Audit finds East West Link project compromised by flawed advice

Here’s a useful video explaining complex things with handy slides

No doubt you’ve noticed todays media is full of East West Link palaver we had more than an inkling about since 2013. The project would of cost $22.8 billion if it had proceeded.

Victorian Auditor-General’s Office – East West Link Project Tabled: 9 December 2015

This audit examined whether the state had effectively managed the East West Link (EWL) project by assessing the total costs of the project, appropriateness of advice supporting key project decisions and the lessons for future major projects. The audit included 10 government agencies.

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Over the life of this costly and complex project, advice to government did not always meet the expected standard of being frank and fearless. This highlights a risk to the integrity of public administration that needs to be addressed. The report makes recommendations to the Department of Treasury & Finance to provide guidance for development and delivery of major projects and for the Department of Premier & Cabinet to emphasise requirements for frank and fearless advice from the public sector.

Media Release: Victorian Auditor-General’s Office: Audit finds East West Link project compromised by flawed advice

Acting Auditor-General Dr Peter Frost tabled the East West Link Project report today. This audit examined whether the state had effectively managed the East West Link (EWL) project by assessing the total costs of the project, appropriateness of advice supporting key project decisions and the lessons for future major projects.

Peter Frost said, ‘The EWL project was terminated in June 2015 with more than $1.1 billion paid, or expected to be paid, by the state for little tangible benefit. This cost includes expenditure on the planning, development, procurement and termination of the project and will be partially offset by future proceeds from the sale of properties acquired for the project.

The Department of Treasury & Finance estimates that these properties can be resold for around $320 million’.

‘The decisions to proceed with the project and enter contracts with the preferred consortium, East West Connect (EWC), were driven by an overriding sense of urgency to sign the contract before the November 2014 state election rather than being in the best interests of the project or use of taxpayers’ money.

The likely net benefits of the project were not sufficiently demonstrated and the failure to properly resolve project risks before entering into contracts exposed the state to additional financial risk.’

‘A legal challenge to the project planning decision in the lead up to the signing of the contract created risks for the state, but advice to government fell short because it did not sufficiently assess the benefits of delaying the contract to mitigate these risks.

Achieving the government’s desired time line for contract signing was given disproportionate emphasis despite the risks and implications for the state.

The risks were increased when the state agreed to amend the contract to provide additional compensation to EWC if the legal challenge to the project planning approval succeeded. Signing the contract in these circumstances was imprudent and exposed the state to significant cost and risk. The available evidence suggests that the state knew at the time that there was a significant risk that the legal challenge would succeed.’

Victorian Auditor-General’s Office: East West Link Project (9 December 2015)

The audit found that the amount payable by the state under the termination settlement was substantially lower than the cost of terminating under the project contract. However the decision to terminate was made without full consideration of the merits to completing the project.

Further, the validity of project costs reimbursed by the state to EWC could not be fully verified because the state accepted EWC’s refusal to allow access to the financial records of its related party contractors.

This created a risk that EWC’s related parties had a windfall gain. Peter Frost said ‘Weaknesses in the Audit Act 1994 mean that I could not obtain the information required to confirm this.’

Peter Frost said, ‘A fundamental obligation on the public service is to provide frank and fearless advice to the government of the day. While the advice to government examined in this audit was generally comprehensive, in some critical instances it fell short of the required standard of frankness This highlights a risk to the integrity of public administration that needs to be addressed’.

The report makes recommendations to the Department of Treasury and Finance to provide guidance for development and delivery of major projects and for the Department of Premier and Cabinet to emphasise requirements for frank and fearless advice from the public sector.

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