East West Link Project

Tabled: 9 December 2015

4 Establishing the project contract

At a glance

Background

Following a competitive tender process to select a contractor to finance, design, construct, and then operate and maintain the East West Link, the contract for Stage 1 of the project was signed with East West Connect (EWC) on 29 September 2014. The state provided a side letter confirming its commitment to honour the contract on the same day in recognition of the unique circumstances around the government's decision on whether or not to sign the contract. These circumstances included an undetermined legal challenge to the project planning approval decision.

Conclusion

The procurement process was well managed by the Linking Melbourne Authority and met the government's tight time lines and procurement requirements.

Signing the contract when there was significant uncertainty about the status of critical planning approvals was imprudent and exposed the state to greater cost and risk. The risks associated with this decision were increased when the state agreed to amend the contract in favour of EWC to provide it with additional compensation rights if the challenge to the project planning approval was successful. The available evidence suggests that the state knew at the time that there was a significant risk that this would happen.

Findings

  • The analysis and advice on the assessment of bids, and selection of the preferred bidder, was robust and in accordance with procurement requirements.
  • Advice to government in the lead up to signing the contract did not sufficiently emphasise the benefits of delaying finalisation of the procurement and contract to mitigate the risks posed by the unresolved judicial review of the project planning approval decision.

Recommendation

That the Department of Treasury & Finance develops minimum standards and enhanced guidance for managing the risks associated with concurrent planning, scoping and procurement processes on major projects.

4.1 Introduction

The procurement phase of the East West Link (EWL) project Stage 1, the eastern section, involved engaging a contractor to finance, design, construct, and then operate and maintain the road and tunnel infrastructure through a public private partnership (PPP).

The contract for Stage 1 was signed by the Minister for Roads on behalf of the state with East West Connect (EWC) on 29 September 2014. The Treasurer provided a side letter confirming the state's commitment to honour the contract on the same day to address EWC's concerns with the suggestion that the state did not have the requisite power to execute the contract.

Under the contract the state had obligations to:

  • acquire land for the project
  • obtain and maintain applicable approvals
  • provide state financial contributions and make quarterly service payments during the operations and maintenance phase linked to the availability of the road
  • obtain agreement for the interface with CityLink
  • deliver the toll collection system and required state works.

In the lead up to the government entering into the contract with EWC:

  • there was a legal challenge to the planning approval decision for the project
  • the then Opposition indicated that the project should not proceed by providing the government with a copy of legal advice questioning its power to enter into the contract and indicated that, if elected in the November 2014 election, it would not defend the legal challenge to the planning decision
  • EWC was refusing to sign the contract unless the state agreed to amendments in its favour.

This Part of the report examines whether the EWL procurement phase was undertaken in accordance with the government's Partnerships Victoria requirements and was supported by robust and comprehensive advice. It also examines how well the risks that emerged as the process evolved were mitigated.

The departments and agencies providing advice were the Department of Premier & Cabinet (DPC), Department of Treasury & Finance (DTF), Department of Transport, Planning and Local Infrastructure (DTPLI) which is now the Department of Economic Development, Jobs, Transport & Resources, and the Linking Melbourne Authority (LMA).

4.2 Conclusion

LMA managed the procurement process well in challenging circumstances, completing it in line with the tight time lines stipulated by the government at the outset of the project, and in compliance with relevant procurement requirements.

Signing the EWL contract when there was significant uncertainty about the status of critical planning approvals was imprudent and exposed the state to greater cost and risk. It is evident that the state knew the risk was significant. The risks associated with this decision were increased when the state agreed to amend the contract in favour of EWC to provide it with additional compensation in circumstances that the state knew were likely to eventuate.

Advice to government did not fully explore or give sufficient emphasis to the potential benefits of delaying finalisation of the procurement and contract to mitigate the risks posed by the unresolved judicial review of the project planning approval decision. This was despite:

  • LMA observing that it would be unprecedented for a PPP to proceed to contract signing with the judicial review and other relevant matters undetermined
  • the state being aware that the risk the judicial review plaintiffs would be successful was significant, and that the proceedings could be expedited
  • the potential for the judicial review to lead to extensive delays and scope changes and to EWC making a claim against the state under the contract.

4.3 Procurement of Stage 1—eastern section

The procurement process was undertaken in accordance with the government's Partnerships Victoria requirements.

The EWL business case proposed that a competitive tender process be adopted to engage a preferred bidder, but recommended the project team consider ways to streamline and improve the process to achieve better value for money by, for example:

  • limiting the number of short-listed bidders to two due to the significant bid cost estimated at $30 to $50 million per bidder
  • making the tender process as efficient as possible and providing for early selection of a preferred bidder where possible
  • only taking the preferred bidder to full documentation as this would further contain bidder costs
  • making a contribution to external bid costs.

All of these steps reflected the PPP reforms introduced by the government in May 2013 and were incorporated in the procurement process established by LMA.

4.3.1 Procurement documentation

The procurement process involved two stages—an Expression of Interest (EOI) followed by a Request for Proposal (RFP) for short-listed parties. The EOI and RFP procurement documentation was developed by LMA in close consultation with DTF and the former DTPLI. Figure 4A sets out the key steps and time lines.

Figure 4A

Key EOI and RFP events

Date

 

Key event

18 July 2013

 

EOI approved and released to market

31 October 2013

 

RFP document approved and released to three short-listed respondents

30 January 2014

 

Interim RFP submissions outlining proposed contract departures lodged by three respondents

7 March 2014

 

Updated RFP document issued to three respondents following assessment of interim submissions

28 April 2014

 

RFP submissions lodged by three respondents

Source: Victorian Auditor-General's Office.

The EOI document provided information to potential respondents about the project including design and construction issues and risks, and the proposed PPP payment mechanism. The EOI also set out the evaluation criteria to be used for selecting a short-list of respondents to participate in the RFP phase.

The RFP document covered instructions for responding, project requirements for design, construction, maintenance, operation and hand back, and draft contractual documentation.

The development and release of the procurement documentation was conducted in accordance with the government's Partnership Victoria requirements.

4.3.2 Assessment of submissions

Assessment of EOI submissions was led by LMA. For RFP submissions, assessment was overseen by an executive panel comprising staff from LMA and representatives from DTF and the former DTPLI. This panel was supported by three subordinate panels that assessed three specific aspects of the EWL project—commercial, technical and urban design. These four panels collectively assessed the submissions against 22 criteria including value for money. Figure 4B shows the key assessment steps and time lines.

Figure 4B

Key assessment steps and time lines

Date

 

Key task

29 August 2013

 

Four EOI submissions received and assessed

30 September 2013

 

Government announced three short-listed respondents selected to participate in RFP phase

April 2014

 

Executive panel and three subordinate panels established to evaluate RFP submissions

28 April 2014

 

RFP submissions lodged by three respondents

19 May 2014

 

Three subordinate panels provided the executive panel with their interim assessment reports

18 June 2014

 

Executive panel issued interim assessment report recommending one respondent be excluded from further evaluation and that evaluation of the remaining two respondents continue through a 'revise and confirm' process

8 August 2014

 

Revised RFP submissions received

27 August 2014

 

Final evaluation report issued by executive panel recommending the preferred bidder. Recommendation subsequently endorsed by EWL steering committee

9 September 2014

 

Government accepted the recommendation and announced the preferred bidder

Source: Victorian Auditor-General's Office.

The advice and documentation supporting the assessments prepared by LMA and DTF was robust, comprehensive, transparent, and met Partnerships Victoria requirements. Assessments were completed in line with the government's time lines.

4.3.3 Appointment of preferred bidder

It was evident that the decision to appoint a preferred bidder was influenced by the then government's desire to sign the contract by 30 September 2014.

Following endorsement of the executive panel's recommendation by the EWL steering committee, a briefing was submitted by the then Minister for Roads to government on 4 September 2014 seeking approval of a proposed strategy to sign the contract on or before 30 September 2014. The briefing emphasised that this involved approving and publicly announcing the preferred bidder by no later than 9 September 2014.

This briefing stated that the evaluation process had concluded which of the two submissions was superior and why, adding that rectifying the deficiencies in the unsuccessful bidders' proposal would take an estimated two further months.

The briefing further stated that a key rationale for selecting a single preferred bidder was that it increased the likelihood of signing the contract by no later than 30 September 2014. This was because:

  • full documentation was only required to be progressed and finalised for one bidder, noting that this task can take approximately three weeks from the appointment of a preferred bidder
  • finalisation of interface arrangements with Transurban, the operator of CityLink, and the two public transport service providers would be more efficient with only one bidder
  • appointing a preferred bidder provides greater impetus for that bidder to finalise the contracts—there is also an incentive for the preferred bidder to finalise arrangements before the caretaker government period.

The government accepted the recommendation and announced the preferred bidder on 9 September 2014.

4.3.4 Probity arrangements

Probity practitioners are engaged for significant procurements to provide independent oversight of compliance with procurement process requirements, and provide assurance on the integrity of the tender process.

LMA engaged a probity practitioner to provide advisory services for the EWL procurement process. The adviser's initial task was to develop a probity plan to provide straightforward guidance to the project team on the practical application of probity throughout the procurement process. This plan was completed in May 2013.

The probity adviser was also required to examine and provide an opinion on compliance with the probity plan. The probity reports subsequently presented to LMA during the procurement process attested that the EOI and RFP phases had been conducted in accordance with the probity plan, evaluation manual and other probity requirements.

Engaging a single party as both the probity advisor and the probity compliance reviewer weakened the independence of the probity practitioner. The scale of the EWL project warranted the appointment of separate parties to undertake these two functions.

4.4 Unresolved issues affecting the project

The procurement phase and contract negotiation were undertaken in parallel with:

  • the statutory planning approval process, which was the subject of an unresolved legal challenge
  • negotiations with Transurban, the operator of CityLink, regarding the widening of CityLink and its integration with EWL.
Delay in finalising the statutory planning process

The EWL project was to be declared under the Major Transport Projects Facilitation Act 2009 (MTPFA) in July 2012 with statutory planning to start as soon as possible after that date and be completed by March 2014. However, declaration of the project under the MTPFA did not occur until 20 December 2012.

In March 2013 and again in April 2013, DTF advised the government that it was imperative that the statutory planning process commence as a matter of urgency, because without intervention the process was likely to be finalised around the same time as the procurement process which constituted a significant risk. DTF advised that in normal circumstances there is a gap between the receipt of final statutory planning approvals and the finalisation of the tender process so bidders have certainty when submitting designs as part of their bids.

RFP responses were submitted to LMA as required on 28 April 2014 but the Minister for Planning's approval decision, which was not made until 30 June 2014, imposed conditions and new requirements that affected the project's design and costs.

On 9 July 2014, DTF advised the then Treasurer that the most significant risk resulting from the minister's decision was the uncertainty that some of the conditions and requirements may create for bidders, and therefore the ability of the state to efficiently achieve contractual signing within the scheduled time frames.

On 17 July 2014, LMA applied for a variation to the minister's decision, requesting that he amend or clarify certain conditions he introduced. LMA's application, which requested a response by 1 August 2014, highlighted areas where meeting a condition in the decision would:

  • not be physically possible
  • be inconsistent with existing standards and requirements
  • be highly impracticable (based on bidder feedback).

DTF advice emphasised that if the uncertainties created by the approval decision were not resolved well before contract finalisation there was a risk the preferred bidder may not be prepared to sign the contract. Further, if the preferred bidder was willing to enter into a contract it was likely that the state would be required to bear the cost and time consequences of any alterations required to satisfy the minister's approval decision.

LMA requested the two short-listed bidders to submit revised bids by 8 August 2014 that addressed the changes to the project caused by the minister's approval decision, assuming the variations requested by LMA to the approval decision would be accepted. In making this request LMA recognised there was a risk to the procurement process timing if the changes requested were not accepted by the minister.

Despite this uncertainty the preferred bidder was announced by the government on 9 September 2014 while the variations sought to the approval decision remained unresolved until 19 September 2014 when the minister varied his decision predominantly in line with LMA's requests.

Unresolved legal challenges to planning approval decision

Compounding this uncertainty were unresolved legal challenges to the Minister for Planning's approval decision of 30 June 2014.

On 21 July 2014, two local government councils lodged a claim in the Supreme Court seeking a judicial review of the approval decision asserting that the minister had failed to examine the EWL business case in considering the economic costs and benefits of the project. A second claim was lodged in the Supreme Court on 20 November 2014 by a third council seeking a judicial review based on a claim that a requirement to consult it had not been met when the Minister for Planning determined the variations to the approval decision.

An earlier legal claim against the project had been lodged in April 2014. This claim by a local resident sought a Supreme Court injunction to prevent contract execution on the basis that the project benefits had been misrepresented.

Unresolved arrangements to access CityLink for construction works

As EWL was intended to connect to CityLink it was necessary for an agreement to be reached with Transurban, the CityLink operator, to enable access for construction work.

When the RFP was issued to the short-listed bidders on 31 October 2013, negotiations with the CityLink operator were under way. Updated RFP documentation was subsequently reissued to bidders on 7 March 2014 following assessment of interim submissions requested as part of the tender process. However, as negotiations with the operator of CityLink were still in progress, the updated documentation did not include finalised access arrangements.

Access arrangements were still not finalised when RFP submissions were due, and when the preferred bidder was appointed on 9 September 2014.

In addition to the uncertainty this situation created for bidders, it had the potential to require the state to compromise its position with the CityLink operator in order to finalise the agreement and, conversely, strengthen that operator's negotiating position. It is unclear if this occurred.

4.5 Decision to enter the contract

In addition to the above unresolved issues, in September 2014 the then Opposition stated that it would not proceed with the project if elected in November 2014.

4.5.1 Advice leading up to contract signing

It is not standard for a PPP to proceed to contractual signing when there is significant uncertainty about the status of critical planning approvals. However, this is what occurred on EWL. Such circumstances warranted comprehensive advice to government on its options and the best course of action for the state.

Advice from agencies noted the potential implications of signing the contract despite the litigation and planning risks. This advice included preliminary quantification of:

  • potential delay costs estimated at between $40 million and $110 million permonth, and advice that any scope changes arising from a new planning approval decision may lead to further costs
  • compensation payable under termination scenarios which, while difficult to estimate and dependent on the timing of any termination, was advised to be in excess of $900 million by February 2015 and higher if terminated later.

However, relevant advice to government, associated briefings from DTF and DPC and, to some extent, LMA presentations to the project steering committee, did not fully explore the merits of options to defer selection of a preferred bidder, delay signing the contract, delay finalisation of the project financial arrangements and/or implement some form of 'standstill', 'go slow' or 'short-term' agreement. This was seemingly driven by a view within the departments and agencies that the government would be unreceptive to advice arguing against its objective of signing the contract before November 2014.

LMA advice in August 2014 indicated that, given the significant implications, it was critical that all efforts be made to resolve the judicial review before signing the contract. LMA also advised DTF, the steering committee and DTPLI that it was unprecedented for a PPP contract of this scale to be executed while a judicial review of this nature remained undetermined.

The LMA advice was particularly important given that the government was aware that:

  • the risk that the plaintiffs seeking the judicial review of the planning approval decision would be successful was significant
  • it was possible to have the proceedings brought to a hearing quickly if the state wished.

In August 2014, DTPLI recommended that the government take action to have the judicial review of the planning approval decision determined as quickly as possible. This recommendation was supported by an awareness that there was a significant risk that the challenge to the planning approval decision would be successful. Therefore its timing was critical because the longer the judicial decision took, the higher the potential contracting risks and the greater the potential financial exposure of the state under the contract, should a contract be signed before the judgement. DTPLI advice indicated that an expedited court timetable was achievable, would deliver early certainty, and would provide the best mitigation to the substantial cost and risk exposures to the state that existed at that time.

Despite this advice the government decided not to seek an expedited hearing. LMA advised that following this decision DTPLI provided it with verbal:

  • advice that the state intended to seek a hearing date in December 2014 for the judicial review proceeding
  • instructions that the government wished to proceed to contract signing for the project in accordance with its previously determined time line and LMA should seek to finalise the contract documentation with the preferred bidder.

The focus on achieving this time line was given disproportionate emphasis given the significance and complexity of the project and the risks and implications for the state. Consistent with the overriding desire to achieve the established time frames, subsequent advice to government focused on options to mitigate identified risks if the government determined to proceed to signing the contract rather than emphasising the potential benefits of delaying signing and fully exploring the merits of alternative options.

Specific gaps in the advice to government included the failure to:

  • comprehensively examine the merits of alternative options—while noting that options to delay contract signing and/or finalisation of the project financial arrangements existed, the advice contained only limited discussion and analysis of these options and gave undue weight to the need to reach agreement with EWC on possible options
  • directly support or oppose the proposed timing of the transaction—i.e. advice did not directly recommend any course of action in the best interests of the state.

The reasonable prospect that the planning approval decision would be overturned by the judicial review warranted more comprehensive advice to government examining options other than signing the contract in terms of potential costs, benefits and risks. These options should have included extending the tender process to defer the selection of a preferred bidder and contract signing while, at the same time, seeking to expedite the application for judicial review. If the approval decision was overturned, such options could have offered a better outcome for the state than a scenario of a claim under the contract. The state had discretion to extend the procurement process if it wished to do so.

The 24-day period from announcement of the preferred bidder on 9 September 2014 to contract signing on 29 September 2014 and finalisation of the project financial arrangements on 3 October 2014 was relatively short. Benchmarks published by Infrastructure Australia and otherwise established by recent PPP transactions in Victoria suggest that around six weeks would have been considered efficient.

While there were no missed steps in the typical finalisation process for a PPP transaction, the government's overriding desire to achieve its time line, compromised the state's ability to:

  • adequately explore options to extend the tender process—i.e. defer selection of a preferred bidder, delay signing the contract, delay financial close and/or implement some form of 'standstill', 'go slow' or 'short-term' agreement; and/or
  • negotiate optimal contractual terms with EWC in relation to the litigation and planning risks.

Options to minimise construction expenditure, and avoid or reduce the significant up-front costs until the planning risks could be resolved were flagged in advice to government, but were not pursued.

If contract signing had been deferred until after resolution of the judicial review, the state's exposure under the non-standard contract provisions accepted to secure EWC's execution of the contract, could have been avoided.

4.6 Executing the project contract

The state signed a contract appointing EWC to finance, design, construct, operate and maintain Stage 1 of EWL in September 2014. The Treasurer also issued a side letter to EWC affirming the state's commitment to honouring the contract and related compensation payment obligations.

4.6.1 'Non-standard' contract provisions

The contract was standard in most respects while also including a number of project-specific provisions relating to land acquisition, key approvals, the interface with CityLink, the toll collection system and state works.

The termination and compensation provisions in the contract were also generally consistent with the standard commercial principles established by the National PPP Policy and Guidelines, the Partnerships Victoria requirements and with recent precedent transactions. However, in departures from standard practice for PPP transactions in Victoria, the state agreed to the inclusion of clause 58—Specific Key Approval Event in the contract and signed a side letter to the contract.

These variations from standard contractual terms were introduced at the request of the preferred bidder. EWC's requests were prompted by the legal challenge to the Minister for Planning's approval decision for the project and the Opposition's announcement that it had legal advice questioning the state's power to enter into the contract and that it would not defend the application for judicial review of the planning decision if elected in November 2014.

Clause 58

Under the contract, the state bore the risk of any litigation or changes relating to key project approvals such as statutory planning approvals. This is part of the standard risk allocation in PPP contracts.

EWC requested that a new clause (clause 58) be inserted in the contract and the state agreed. Clause 58 increased the state's exposure in circumstances where the planning approval decision was found to be invalid, as compared to the 'standard' provisions of the contract.

Specifically, clause 58 exposed the state to the following primary consequences if the approval decision was held to be invalid within two years of finalisation of the project financial arrangements:

  • higher delay cost caps than those applicable to other delays—up to $2.5 million in Prolongation Costs per day
  • an obligation to terminate 'for convenience' where any decision that the planning approval decision was invalid had a material impact on EWC for a continuous period of 12 months—under this scenario, the standard compensation payout formula was modified to include a fixed payout to equity of around $30million, as opposed to fair market value, plus the termination costs payable by EWC to its management services provider during the contract.

In addition, if the judicial review of the planning decision resulted in changes to the approval decision this could trigger a claim from EWC for costs under another clause of the contract.

The side letter

The Treasurer executed the side letter in favour of EWC on the same day the contract was signed. The obligations in the side letter would have been triggered if a court declared within three years of finalisation of the project financial arrangements that the state did not have the executive power to execute the project contract, and that the contract was void or unenforceable.

In this scenario, the side letter committed the state to pay EWC compensation calculated in accordance with the contract as if the contract had been terminated by the state three months after the date on which the contract was declared or decided to be void or otherwise unenforceable.

The payment obligation created by the side letter was subject to a number of conditions, including that the state was entitled to a three-month period to remedy the fact that the contract was void or unenforceable.

The only scenario under which the side letter can be argued to have created additional exposures for the state is one in which the state did not have the authority to sign the contract. Legal advice obtained by government both before and after the election indicated that this was very unlikely.

4.6.2 Advice on contract provisions

The state's external legal and commercial advisers signed off on the general alignment of the contract with the National PPP Policy and Guidelines but qualified this with specific reference to clause 58.

Advice to government clearly explained the basis for, and implications of, the new clause 58 and the side letter. However, the advice did not clearly explain the rationale for aspects of the higher compensation payable under clause 58 and did not adequately highlight the qualifications included in the 'sign-off' letters from the state's legal and commercial advisers for the project.

DTF advice to government in September 2014 stated that the side letter was a proportionate and appropriate way of calming investor and funder nerves over the executive power issues. This was consistent with the legal advice that the state did have the power to enter into the contract and therefore the side letter would never be triggered.

The risk and exposure for the state created by clause 58

The risk and exposure for the state created by clause 58 was linked to the outcome of the judicial review of the planning decision for the project.

The grounds for the application for review of the planning approval decision included that the Comprehensive Impact Statement assessment committee and Minister for Planning failed to have regard to mandatory relevant considerations. These principally related to the economic effects of the planning scheme amendments and in particular that the assessment committee unreasonably refused to require production of the state's business case and other documents relevant to economic costs and benefits of EWL.

The available evidence suggests that the state knew on 19 August 2014 that the risk and exposure relating to the potential for the judicial review to quash the approval decision, later the subject of clause 58, was significant. This position was presented to government in advice from DTPLI on 20 August 2014.

A file note prepared for the EWL project steering committee at the end of September 2014 indicated that the state's prospects of success in the judicial review may have been more positive. The basis for this view was not documented but the view was conveyed to government on 23 September 2014.

Basis of the potential $30 million payout to equity

Clause 58 modified the 'termination for convenience' compensation formula to include a fixed payout of return of capital plus $30 million, and the termination costs payable by EWC to its management services provider.

Advice to government on the basis for the $30 million was not clear or consistent. Despite this, LMA advice to government on 23 September 2014 suggested that under the standard termination provisions of the contract the payment for return of equity would be 'immaterial' but under the proposed clause 58, it would be $30 million. Based on this advice, the fixed payout to equity component of clause 58 did create 'additional' exposure for the state as compared to the standard provisions.

The likelihood of this payment being triggered was linked to the likelihood that the planning approval decision would be quashed, and the length of time that might have been required to 'remake' the decision, assuming the then government sought to do so.

Rationale for higher delay cost caps

Clause 58 exposed the state to higher delay cost caps than those applicable under the 'standard' provisions of the contract, noting that EWC was only entitled to actual, additional, net costs properly and reasonably incurred and directly attributable to the relevant delay event.

The cap on prolongation costs if clause 58 was triggered was set at $2.5 million per day plus CityLink Traffic Impact Fees plus Financing Delay Costs.

This $2.5 million figure compared to the standard range of caps applicable to prolongation costs, as in Schedule 4 of the contract, as follows:

  • $555 000 per day for months one to three after financial close
  • $1.75 million per day for months four to 18
  • $2.05 million per day for months 18 to 40
  • $1.75 million per day beyond that point.

The likely time frame for when clause 58 could have been triggered was early 2015, so the most relevant comparator is the $1.75 million per day for months four to 18 after financial close. There was no clear commercial rationale for an increase of around 43 per cent in the relevant daily cap under clause 58. This is because there was little logical basis for one specific type of delay event warranting a higher cap than other types of delay events.

Advice to government did not explain why one specific type of delay event warranted a higher cap than other types of delay events. From the state's point of view, the request for higher delay cost caps should have highlighted the need for further consideration of options to mitigate the exposure of the state, pending resolution of the judicial review.

With more time it may have been possible to negotiate a more favourable position for the state in relation to clause 58 and related provisions. For example:

  • the commercial rationale behind the increase in the delay cost cap was not clearly explained, nor was the basis for calculation of the potential $30 million payout to equity in a termination scenario
  • advice to government noted the possibility of negotiating some form of 'standstill' or 'go slow' arrangement to help mitigate the costs incurred by EWC until the judicial review was determined—it appears that LMA discussed this option with DTF but it was not raised with the preferred bidder due to a reluctance to introduce further risks to meeting the time line for finalising the contract.

Alternatively, the potential exposure under clause 58 could have been avoided by deferring contract signing until the judicial review was resolved. This would have required an extension to the time lines previously disclosed to bidders.

In taking the decision to proceed to contract signing the state was, in effect, 'gambling' that the judicial review proceedings would not impact the project significantly.

Recommendations

That the Department of Treasury & Finance:

  1. develops minimum standards and enhanced guidance for managing the risks associated with concurrent planning, scoping and procurement processes on major projects
  2. mandates the appointment of separate parties to undertake the probity advice and probity compliance review functions on High Value High Risk projects.

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