Australia's federal government reviews its accommodation procurement options

Australia's Department of Finance is currently evaluating submissions for a discussion paper ahead of the contract expiry of its first Whole of Government (WoG) accommodation programme in Jun-2017.

Federal government travel purchasing was centralised under the Department of Finance in 2012. Prior to the introduction of the Whole of Government travel arrangements, there was no consistent approach to travel procurement across Government departments and agencies.

According to a scoping study at the time, lack of centralisation “had resulted in fragmented and inconsistent practices, duplication of effort and different pricing levels across the government departments and agencies”.

The scale and scope of Canberra’s accommodation needs

The new consolidated government accommodation account is without doubt one of the largest in Australia.

According to the Department of Finance, government departments and agencies spent approximately $110 million (excl. GST) on business-related accommodation in FY 2014/15. This included approximately 660,000 room nights, with around 23% of these bookings being in regional, rural and remote locations.

Stays averaged 2.1 nights, and approximately 60% of room nights were booked more than seven days prior to travel.

AOT was appointed programme manager for over 100 government agencies

The accommodation programme was centralised in the second phase of Canberra’s WoG roll-out, with AOT taking control on 2 July 2012.

AOT was appointed the official Accommodation Programme Manager by the Department of Finance for the Australian Government. The company was founded in 1987 and originally called the Australian Outback Travel Company.

Initially providing four-wheel drive adventure tours, the company switched direction after the pilots’ dispute in 1989, offering services as an Inbound Tour Operator.

A series of acquisitions followed, and in 1994, AOT began domestic wholesale operations under the Travelpoint brand. In 2004, AOT purchased two of Australia's leading online hotel portals - needitnow.com.au and travelmate.com.au – and also took over the operations of New South Wales Holidays under licence from Tourism New South Wales. AOT purchased this business from the NSW Government in 2008.
In July 2005, AOT took over the operations of
Sunlover Holidays under licence from Tourism Queensland and the Queensland Government, and purchased the business outright from the Queensland Government in 2008.

Acquisitions continued in subsequent years, and in 2011, AOT entered into a 50/50 joint-venture partnership with Air New Zealand to establish Pacific Leisure Group Limited, which now operates the Air New Zealand Holidays business.

In 2012, AOT tendered for and was appointed the Accommodation Programme Manager by the Department of Finance and Deregulation for all Agencies and Departments of the Federal Government, establishing AOTHotels.

While AOT was not a specialist corporate accommodation consolidator, it clearly had significant resources and supplier relations expertise and, according to the Department of Finance, it has succeeded in delivering savings.

The role of the programme manager has been reviewed

AOT’s appointment was part of a consolidation drive which saw the needs of between 100-150 government departments and agencies covered by centralised procurement.

According to the discussion paper outline, “the current accommodation programme management arrangement ... has delivered savings for government departments and agencies and provided detailed reporting that has allowed Finance to develop an in-depth knowledge of the government’s travel needs and behaviours”.

Under the current arrangement, the contracted accommodation programme manager is responsible for:

  • establishing and maintaining the accommodation programme within Australia;
  • negotiating rates with accommodation providers;
  • making bookings for government travellers; and
  • paying accommodation providers.

Canberra has undertaken a comprehensive review to determine if an approach to market should be undertaken for a new accommodation arrangement.

A fundamental component of this review process is consultation with stakeholders, and the department called for submissions from hotels, rival accommodation programme managers, channel managers and other interested parties on innovative strategies that may provide further benefits, efficiencies and savings for the government.

The Department of Finance has indicated that its future needs include “transparent pricing that maximises value for money for the government”. However, it is also looking for suppliers who can actively contribute to and support innovation and continuous improvement in service delivery. This includes optimising the use of technology to increase service efficiencies and reduce costs.

There is also a service expectation, with the Finance Department looking for the provision of “exceptional levels of service to departments and agencies, where issues are quickly identified and resolved”, and it has an expectation that the accommodation manager will represent the government’s interests when dealing with relevant parties in delivering the services.

As it ponders its future approach, the Department of Finance has asked potential accommodation programme managers for recommendations on an efficient remuneration model.

'The review will also examine the viability of a ‘one stop shop’ approach with inventory provided to the TMC rather than to travellers, thus “minimising contact between travellers and the accommodation programme manager”.

Much has changed in corporate travel and accommodation since 2012

The corporate travel landscape continues to change, and there have been significant developments since 2012.

While average room rates have not changed significantly over the past four years, there have been notable regional swings due to changes in supply through new properties, and in demand, for example, falling occupancies in Perth.

Average Australian room rates

Average daily rate (Australian hotels) (AUD)
Date ADR
Jan-12 175.13
Jun-12 168.15
Jan-13 177.73
Jun-13 172.12
Jan-14 173.42
Jun-14 174.05
Jan-15 170.20
Jun-15 172.61
 Jan-16 169.56 
 Jun-16 173.36  

There have also been changing traveller expectations, with demand for extras like Internet access increasing.

As noted elsewhere, traditional accommodation options are being challenged with the growth of sharing economy alternatives like Airbnb.

The supplier landscape has also changed, with significant growth among AOT’s competitors and likely tenderers, should the accommodation management contract be opened for bidding.

The Lido Group has been bolstered by an investment by global hotel solutions provider HRS on 25 May 2016.

Lido is a market-leading corporate and government accommodation aggregator and provider of integrated payment solutions with a portfolio of around 6,700 hotels in Australia.

The Lido Group currently works with government organisations, such as the Queensland Government, and government-owned organisations, such as Ergon Energy.

Lido’s inventory has been available via Amadeus LinkHotel to travel agency and corporate customers, and accessible through the Amadeus eTravel Management self-booking tool, making bookings easier for corporate and government customers.

Lido, which launched www.government.travel in September 2009 and has a record of servicing Federal, State and Local Governments, had been one of the favourites, but was overlooked in the initial selection process.

Another potential contender, The Hotel Network (THN), has also made significant advances in recent years.

A pioneer of accommodation management services for government departments and corporate organisations, THN also has its inventory on Amadeus.

When it went live on Amadeus LinkHotel in November 2015, THN connected more than 250 Australian and New Zealand properties to the GDS for the first time, making them available to Amadeus-connected online and offline travel agents, TMCs, and corporate and government customers.

A month earlier, THN content was added to Serko Online, one of the most popular corporate booking tools in Australasia.

The move gave Serko Online customers instant access to more than 5,500 hotels across Australia at competitive ‘pay on departure’ rates. In addition, THN also gave organisations that use Serko Online the ability to pay for accommodation ‘on account’, rather than using a credit card at the time of booking, which is an attractive proposition for organisations that prefer to centralise their procurement.

All eyes are on Jun-2017, when AOT's contract expires

Given the rapid developments in the corporate travel market, it will be interesting to see what changes the Department of Finance makes to its centralised accommodation procurement and management. The call for submissions for a discussion paper suggests Canberra may not simply extend the current arrangement, but is considering options.

Indeed, the nature of the requests for submissions suggests that significant changes to the existing approach may be considered.

The Department is seeking guidance on issues such as appropriate booking channels, whether hotels would prefer to contract directly with the government or via intermediaries, advice on group bookings and suggestions for best practice on long stays. There is also an examination of costs, pricing of extras like WiFi and parking, volume discounts and, importantly, remuneration models for accommodation management.

It is not clear when the discussion paper will be released, but there is a 17-Jun-2017 deadline on the current contract, by which time the Department must have completed its evaluation of proposals.

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