East West Link Project

Tabled: 9 December 2015

Auditor-General's comments

Dr Peter Frost

Acting Auditor-General

Audit team

Steven Vlahos and Tim Maxfield—Engagement Leaders

Tony Brown—Team Leader

Ray Seidel-Davies—Analyst

Jessica Cross—Analyst

Daniel Mahoney—Analyst

Engagement Quality Control Reviewer

Dallas Mischkulnig

This audit assessed the East West Link (EWL) project—its total costs and the appropriateness of advice supporting key project decisions that influenced the project's outcomes and total costs.

The decisions to proceed with the EWL project and enter into a contract with the preferred consortium were based on flawed advice. The likely net benefits of the project were not sufficiently demonstrated and the failure to properly resolve project risks before entering contracts exposed the state to additional financial risk. It was clear the advice provided to the then government was disproportionately aimed at achieving contract execution prior to the 2014 state election rather than being in the best interests of the project or use of taxpayers' money.

There were also shortfalls in terminating the EWL project. Following final settlement of outstanding costs, the state will have incurred in excess of $1.1 billion in costs on the project with little tangible benefit for taxpayers. This cost will be partially offset by the sale of properties acquired for the project, which the Department of Treasury & Finance (DTF) estimates are worth $320 million.

The new government was also not provided with updated, comprehensive information on the impacts of completing the project versus the option of cancelling it. This meant it was deprived of comprehensive advice to assure it that termination was the best use of public funds.

Further, there was a failure to adequately ensure some of the settlement payment was not a windfall gain to contractors related to the project consortium. However, weaknesses in the Audit Act 1994 meant that I could not obtain the information required to confirm this.

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.

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. Frank and fearless advice should complete—it is not sufficient for the public service to avoid providing advice or recommendations simply because they believe the government of the day does not want to hear them. Doing so is at odds with the Public Administration Act 2004 and the Code of Conduct for Victorian Public Sector Employees, which require the public service to act impartially and seek to achieve the best use of resources.

This is an important matter and vigilance and leadership is required to protect the best traditions of the Victorian public service.

The EWL project has also highlighted a number of lessons that should be at the forefront of future infrastructure projects. This includes 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. 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.

I have made a series of recommendations addressed to the departments of Premier & Cabinet (DPC) and Treasury & Finance which seek to address the underlying issues highlighted by this audit. Disappointingly, they have failed to acknowledge critical deficiencies identified by the audit, and have rejected its recommendations. In their response to this audit, they have also made a number of assertions and drawn inferences which fundamentally misrepresent the content of my report. I respond to these in detail at Appendix C and I would urge anyone interested in public administration to have close regard to the audit report, the responses of DPC and DTF, and to my further audit comments.

From its inception to its termination the EWL project was not managed effectively and it will become an important marker in the history of public administration in this state. This audit points out important and sobering lessons for government, the public officials who advise and serve it, and for taxpayers.

Signature of Dr Peter Frost (Acting Auditor-General)

Dr Peter Frost

Acting Auditor-General

December 2015

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