Mail delivery contracts and franchisees
While not specifically mentioned in the terms of reference, the
committee received evidence concerning mail delivery contracts and post office
Mail delivery contracts
Australia Post routinely contracts out parts of its mail delivery
network, including most rural deliveries and a significant proportion of urban
parcel deliveries. Licensees, particularly in country towns, often take on the
mail delivery contract from Australia Post in addition to operating the LPO
itself. In these instances, the licensee performs the daily sort of all
incoming mail, and then also undertakes delivery of the street addressed mail.
POAAL commented that this arrangement often improves the overall viability of
the local LPO and provides visibility for the licensee in the community.
Submitters raised concerns about recent trends in the awarding of mail
delivery contracts by Australia Post, which are typically for a five-year term.
POAAL commented in relation to the businesses being awarded contracts:
There are a small number of 'super contractors', who hold
multiple mail contracts. Most Mail Contractors hold one or two contracts, especially
in rural areas where a mail contract might only involve delivery one or two
days per week.
Concerns have been expressed that a couple of companies that
hold a large number (in excess of 20) of mail contracts with Australia Post may
be engaging drivers who do not have sufficient training or insurance.
Another example was provided by a submitter from a small rural community
in Gippsland where, after 15 years, the licensee had to re-tender for their township
mail delivery contract. The submitter commented that the licensee was offered a
renewed contract for a lower amount of return and that if the licensee did not
accept this, the contract would go out to tender. The submitter stated that:
Unfortunately, [they] then lost their contract to a
Melbourne-based firm, and had three days' notice before these contractors were
to begin work. It seems that this particular company has "won" over
40 such contracts in Victoria, with some also interstate, to the detriment of
innumerable suburbs and towns, and the loss of many "mum and dad"
To add insult to injury Australia Post demanded full use of
the privately-owned Post Office premises for mail sorting (denied, but access
was given to a suitable outdoor shed), and two weeks later the...contractors
filled the "postie" position with another temporary worker when their
"gumtree.com" advert. was not answered!
POAAL commented on Australia Post's handling of expiring contracts. POAAL
stated that when a mail contract is due to expire, if Australia Post deems that
the contractor has met his/her obligations during the term of the contract, it
will engage in what is called 'Direct Negotiation'. Australia Post offers the
incumbent contractor a new contract fee rather than extending the contract
under the existing terms as was the previous practise.
Some contractors informed POAAL that Australia Post had presented them
with a new, reduced fee, which in some cases was significantly lower than their
current contract fee.
POAAL stated that contractors were provided with a breakdown of the new annual
fee only after representations to Australia Post. In addition, in some
instances Australia Post gave the contractor less than 48 hours to consider the
contract fee. POAAL commented that 'the negotiation part of "Direct Negotiation"
was in many cases an attitude of "take it or leave it" on Australia
One licensee in this position commented that:
In most cases these contracts are essential for the survival
of regional LPOs. Without the income from these contracts many LPO’s become
totally unviable. This places a licensee in the unenviable position of having
to negotiate with Australia Post knowing they cannot lose the contract.
POAAL concluded that:
If Australia Post is to persist with the Direct Negotiation process,
then the process must be completely transparent and Australia Post must be
prepared to negotiate in good faith with contractors, bearing in mind the gulf
in bargaining power between the two parties and any local conditions relevant
to the contract.
POAAL also noted that contractors are locked into contracts which do not
allow for the occasionally volatile nature of oil prices. POAAL commented that
it had grave concerns that mail services in rural Australia are under threat
due to rising fuel prices. POAAL noted that the standard contract makes
allowances for the review of the fuel component of a mail contract fee but the
fuel price review can only be initiated by Australia Post. POAAL has proposed
automatic monthly reviews of fuel prices as a fairer and more transparent
mechanism to address fluctuating fuel prices.
Contractors have also expressed concern about overweight and large
parcels as they pose a risk to the contractor.
POAAL advised the committee that it has held discussions with Australia
Post regarding its rural post projects. POAAL indicated that it hoped that this
project will reap some benefits for LPOs in rural areas particularly those that
hold mail contracts.
Australia Post franchisees
In 2006 Australia Post announced that it would establish
150 franchises within the postal network. Australia Post indicated that it
That network was going to be made up of licensees that may
have converted to the franchise model, corporate outlets that we would convert
to the franchise model, as well as green field brand new sites. So it was a mix
of all of those things.
There are currently 29 franchised post offices.
At the May 2011 Budget Estimates, Australia Post indicated that it was
reviewing its franchise model.
Australia Post added at the October 2011 Supplementary Estimates that:
We began franchising a number of years back and I think that
was under a different business model than what we are proposing under our
Future Ready strategy. As part of our Future Ready strategy, as you would be
aware, we have set up different business units and we are currently looking at
our retail offering to really look at how we open up access, convenience and
choice for customers, and that will involve looking at different service
delivery methods to make sure that the format and the ownership model is
appropriate to community needs now as their channel preferences change and
their access preference changes.
At the February 2012 Additional Estimates, in response to questions
about the extension of franchisee arrangements, Australia Post that:
The franchise agreement is a 10-year agreement. The original
terms that they have entered into we will still abide by. We are not moving
away from that at all. So at the end of the 10-year fixed term agreement that
franchise will then be revalued and then will be reoffered back to the
The phasing out of franchises was discussed at the February 2014
Additional Estimates. Mr Fahour indicated that franchisees were happy with the
conversion to LPOs as franchises only have a 10-year term: 'The licensed post
office is forever. So what we do is we keep them in business without having
their businesses terminated at the end of the term.'
Mr Fahour went on to add that the formula for payout a franchise is contained
in each contract:
Each contract specifies exactly the formula. We are giving
people long-term notices of what we intend. The earliest one that is going to
go up is two years' time, so it is a long, long way.
Mr Fahour also stated that franchisees would be consulted in the first
instance and then given the option to convert to an LPO or to sell.
The committee received a number of submissions concerning the franchise
arrangement established by Australia Post. POAAL, for example, stated that it had
repeatedly expressed its severe misgivings about the concept and considered
that it was poorly conceived and executed by Australia Post.
A particular matter of concern to a number of franchisees was the
failure of Australia Post to disclose an agreement entered into with relevant
unions in which Australia Post undertook to only covert a maximum of 20 corporate
post offices to franchises.
Mr Mark Bailey stated:
...Australia Post sold us a business that came with
non-disclosed encumbrances that would never allow us to achieve our business
Franchisees commented that had they known about this agreement they
would not have become an Australia Post franchisee. Mr Bailey went on to
explain that he had been unable to sell his franchise and that 'professional
business agents said we had nothing to sell and that our business was of no
Mr Bailey noted that financial growth, as forecast, has failed to meet
targets and appropriate commission upgrades, meeting operating costs, CPI and
market forces have been inadequate.
In addition, now that Australia Post is closing franchises, it was
stated that the terms of exit payments were different to those understood to be
the case when the franchise agreements were entered into.
The committee considers that franchisees have been disadvantaged by the
non-disclosure of the agreement Australia Post entered into in relation to the
number of corporate post offices to be converted to franchises. As a
consequence of this agreement, the franchise network was restricted to 29 franchises
rather than the 150 originally planned. This has had a detrimental impact
on the market for these types of postal businesses.
The committee recommends that Australia Post, when negotiating the
current value of franchises, takes into account the impact on the value of
franchises of its inability to deliver the promised opportunities.
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