MFat cost-cutting plan in a shambles

21:56, Jun 08 2012
New Zealand House
AGEING FLAGSHIP: New Zealand House in London one of MFAT's portfolio of 392 properties in 51 countries, many of which are in need of major upgrades.

Plans by the Foreign Affairs and Trade Ministry to contract out management of its huge international property portfolio have fallen victim to the shambles over the ministry's wider restructuring plans.

Last year MFAT invited proposals to contract out all its business related to property leasing, project management and staff relocation – work handled by 50 people employed in its own property division.

The aim was to streamline its back office, reduce costs and increase operational effectiveness, with MFAT claiming property management and relocation work was a big drain on embassy staff and not part of its core business.

But the project has been all-but scuttled with MFAT chief executive John Allen's announcement that he was scaling back proposed staff and cost cutting measures in the wake of strong objections from ambassadors and other staff.

The proposed outsourcing of property management would now only be trialled in Europe, said Allen.

An MFAT spokeswoman declined to say how many expressions of interest had been received in response to its outsourcing proposal, why it would only now be trialled in Europe and how long the European trial would run.


Skirting questions put to her by The Dominion Post she said: "The global property management RFP process has not yet been concluded as we are still working through the process and scope to refocus on Europe.

"As part of the recent consultation process on proposed changes at the ministry, a decision was taken to do further work to explore the outsourcing or property management in Europe only. Next steps will be discussed with heads of mission in Europe."

MFAT, which employs over 600 staff overseas, has 392 properties in 51 countries and the aim of the project was to cut rental, administration and running costs.

Its international property portfolio was valued last year at $344 million, it spends nearly $30m a year on leases and MFAT is planning to spend more than $130m on real estate in the next three years. Its latest statement of intent, published last month, announced plans to spend $46m on land and buildings this financial year, another $48.5m in 2013-14 and $37m in 2014-15.

This money is for redeveloping embassies and buying new ambassadorial residences.

Major projects on an MFAT programme published last year included rebuilding the embassy and official residence in Beijing, a major upgrade of the embassy and ambassador's residence in Tokyo, development of the chancery and staff accommodation in New Delhi and diplomatic residences in London, Paris, The Hague, Brussels, Berlin, Washington, Taipei, Niue, Santiago, Los Angeles and Port Moresby.

It is unclear which projects are proceeding and the ministry did not answer questions as to where budget allocations were going.

Foreign Minister Murray McCully said in a statement yesterday he had ordered a moratorium on non-essential capital expenditure. But he added the Beijing Chancery and official residence project was provisionally scheduled to be completed in late 2014.

MFAT was also considering its property asset requirements for both Paris and The Hague.

McCully dismissed Treasury estimates that $150m was needed to upgrade New Zealand House in London.

"Expert advice received by me suggests that figure is wildly excessive."

"The Government is currently reviewing its ownership of NZ House and any decision to proceed with an upgrade will be partly based on whether the lease can be extended – the current head lease expires in 2048.

"The Government is obligated to undertake an upgrade every 20 to 25 years to ensure the building remains in a good state of repair," he said.

The Dominion Post