Former premier Denis Napthine with the East West Link plans

The former Victorian government’s handling of the East West Link road project has been condemned by the state’s financial watchdog in an audit examining whether the state effectively managed the project by assessing total costs and appropriateness of advice.

The Victorian Auditor-General’s report found that the Napthine government’s decision to proceed with the project and enter contracts was based on flawed advice and “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 audit has serious implications for the behaviour of governments in relation to their obligations to taxpayers, and for the obligations of the public service to provide impartial advice rather than oblige the political powers of the time.

It found that the project’s business case did not provide a sound basis to proceed with the project.

“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,” acting Auditor-General Peter Frost said.

The audit also said risk was increased when the former government amended contracts to provide additional compensation were the project to be scrapped (which was highly likely given the Labor government’s commitment to scrap the project and the election polling figures at the time).

Mr Frost said that the government had paid $1.1 billion on the project when it was terminated in June 2015, for “little tangible benefit”. These costs would only be partially offset by the sale of properties acquired, for around $320 million.

The audit found that advice to the government in the lead up to signing the contract did not sufficiently assess the benefits of delaying signing the contract to mitigate risks posed by the unresolved legal challenge to the project planning approval decision, which was being pursued by local councils.

“Signing the contract in these circumstances was imprudent and exposed the state to significant cost and risk,” the audit stated.

It also takes aim at the current government, saying that while the amount paid to terminate the contract was “substantially lower” than what was included in the project terms, the government had not given “full consideration of the merits to completing the project”.

Windfall gains?

The audit also found it was possible that the East West Connect consortium – which included Lendlease, Bouygues and Acciona – made a windfall financial gain from the termination, as the consortium refused to grant access to the financial records of its related party contractors, which the state government accepted.

“This created a risk that EWC’s related parties had a windfall gain,” the audit said.

Mr Frost said that weakness in the Audit Act 1994, however, meant he was unable to obtain information to ascertain whether this was the case.

Public service failed in its duty

The audit takes aim at the public service for providing “flawed advice” – advice it says was “disproportionately aimed” at getting contracts signed before the election, rather than being in the best interests of the project or taxpayers’ money.

“The bedrock of our system of public administration is that the public service is apolitical, impartial and has a fundamental obligation to provide frank and fearless advice to the government of the day,” Mr Frost said. “Frank and fearless advice should be complete – it is not sufficient for public servants to avoid providing advice or recommendations simply because they believe the government of the day does not want to hear them.”

Mr Frost also said he had made submissions to the departments of Premier & Cabinet and Treasury & Finance seeking to address the underlying issues identified in the audit, which had been rejected.

He suggested that The Public Administration Act 2004 imposed an obligation on public servants “to provide frank, impartial and timely advice to government”.

“Meeting this obligation means there is sometimes a need to provide advice that a government may not necessarily want to receive,” he said.

“Presenting options to government without a recommendation in circumstances where public officials know that the option favoured by government will expose the state to significant potential risks and costs is clearly not in the best interests of the state. It is not sufficient for officials in such circumstances to stop at disclosing the potential risks and consequences of the available options – they need to provide a recommended course of action,” Mr Frost said.

The audit, however, said the departments had “disputed this and advised that the Code of Conduct for Victorian Public Sector Employees required the public service to implement government policy decisions once the government of the day has made a clear policy decision”.

Mr Frost labelled this as “a narrow reading”.

“The Act does not oblige public servants to implement government policy at any cost,” he said.

“The Act and Code empower and oblige public servants to act with integrity and, most importantly, with impartiality.”

The audit noted that some public servants voiced concerns that providing frank advice could “negatively impact their influence or career opportunities”.

“This belief is regrettable and if it becomes common in the public sector it poses a significant risk to the integrity of government decision-making and public administration,” it stated.

The departments’ responses and auditor-general’s consequent response make for interesting reading regarding the role and duty of the public service.

Lessons learnt

The audit provided lessons for major projects going forward, including “the importance of transparency and scrutiny of the business case, and the risks of entering project contracts when other relevant processes, in this case, planning approvals, are unresolved and subject to legal challenge”.

“Large infrastructure projects take time to properly plan and implement and they should be determined on merit,” Mr Frost said. “That’s why it is heartening that when announcing the creation of Infrastructure Victoria, the government stated that it will take short-term politics out of infrastructure planning and support government decisions by assessing business cases for major projects based on objective, transparent analysis and evidence.”

Similar situations to the East West Link are currently playing out with Sydney’s WestConnex toll road and the Perth Freight Link. Opponents of the projects say governments have not appropriately canvassed alternative solutions.

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  1. Thank you. A much better article on this subject than any I have read via the rest of the MSM. Given the findings of the Auditors report, what possible action could the Andrews government have taken so as not to be criticized? Build the EWL and be subject to voter ridicule for breaking a promise as well as ridicule from the Auditor? Or NOT build it, pay the $1.1 billion fee and STILL be subject to ridicule from the Auditor? Talk about a Catch 22 situation, but regardless, I think the government made the right choice, and Victorians are STILL about $21 billion better off than a botched and overpriced project choice made by the LNP.