9 July 2001 Media Statement
Leased executives in the state service
State Services Minister Trevor Mallard said a survey of the number of leased executives in government departments showed
it was not a widespread problem.
However, he said guidelines would be developed for departments, in line with government attempts to a more standardised
approach to management practices in the state services.
"The survey shows an average of less than two 'leased executives' in government departments and crown entities," Trevor
Mallard said.
"That is not a level that causes me great concern. It is, however, important that departments are aware of our
expectation as to when it is appropriate to employ leased executives."
The report was compiled following questions that became apparent when the State Services Commission looked into the
arrangement the Specialist Education Services (SES) had with Celia Lashlie.
“That case raised bigger questions about leased executives in departments and entities. The Government wanted to know
more about why leased executives are used, under what arrangements, and whether we should review those arrangements.
“In summary, the SSC report says that there can be good reasons for using leased executives, provided they are managed
carefully.
“The Government’s aim now is to ensure that where the practice is employed, departments ensure that there are good
reasons, and that departments and chief executives minimise the drawbacks.
"The SSC report finds that, generally, departments lease staff where it would be cheaper than taking on specialised,
permanent staff for short-term, intense work. Further, leasing allows departments to take on staff quickly in order to
address a pressing need in a particular area.
“The Government’s aim is to grow the capacity of the State sector. So, leasing should be discouraged if leasing is a
substitute for growing people who have skills that the state sector needs in the long-term.
“Further, we expects agencies to be run and led - for the most part - by permanent employees. So, agencies should avoid
leased staff being used in roles where they will be the public face of the agency - either internally or externally -
over an extended period.”
Trevor Mallard said the data that came out of the SSC report was not surprising.
"Putting it into perspective, there are about 30,000 people working in the core public sector. For less than one hundred
of them to be leased executives is not a major problem," Trevor Mallard said.
ENDS
A copy of the report is attached.
28 June 2001
Minister of State Services
LEASED EXECUTIVES IN GOVERNMENT DEPARTMENTS
Introduction
1 Following the outcome of the investigation into the termination of a leased executive contract by Specialist Education
Services, you asked the Commission to provide an assessment of the leased executive contracts for all departments and
their associated Crown entities. The information in this paper is based upon data received from departments and Crown
entities.
Background
Definition of Leased Executive
2 For the purpose of this enquiry, a leased executive is defined as:
“an independent contractor who is engaged via a leased executive agency or management consultancy where the total cost
to the department/Crown Entity is $750.00 per day or more”.
In other words, a leased executive is a contractor who has entered a contract for services with an executive leasing
agency or management consultancy. That agency in turn has a contract with a client (organisation) which is charged for
the cost of the executive including a fee for administering the service.
3 Not included in this enquiry are:
- leased employees, including temporary operational employees (eg keyboard operators, programmers etc) where the cost to
the department/entity is less than $750 per day;
- consultants engaged directly;
- contractors engaged directly; and
- employees engaged on a fixed term agreement.
Parameters of Enquiry
4 Three questions were asked of all departments with an added request to provide the same information for Crown entities
associated with them. These questions were:
a How many lease executive contracts has the department entered into (both current and completed) in this financial year
(2000-01) to 30.05.01?
b What is the total cost of lease executive contracts for this financial year (2000-01) to 30.05.01?
c Why were leased executive contracts preferred over other options (e.g. fixed term employment contracts)?
Responses from Departments and Crown Entities
5 Information requests were sent to all departments. Returns were received for 39 departments, 30 Crown entities and 4
non-public service departments.
6 In order to minimise both the time and cost of this investigation, departments were not asked to analyse all contracts
for duration or cost components (income of the executive and margin paid to the consulting company (lessor)).
7 Responses from Crown entities were contingent on the nature of the working relationship with the relevant department.
Thirty Crown entities reported returns by attachment to a department response. Because Crown entities report directly to
Ministers, any further information will involve the Commissioner formally requesting such information through
responsible Ministers.
Analysis of Responses
8 The investigation response has provided a sample (snapshot) about leased executive arrangements within departments and
some Crown entities. A more comprehensive picture would require a much greater investment.
9 The table below shows the number of Crown entities and departments that responded and the total cost of leased
executive contracts for the actual sample group. It is important to note that no average cost comparison per contract
can be derived without further information about the duration of contracts.
Organisations Potential Returns Actual Leased Execs Total Cost
$ (000)
Public Service Departments 39 39 97 7,631
Crown Entities 193 30 31 1,959
Non-Public Service Departments 7 4 2 164
Totals 239 73 130 9,754
Patterns of Usage of Leased Executives
10 From the information provided, the Commission notes that leased executives are used when:
a there is a need for short-term coverage during the absence of staff with critical skills to the organisation and where
the skill capability is not immediately available in-house;
Comment
Responses suggest that departments do consider in-house options, usually without success.
b there is a need for additional management resource around the introduction of IT initiatives where in-house capability
is not sufficient; and
Comment
Leased executive arrangements are common practice where departments need short-term access to highly specialised
expertise. We note that some departments in this survey have extended such arrangement for longer periods of time albeit
usually at lower cost per day.
c as a last resort when the particular expertise required is not available through any other source, or on any other
basis.
Comment
A number of experienced and skilled management and IT specialists apparently have established themselves as individual
contractors and offer their services on a leasing basis only.
Advantages and Disadvantages of Executive Leasing
11 Departments see some advantage in the use of Executive Leases because they are perceived to:
a mitigate the overheads and employment obligations associated with short-term staff appointments (they provide
flexibility); and
b enable pressure points to be addressed quickly with placements whose quality is guaranteed by the agency (they are
quick to implement and have been assumed to be low risk).
12 Disadvantages in the use of Leased executives are:
a building the capability of senior management in the Public Service and State sector is more difficult when a highly
skilled part of the labour market prefers this kind of arrangement rather than permanent employment; and
b the arrangements are by definition, temporary and there is little, if any emphasis on skill transfer to the hiring
department. Indeed, it could be argued that the department contributes to the skill set of the executive rather than the
other way around.
Summary
13 The use of leased executives may be justified in specific circumstances. This survey has not however, provided
information to assess the nature and efficacy of contracts or the process used to justify them.
14 Chief Executives are responsible to ensure that sufficient and effective attention is invested to build the
capability of their organisation.
15 The Commission remains of the view (expressed in our report on the SES - Momentum contract affair) that leased
executive appointments are at best high risk and at worst inappropriate where they involve the executive assuming a
management role “with a public face”.
16 The Commission considers that the risks associated with executive leasing can be reduced to a large extent by making
the issues more visible, and by providing guidance on the management of executive lease arrangements to departments and
Crown entities.
Recommendations
17 It is recommended that you:
a note the contents of the report; and
b agree that guidelines be developed and provided for Public Service Chief Executives with a focus as follows.
Departments and through them, their associated Crown entities, should consider the development of risk management
processes which:
i Explicitly assess the costs and benefits of any executive leasing proposal against alternative forms of contract for
service with particular attention to full or part time employment options;
ii ensure contractual arrangements, roles and relationships are well-designed, understood by all parties;
iii provide for regular (quarterly) review of the nature and justification of the leased executive arrangement,
including a review of costs;
iv reinforce the obligations of responsible managers in departments and Crown entities to act as a good employer; and
v ensure that where leased executive arrangements are used to redress skill shortages, the transfer of skills and
capabilities is a key responsibility of the leased executive.
V A (Tony) Hartevelt
Deputy Commissioner