Insulation royal commission exposes fatal market flaws

Tony Abbott made political capital out of the Home Insulation Program’s problems, but will he heed the lessons from the Royal Commission’s findings? AAP/Alan Porritt

The most important finding in the final report of the Royal Commission into the Home Insulation Program is the one the Abbott government is least likely to heed. One of the two crucial flaws Commissioner Ian Hanger identified was the decision to build the Home Insulation Program (HIP) around a laissez-faire market-delivery model. By offering an easily accessed rebate, the Rudd government decided that start-up companies, not the public service, would have oversight of the program.

Hanger’s report also exposes the fact that this choice of business model, a “turning point in the [Home Insulation Program]”, was imposed on the then Department of the Environment, Water, Heritage and the Arts (DEWHA) by forces close to then prime minister Kevin Rudd: the Office of the Coordinator-General (a role Rudd created to oversee the stimulus measures) and Senator Mark Arbib.

Former Labor attorney-general Mark Dreyfus is right to say that the A$20 million spent on the Royal Commission has not vastly altered the account of the insulation scheme that the previous eight inquiries had provided. The picture of a rushed program run by public servants with little understanding of the potential hazards of working in ceiling spaces was well-established.

Prime Minister Tony Abbott must also be lamenting the failure of the Royal Commission to confirm the multiple “direct personal warnings” that Coalition MPs had claimed were issued to Rudd and Environment Minister Peter Garrett.

A rush to outsource responsibility

However, the findings do raise profound lessons for government. The dominance of market-knows-best ideology among the senior public service and Labor ministers and their staffers was critical to the mistaken and deadly assumptions behind the insulation program’s design. Linked to this, the commission has highlighted the disastrous role of private consultants and particularly the program’s “external risk expert”, Minter Ellison’s Margaret Coaldrake. Underpinning all these problems was the lack of program delivery experience and capacity within the environment department.

The Hanger report is the first to identify the abrupt imposition of a new delivery model, two months into the planning process, as a “critical” decision (page 4), “indeed the cause of later failures by the Australian government” (p. 157). Until a meeting on 31 March 2009, environment department officials had planned to contract major regional firms for recruiting, training and supervising the new insulation installer workforce.

This “regional brokerage” model (similar to that administered by the states in the Building the Education Revolution school halls stimulus program) itself relied on outsourcing, albeit to experienced companies with “skin in the game”. But Minter Ellison’s first risk assessment found the department’s inexperience made it virtually impossible that the contracts would be signed off in time for the July 1 roll-out announced by Rudd. Minter Ellison’s suggested treatment for this and most other risks was to transfer “the largest risks to third parties (effective outsourcing)” (p. 117).

As Hanger notes, it was likely this risk report that informed the decision by the Office of the Coordinator-General (OCG) and Senator Arbib (p. 106) to push for a wholly new model for the home insulation program. The resulting “market-delivery” (p. 127) rebate model was unilaterally imposed on environment department officials without warning at a meeting that Hanger found was “structured to impose the OCG delivery model on DEWHA” (p. 136).

Letting the market rip

Rather than contract large companies to deliver the program, the government would provide a Medicare-administered rebate coupled with a low-barrier-to-entry online registration system. Market forces would do the rest. It was this recipe of funding and easy registration that drove the 15-fold increase in installations as the number of installation companies grew from 200 before the insulation program to 8,359 (p. 2).

As well as a zeal for meeting Rudd’s July 1 roll-out deadline, the OCG-Arbib model was “designed to allow market forces to work and deliver the most efficiency/effectiveness without providing a centralised solution” (p. 128). It would be a “light-touch regulatory model” (p. 131) that would “let the market operate with few restrictions” (p. 131).

The insulation program was constructed in response to the Global Financial Crisis, which Rudd and others categorised as a crisis of “neoliberalism”. And yet the public servants, and even Labor ministers involved in designing the scheme, were driven by the notion that public involvement should be minimised while, in the words of the public servants, they “let the market rip” (p. 144).

And rip it did. Every month that the program ran, a year’s worth of insulation activity was generated. The government orchestrated this situation and Hanger has found (p. 3) that the government was responsible for the results:

1.1.18 The reality is that the Australian Government conceived of, devised and implemented a program that enabled very large numbers of inexperienced workers – often engaged by unscrupulous and avaricious employers or head contractors, who were themselves inexperienced in insulation installation – to undertake potentially dangerous work. It should have done more to protect them.

The commission has found that even when government outsources work, “risk cannot be abrogated” (p.309). This has profound implications for the delivery of government programs by both sides of politics.

The delusion of outsourcing risk

As incredible as it may now seem, the public service saw the market-driven delivery model that relied on the ballooning of start-up companies as reducing the risk profile of the program. This can only be explained because the notion of risk that prevailed among program designers had nothing to do with the provision of a safe program.

Risk management was instead concerned to minimise the financial, political, legal and reputational risks to the Commonwealth. While shared across the insulation program management team, this concept of risk was embodied by the Minter Ellison risk expert Margaret Coaldrake. She told (p. 111) the commission:

The focus for the project was on risks to the Commonwealth and [the insulation program’s] implementation because the Commonwealth cannot manage a risk for someone else.

Hanger’s report sharply rejects Coaldrake’s understanding, saying (p. 119):

That view is flawed … The risk to the Commonwealth of the [Home Insulation Program] includes the risk to the safety of one of its citizens undertaking work as part of the program.

Until the death of Matthew Fuller, private sector experts contracted to assess risk did not even consider installer safety. AAP/Dave Hunt

Despite employing a “bevy” of risk experts, until the electrocution of 25-year-old insulation installer Matthew Fuller in October 2009, the risks facing installers were not mentioned in Minter Ellison’s 20-page central “Risk Register”. When questioned about this, Coaldrake told the commission that her role was merely facilitation and that no one in the department had informed her that workers could be injured as part of the program.

In fact, the commission uncovered evidence that injury to installers had been raised at an early DEWHA risk workshop. It was listed in early drafts of Coaldrake’s own risk register. However, between 10.54am and 12.05pm on 27 March 2009, this risk disappeared from the register, and neither Coaldrake nor any of the DEWHA staff redressed its omission during the crucial next six months of the program.

Governments have lost in-house expertise

Hanger finds that the Commonwealth did not have the in-house expertise to purchase and manage the “expert services” of Coaldrake (p. 312) whose role in the insulation program Hanger describes as “patently inadequate” (p. 5).

This finding echoes that of the Building the Education Revolution Implementation Taskforce, which found that state and territory education departments lacked the in-house skills and expertise to act as an “informed buyer” in dealing with the construction firms that delivered that program. Without in-house architects, planners and project managers, the government was open to accepting exorbitant management fees and unable to prevent sub-standard delivery.

Lack of public service capacity is the first point Hanger addresses in his lessons for the future. He notes (p. 301) that “the retention of outside experts did not always overcome the knowledge gaps that existed in the department”.

Hanger’s report paints a damning picture of the results of decades of outsourcing under the neo-liberal rubric of market efficiency and down-sizing. Unless public service capacity is rebuilt and the market-knows-best mentality inside the government replaced, it is only a matter of time before we repeat the mistakes of the home insulation program.