Federal agencies blow the whistle on #EWLink

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Federal agencies blow the whistle on #EWLink by Andrew Herington

A draft report issued by Infrastructure Australia (IA) has well and truly blown the whistle on the waste and mismanagement of government road spending. Tellingly titled “Spend more, Waste more” – and with the above photo on the front cover – the report is scathing about the way road authorities have pursued more and bigger roads.

Read the report here: Spend more, waste more. Australia’s roads in 2014: moving beyond gambling (PDF, 1.88MB)

Key extracts include:

“Australia has a true gambler’s addiction to roads: the money spent is not a rational investment. Governments assume that major improvement is just around the corner, if they could just spend more.

“The current Australian system assumes that roads are an answer to most transport problems and seeks more and more funding to that end, with little consideration of alternatives that most other developed parts of the world enjoy, such as significant heavy intercontinental rail networks and dominant heavy mass transit systems.

Australia’s nearly $20 billion dollar annual road spend can only be described as hideously inefficient… In recent years road spending has in fact outstripped road taxes and charges revenue, meaning Australia’s thirst for roads might now come at the direct expense of other things.”

The report was written by the long standing head of policy for Infrastructure Australia and summarises the authority’s frustrations with resistance to road spending reform since 2009.

“It is ironic that as long ago as 2007 the Council of Australian Governments Road Reform Project was begun. This multi-million dollar process has been led mostly by road agencies themselves; it has deliberated largely outside of public view. On the evidence available, it has achieved nothing, other than to reject outright some of the pillars of Australia’s competition principles.”

The draft report was circulated for industry comment and quickly received wide circulation. The Acting Infrastructure Coordinator John Fitzgerald then tried to withdraw the draft from circulation on the grounds that he hadn’t read it. Mr Fitzgerald in a former Victorian Treasury official who not only was deeply involved in the development of the East West Link project but also subsequently advised the government on the tendering as a consultant for KPMG.

It is clear that since the departure of Michael Deegan, there is a significant change happening in Infrastructure Australia which may no longer be the vehicle for the independent advice it was once famous for. In late 2013, Infrastructure Australia’s State of Play report on economic infrastructure ranked roads as by far the nation’s worst asset class, by all measures.

Yet now they are restricted by Government policy to only comment on road projects. Legislation to restructure infrastructure Australia and appoint a new Board was recently passed – but not before a swathe of Labor and Green backed amendments were carried by the Senate to remove the Minister’s powers to dictate policy.

The Abbott Government still intends transforming Infrastructure Australia into a road funding body and last week rejected amendment that would have required it to undertake independent assessments of the business case for projects seeking Federal funding.

However Infrastructure Australia is not the only Federal agency resisting the current trend towards secrecy around road funding. The Productivity Commission recently produced it final report of its Inquiry into Public Infrastructurewhich delivers another telling blow to the argument that business cases for major projects should be kept secret.

The Commission recommends:

All governments should commit to subjecting all public infrastructure investment proposals above $50 million to rigorous cost–benefit analyses that are publicly released and made available for due diligence by bidders.

In general, analyses should be done prior to projects being announced. If a project is announced before analysis is done, for example, in the lead-up to an election, this should be conditional on the findings of a subsequent analysis.

The report is analysed in detail by Allan Davies in Crikey who debunks the claims that there are “valid commercial-in-confidence” reasons to withhold the release of full cost-benefit analyses. He highlights the Productivity Commission’s conclusion that this is not supported by the facts because:

“Typically such analyses are done prior to the procurement process commencing and so the data used are unlikely to be commercially sensitive.”

He points out the Commission goes on to address specifically the Victorian Government’s claim that “public disclosure could jeopardise a government’s ability to optimise value for money through competitive tender processes.” The Government is worried that “disclosure might prompt firms to ‘bid-up’ to the cost estimates included in the analysis.” However, the Commission discounts the concern:

“If the bidding process is truly competitive this is unlikely to occur because firms will have an incentive to bid based on their true willingness to enter into a contract. Moreover, the costs estimates used in cost–benefit analyses are known to be (and should be expected to be) surpassed by better knowledge as project design work develops, which in sound project development occurs prior to tender.”

The Commission argues that public disclosure of cost-benefit analyses is consistent with international initiatives like benchmarking and build-to-cost approaches. It says unequivocally:

“In the Commission’s view, the benefits created through transparency are likely to be substantial and significant effects on bids are unlikely, provided there is effective competition in procurement.”

Alan Davies concludes that a key reason business cases should be made public is so that “projects that, while appealing to particular groups or regions, are poor value for money for the community overall” can be brought to the attention of the public. The Commission says cost-benefit analyses are frequently made public in the US.

The public benefits from transparency mean that private participants should understand that the “normal presumption of transparency should prevail as a condition of involvement in government-backed projects.”

These are more telling arguments against the flawed East West Link process.

Article also published at Public Transport Not Traffic: Federal agencies blow the whistle on #EWLink (23 July 2014)

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