. It should be noted that

    although there are two staffing approaches, the Government has expressed a preference for the Phased approach under the Initiative.

    6.

     Human Resource Management Kit for IT Outsourcing

Each of these approaches provides a discrete set of options for managing the human resource

    issues and workplace relations aspects of outsourcing. It needs to be emphasised at the outset

    that:

    ? where an Agency agrees to jointly tender its IT services with one or more other Agencies,

    only one staffing approach may be used by the Agencies; and

    ? no hybridisation of either approach is available.

    Agencies will need to decide which staffing approach to use at the start of any competitive

    tendering process. This is important not only for informing staff of the options they have but also

    because the approach that is adopted will affect vendor responses in the tendering process and

    may affect overall pricing.

    The approach chosen must ensure continuity of service delivery as many government programs

    are critically dependent on the effective operation of IT services. This is considered one of the

    most important of the outcomes sought from the staffing approach, which also must deliver

    consistent, fair and equitable outcomes for staff whilst minimising costs.

    An outline of the major HR steps that need to be taken under both the Phased approach and the

    Clean Break approach are at Attachments 3 and 4.

    The key features of the two approaches are as follows:

    Phased approach

    The Phased approach is designed to operate where it is important to the continuity of service

    delivery that the new service provider employs a significant proportion of the appropriately

    skilled existing staff. This is usual where the viability of the function to be outsourced is

    critically dependent on the skills and experience of existing Agency staff. Under this approach:

    ? the RFT and the Services Agreement will require the new service provider to meet its

    additional staffing requirements initially from the pool of staff performing the work or

    function proposed for outsourcing;

    ? once the successful tenderer has been chosen, the outsourcing Agency has discussions with

    the successful tenderer on the employment opportunities for the staff currently performing

    the function. The discussions will take place in the context of the agreed terms and

    conditions of employment as set out in the RFT;

    ? Agency employees who accept a negotiated job with the new service provider are

    identified prior to the activity being outsourced. This ensures that these persons do not

    receive an offer of voluntary retrenchment and a job with the new service provider;

    ? affected staff resign to accept a job with the new service provider and are eligible for

    transitional entitlements on resignation (see section on Staff Entitlements below);

    ??these benefits are fixed and not subject to negotiation with the new service provider,

    staff or their representatives; ? apart from these transitional entitlements, the new service provider‟s terms and conditions

    of employment apply to staff following outsourcing;

    ? the Services Agreement should include a provision which requires a payment to the

    outsourcing Agency by the new service provider of a specified amount of money (say

    $25,000 or another specified amount determined by the Agency) if they employ a person

    7.

     Human Resource Management Kit for IT Outsourcing

    who has received a redundancy benefit from the outsourcing Agency within six months of

    handover date (a suggested set of words is included in the sample clauses for RFTs and

    Services Agreements at Attachment 6);

    ? the use of such a contractual provision will assist in ensuring that the new service

    provider supports the effective application of the Phased approach by carrying out

    any recruitment of the outsourcing Agency‟s staff prior to handover;

    ? the Services Agreement should also include a provision which prevents the engagement of

    key Agency personnel who were involved in the tender evaluation or decision making

    process by the tenderer for a period of 6 months after the Services Agreement is signed

    (see section above on Restrictions on key decision makers and Attachment 6 for further

    information); and

    ? in-scope staff who do not gain a job with the new service provider are dealt with under the

    relevant redeployment, reduction and retrenchment (RRR) arrangements operating in the

    Agency

    ??there are restrictions on the subsequent employment in the APS of persons who

    receive a redundancy benefit (including a transition payment) from an APS Agency,

    or a non-APS Commonwealth employer see clause 4.4 of the Public Service

    Commissioner‟s Directions 1999 and Public Service Act Implementation Advice

    No.29 for further advice on the limitations on the subsequent engagement in the APS

    of persons who have received a redundancy benefit from Commonwealth

    employment.

    Clean Break approach

    Under the Clean Break approach:

    ? the recruitment of staff to perform the function after it is outsourced is left solely to the

    new service provider - it may recruit the people it needs to perform the function from any

    source;

    ? the outsourcing Agency does not broker or negotiate either jobs or terms and

    conditions of employment with the new service provider;

    ? no agreements or understandings are entered into between the outsourcing Agency

    and the new service provider, or the outsourcing Agency and its employees, about

    the employment of any specific individuals or groups of individuals by the new

    service provider;

    ? the outsourcing Agency should not provide details of in-scope staff to the new service

    provider except for general information which may be required under due diligence (for

    example, details of staffing structures and profiles);

    ? staff currently performing the function to be outsourced are dealt with under the relevant

    RRR arrangements in operation in the Agency (see section on Staff Entitlements below);

    ? the new service provider may negotiate directly with staff of the outsourcing Agency about

    employment prospects and those employees are free to choose whether or not to accept a

    job offer from the new service provider;

    ? there are no leave without pay or secondment arrangements for in-scope staff to work for

    the new service provider (leave to undertake short periods of training with the new service 8.

     Human Resource Management Kit for IT Outsourcing

    provider may be given if this is in accordance with the limitations and guidelines that

    ordinarily apply to applications for leave for that purpose in the Agency concerned); and

    ? there are no restrictions on the subsequent employment of in-scope staff of the outsourcing

    Agency with the new service provider or any private sector employer;

    ??staff may accept an offer of employment with the new service provider before the

    handover date;

    ??the Services Agreement should include a provision which prevents the engagement

    of key Agency personnel who were involved in the tender evaluation or decision

    making process by the successful tenderer for a period of 6 months after the Services

    Agreement is signed (see Attachment 6 for further information);

    ? there are also restrictions on subsequent employment in the APS of persons who

    receive a redundancy benefit from an APS Agency or from a non-APS

    Commonwealth employer (see Clause 4.4 of the Public Service Commissioner's

    Directions 1999 and Public Service Act Implementation Advice No.29 for further

    advice on the limitations on the subsequent engagement in the APS of persons who

    have received a redundancy benefit from Commonwealth employment). For further information on the Phased and Clean Break approaches see Part One of the PSMPC‟s

    Employment Framework for Information Technology Outsourcing.

    Advantages and disadvantages of each approach

    As noted above, each approach provides a discrete set of options for managing the human

    resource and workplace relations issues in the outsourcing process. Some of the advantages and

    disadvantages of the two approaches are as follows:

    Phased approach

    The main advantage of the Phased approach is that there may be greater opportunity for the

    outsourcing Agency to influence appropriately skilled staff to continue in employment with the

    new service provider. In addition, the preferred tenderer and outsourcing Agency can work co-

    operatively at a much earlier time in the process on the recruitment of staff by the new service

    provider. This will assist in ensuring that the activity continues to operate efficiently, especially

    in an environment where some of the necessary skills and knowledge may not be available

    elsewhere. The Phased approach also increases the likelihood of a smoother handover to the new

    service provider.

    The use of the Phased approach can also minimise the incidence of staff receiving a redundancy

    benefit in addition to a job with the new service provider. The transition payment for staff who

    resign to accept employment is likely to represent a cost saving over the amount that would

    otherwise have been paid out under the relevant RRR provisions.

    The complex nature of the negotiations with staff and their representatives and with tenderers

    can be seen as a disadvantage to the use of the Phased approach. This can be managed, however,

    by proper planning and by working co-operatively with the preferred tenderer. Additionally, to

    enhance this process, for all IT outsourcing an established non-negotiable package of terms and

    conditions of employment has been agreed for staff who resign from the outsourcing Agency to

    work for the new service provider. The existence of these entitlements has the potential to

    significantly reduce the complexity of any negotiations that might be necessary.

    9.

     Human Resource Management Kit for IT Outsourcing

Use of the Phased approach will not necessarily obviate the need to make redundancy payments

    although the number of redundancies will generally be less under this approach. Redundancy

    payments may still be required since staff cannot be compelled to resign from Commonwealth

    employment or to take up employment with the new private sector provider.

    Clean Break approach

    The main advantages of using the Clean Break approach are that it is an administratively simpler

    process for Agencies and it can be implemented within a reasonably short time period. As there

    is no attempt to broker jobs with the new service provider, negotiations can be much less

    protracted than under the Phased approach, thereby minimising the potentially heavy resource

    requirements that may need to be devoted to the process.

    The disadvantages of the Clean Break approach include the cost to the outsourcing Agency in

    terms of the redundancy payments and/or redeployment costs for the staff who have been

    performing the function and the risks to the continuity of service. In this regard, the ongoing

    viability of the activity may be adversely affected if, as a result of this approach, the new service

    provider is unable to recruit staff with sufficient experience and skills to perform the necessary

    work, particularly on handover. Both the outsourcing Agency and the new service provider may

    be uncertain about the number and skills of staff who will take up job offers with the new service

    provider at the commencement date of the outsourced arrangements.

    Workplace relations issues

    Certain provisions of the Workplace Relations Act 1996 (WR Act) are relevant to the

    outsourcing of APS functions.

    Transmission of business

    The transmission of business provisions of the WR Act provide that federal awards and

    agreements will bind an employer which is the “transmittee, assignee or successor” of a business.

    ? There have been a number of recent Federal Court and High Court decisions concerning

    the transmission of business provisions of the WR Act. The DEWR advices on the

    implications of these decisions for APS market testing and outsourcing are available from

    DEWR's website at www.dewr.gov.au.

    Transmission of business is not an impediment to outsourcing or market testing. It is one of a

    number of factors that government Agencies and potential tenderers need to consider and

    manage in their market testing and contracting out processes.

    Agencies should ensure that tenderers are made aware of the transmission of business provisions

    of the WR Act in order that they may develop a commercial risk assessment and management

    strategy. Examples of clauses have been developed for inclusion in Requests for Tender (RFTs)

    and Services Agreements on the possible implications of transmission of business provisions are

    at Attachment 7.

    Freedom of Association

    In September 2000 in ASU v Greater Dandenong City Council (Greater Dandenong City

    Council case) Madgwick J of the Federal Court found that, in outsourcing its home and community care services, the Council had contravened the freedom of association provisions

    contained in Part XA of the WR Act, on the basis that the employees of the Council had either

    10.

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