East West Link Project

Summary

The Auditor General's report on the East West Link project in Victoria, Australia, reveals mismanagement and flawed advice leading to a $1.1 billion expenditure with minimal returns. The project was terminated in 2015, with costs partially offset by property sales. The report criticizes the state for signing contracts amidst legal challenges and inadequately assessing project completion merits. It also points out the lack of transparency in cost verification and the need for improved business case development and risk management in public sector projects.

Takeaways

• 📊 The East West Link project in Victoria was one of Australia's largest and most complex infrastructure projects, with a cost exceeding $1.1 billion.
• 🏗️ The project was terminated in June 2015, resulting in significant financial loss for the state, with tangible benefits being minimal.
• 💵 The Department of Treasury and Finance (DTF) estimated that the cost could be partially offset by the sale of properties worth $320 million.
• 📋 The audit revealed flawed advice to the government and risks taken by signing contracts amidst legal challenges to the project planning approval.
• 🚧 The full East West Link project was projected to cost over 22.8 billion, with the Eastern section being prioritized and contracted to East West Connect (EWC).
• 🔄 The new government elected in November 2014 instructed EWC to suspend work, leading to the project's termination in June 2015.
• 📉 The business case for the project was criticized for not providing a sound basis for prioritizing the Eastern section and relying heavily on wider economic benefits without sufficient evidence.
• 🛑 The procurement process was robust, but advice given before contract signing did not adequately address the risks posed by an unresolved legal challenge.
• 💼 The advice to the new government on terminating the project did not fully consider the cost, risks, or benefits of completing it.
• 📊 The termination settlement cost was around $642 million, which was less than what would have been payable under the contract.
• 🚫 The state accepted EWC's refusal to allow access to records of related party contractors, which meant that the validity of project costs could not be fully verified.

Q & A

What is the role of the Auditor General in the Victorian public sector?

The Auditor General provides assurance to Parliament on the accountability and performance of the Victorian public sector, conducting financial and performance audits, and reporting the results to Parliament.

When was the performance audit report on the East West link project tabled by the acting Auditor General?

The acting Auditor General tabled the performance audit report on the East West link project on the 9th of December 2015.

What was the outcome of the East West link project in terms of financial loss for the state?

The East West link 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.

How much of the cost incurred by the state for the East West link project is estimated to be offset by the sale of properties?

The cost will be partially offset by proceeds from the sale of properties acquired for the project, which the Department of Treasury and Finance estimates are worth $320 million.

What were the main flaws found in the advice given to the government regarding the East West link project?

The audit found flawed advice to government on the project, including signing the contract when there was a legal challenge to the project planning approval decision, which exposed the state to additional risk.

What was the total cost of the termination settlement for the East West link project?

The total cost of the termination settlement was around $642 million, which includes reimbursement for project costs incurred and settling an arrangement related to the financing risks of the project.

What was the main issue with the business case for the Eastern section of the East West link project?

The business case did not provide a sound basis for prioritizing the Eastern section over other sections, relying heavily on the inclusion of wider economic benefits without sufficient information and evidence to demonstrate their accuracy and plausibility.

How did the procurement process for the East West link project fare in terms of government standards?

The procurement process was robust and met the government's target timeline, but advice to government in the leadup to contract signing did not sufficiently emphasize the benefits of contract signing to mitigate risks posed by an unresolved legal challenge.

What was the impact of the new government's decision to terminate the East West link project?

The new government's decision to terminate the project in June 2015 resulted in a different settlement outcome than initially announced, which, based on sound advice, delivered a better outcome for the state.

What recommendations were made to improve the management of future major projects in the Victorian public sector?

Recommendations included improving business case development guidance, enhancing risk management during concurrent planning and procurement, and establishing guidance for transparent negotiations before private reimbursement.

What was the main concern regarding the integrity of public administration highlighted by the audit?

The main concern was that advice to government over the life of the project did not always meet the 'frank and fearless' standard, indicating a risk to the integrity of public administration that needs to be addressed.