Market-led proposals

Tabled: 27 November 2019

Audit overview

Context

What is a market-led proposal?

In a market-led proposal (MLP), the private sector makes an unsolicited approach to government for support to deliver infrastructure or services through direct negotiation rather than a competitive procurement process. The private sector usually asks the government for financial support, but may also ask for regulatory or other forms of assistance.

The state has considered many MLPs since early 2015, with 14 progressing beyond the second assessment stage and four successfully advancing through the entire process to contract award.

How they are assessed

In early 2015, the government established a new guideline and five-stage process for considering MLPs and gave commitments:

  • that proposals must meet a series of important tests and be in the public interest to proceed
  • that proposals will only proceed if they represent a genuinely unique idea or proposition, deliver on government objectives, provide benefits to the community and achieve value for money (VFM) outcomes
  • to uphold the highest levels of integrity and transparency when assessing MLPs.

The Department of Treasury and Finance (DTF) has a key role in overseeing the MLP guideline and the application of the assessment process. It leads Stage 1 and Stage 2 of proposal assessment in consultation with relevant departments. During Stages 3, 4 and 5, the government-approved lead department, which can also be DTF, undertakes the assessment. When another department or agency leads an assessment, DTF provides support.

The Treasurer is the responsible minister for the MLP guideline. DTF or the Treasurer approves the Stage 1 assessment outcome. The government approves the assessment outcome at Stage 2 and at each subsequent stage. DTF briefs an interdepartmental oversight committee and the Treasurer throughout the assessment process.

Why this audit is important

DTF receives a steady flow of unsolicited MLPs seeking exclusive negotiations with the state, so the government needs a rigorous and transparent process for assessing these proposals to promote new infrastructure and service ideas, and ensure fairness for proponents and value for the community.

It is important that the MLP process works well so that taxpayers can be confident that decisions by government to engage with a proponent in a non‑competitive way is in taxpayers' best interests and beyond reproach.

Objective and scope

The objective of this audit was to determine whether MLPs are assessed in accordance with government requirements. To address this, we examined the assessment of two MLPs that the government awarded contracts to—the West Gate Tunnel (WGT) and the Victoria Police Centre (VPC). We did not examine implementation of these projects. We also examined the assessment of one alternative proposal received for the WGT and two alternative proposals received for the VPC.

Our original audit scope also included the development of a unique disease surveillance system and production of disease prevention products for Victoria. The MLP for this was submitted in June 2017 and rejected at the end of Stage 2 in June 2018. We did not evaluate this in depth, because our initial inquiries indicated that DTF assessed the proposal in accordance with the MLP guideline and process.

The departments and agencies involved in assessing these proposals were DTF, the Department of Premier and Cabinet (DPC), the Department of Transport (DoT), the West Gate Tunnel Project, Victoria Police and the Department of Jobs, Precincts and Regions (DJPR).

Conclusion

DTF and Victoria Police documented the required assessments of the WGT and VPC proposals and obtained the required government approvals. However, their advice to government could have been more transparent by fully explaining the implications of their assessment approaches, and providing greater assurance about key inputs underpinning the assessments. Not doing this meant decision makers lacked relevant information to fully inform their decisions for significant state projects procured outside a competitive process.

DTF reasonably determined that an element of Transurban's proposal for the WGT was unique. However, DTF and Victoria Police did not clearly demonstrate that the aspects they assessed as unique in the Cbus/Australia Post proposal for the VPC could not have been obtained in the marketplace within an acceptable time frame.

In DTF's assessment of VFM for the WGT, their use of particular revenue assumptions, different approaches to discounting different revenue streams and use of a state benchmark range without a single best point estimate, all had impacts on the assessment outcomes. Given this, we expected DTF's advice to the government to clearly explain why certain assessment approaches were taken and how they impacted the results. We also expected that DTF would have undertaken more checking and sensitivity analysis, commensurate with the WGT project's significance, to better assure themselves of the comprehensiveness of their VFM assessment and advice.

For the VPC, while the proposal met the VFM benchmarks set by the government, this was achieved because the state retained significant risk. Increases to the size and lease term of the VPC increased the risk and whole‑of‑life costs of the proposal for the state. DTF and Victoria Police did not convey the impacts of these changes clearly enough in their assessments and advice to government.

Findings

Uniqueness of the proposals

It is not sufficient for lead agencies to only demonstrate the presence of unique characteristics in an MLP. They must demonstrate that these characteristics provide value and other benefits for government that could not be achieved through a standard competitive process outside of the guideline within acceptable time frames.

There was competition in the market to deliver a WGT and VPC, evidenced by alternative proposals from Cintra Developments Australia (Cintra) for the WGT and from the World Trade Centre (WTC) and another property developer for the VPC.

DTF and Victoria Police advised the government that the WGT and VPC proposals were unique, based on a funding source and security, respectively.

West Gate Tunnel

DTF's advice to government that the Transurban proposal satisfied the uniqueness test was primarily based on Transurban's capacity to access, escalate and extend toll revenues on its existing CityLink concession.

To be commercially viable, the Transurban proposal needed revenue to flow from four sources—an upfront payment from the government, tolling revenue on the new WGT road, additional increases to tolls from its existing CityLink concession, and an extension of that concession for another 10 years. These funding sources were contingent on government actions and Parliamentary support.

The MLP guideline recognises ownership of strategic assets, including rights under an existing contract, as a unique characteristic. DTF reasonably assessed the CityLink escalation funding source as unique because, under the existing CityLink concession, no party other than Transurban could access and increase tolls on CityLink prior to 2035.

DTF advised that funding from the CityLink escalation source was sufficiently material to justify proceeding as an MLP. This funding source made up between 14 and 18 per cent of the total funding sources the state and Transurban identified and estimated for the project.

DTF also determined that revenue from the 10-year extension on the CityLink concession given to Transurban by government was unique. The 10-year CityLink extension made up around 31 percent of the total funding sources the state identified and estimated for the Transurban project.

DTF identified that as revenue from the CityLink concession extension does not begin flowing until 2035, parties other than Transurban may have had challenges raising project finance tied to this funding source on a VFM basis, due to the timing and uncertainty of these cash flows. However, DTF's assessment of uniqueness regarding the extension did not include substantive analysis of granting another private operator access to the CityLink extension or the state taking on the tolling of CityLink itself from 2035.

DTF's assessment of the Transurban proposal as unique, even if considering only the CityLink escalation funding source, is consistent with the MLP guideline. However, the guideline provides no detail on the level of materiality that unique characteristics should possess. Further, DTF did not transparently assess the value of this source of uniqueness to the state compared to the next best alternative available to government such as a competitive process with additional government guarantees.

Victoria Police Centre

DTF and Victoria Police justified the Cbus/Australia Post proposal to build a new police headquarters at 311 Spencer Street, in Melbourne's central business district (CBD), as unique based on the security and co-location benefits provided by the site. The site is next to the City West Police Complex at 313 Spencer Street, with rail lines at its rear which provide security benefits—including perimeter standoff and natural surveillance—that are unlikely to be built out.

However, DTF and Victoria Police did not satisfy the MLP guideline requirement to show that these benefits could not be achieved through a standard competitive process within acceptable time frames. With the expiry of the current lease in July 2020, there was no time pressure in 2015 that called for sole negotiations with a single proponent. There was ample time for Victoria Police to undertake a competitive process and clear evidence of other options for locating a new Victoria Police headquarters.

Advice obtained by Victoria Police clearly identified other sites that could meet its security needs, and its claims of co-location benefits with the City West Police Complex were only superficially specified.

The Stage 2 MLP assessment led by DTF indicated that Cbus/Australia Post were expected to respond to any competitive market process to provide accommodation for Victoria Police after July 2020.

The potential for other proponents to respond to the service need was demonstrated by the state receiving two alternative MLPs to provide a new headquarters for Victoria Police before it signed the lease agreement with Cbus/Australia Post in January 2017.

Service need and benefits

The 2015 interim MLP guideline criteria required proposals to meet a service or project need that is aligned with government policy objectives and priorities and provides benefits to Victorians.

The assessments of the VPC and WGT proposals clearly demonstrated both met a service need.

West Gate Tunnel

The WGT proposal met a need to reduce traffic congestion arising from high population growth.

The government sought to test the merits of the WGT as a standalone project, without regard to the potential involvement of Transurban, by requesting the former Department of Economic Development, Jobs, Transport and Resources (DEDJTR) develop a business case for the project.

We assessed DEDJTR's business case against DTF's Investment Lifecycle and high value high risk (HVHR) guidelines and found the following deficiencies:

  • As also expressed by both the peer reviewer appointed by DEDJTR and the Independent Review Panel appointed by DPC to review the business case, it lacked a reasonable justification for including the Monash Freeway widening works in the WGT project scope, and this scope element improved the benefit-cost ratio (BCR).
  • It showed a marginal value proposition for the WGT project on its own and lacked transparency regarding the sensitivity of the BCR for the WGT project scope element. The business case provided to the government only included sensitivity testing results for the combined Monash Freeway upgrade and the WGT project scope. DTF's advice to the government on the business case did not highlight the lack of sensitivity analysis in relation to the WGT project scope element.
  • It did not examine a range of alternative project solution options in sufficient depth and therefore did not provide the government with sufficient information to select the right investment option.
  • It did not have a sufficiently transparent cost-benefit analysis (CBA), limiting assurance that the risks of double counting or overstating benefits had been addressed. The collective value of 'other related benefits' were not transparently justified in the business case—such as congested travel time savings and higher productivity freight vehicle (HPFV) benefits. That these benefits were greater than the 'core travel time savings', which typically make up most estimated road project benefits, suggests that this risk was present.
Victoria Police Centre

The VPC proposal met a need to accommodate Victoria Police's headquarters in a secure facility following the expiry of their existing lease at the WTC from July 2020.

DTF's Stage 2 assessment of the VPC proposal identified that Victoria Police did not consider their current facility at the WTC a viable option for police headquarters beyond the existing lease term and were updating an options analysis for a new one.

Value for money

The 2015 interim MLP guideline required VFM assessments to compare the final proposal's cost to a state benchmark, either a public sector comparator or a realistic alternative.

West Gate Tunnel

For the WGT proposal to proceed, Transurban needed to be confident that the sum of the project's estimated future revenues would at least equal the sum of its estimated future costs, in present value terms, while delivering a commercial rate of return.

DTF's VFM assessments compared the Transurban proposal to a state benchmark range that was derived by applying a discount rate range to DTF's estimates of the nominal cost and revenue cash flows for the WGT project.

DTF's assessment and advice to the government that the WGT proposal was VFM did not adequately test and disclose the sensitivity of discount rate assumptions and calculations that underpinned the reliability of its assessment. This and limited analysis of alternative funding options means DTF's advice to the government was not sufficiently comprehensive.

Costs

More than 93 per cent of Transurban's design and construction-related costs were tendered out to the market in a competitive process so the VFM risk to the state for this side of the transaction was relatively low.

Revenues

Transurban's revenue estimates valued potential tolls from the new WGT road, additional increases to tolls from its existing CityLink concession and an extension of that concession. These revenue estimates by themselves were not enough to make the project viable for Transurban. It also needed the state to make an up-front contribution.

For the state to assess the WGT proposal as VFM, it needed to be confident about two key things:

  • Estimates of tolling revenue—the state needed to compare Transurban's tolling revenue estimates with its own tolling estimates to make sure Transurban's estimates were reasonable. Without knowing this, the state risked paying too much for its up-front contribution, and it risked escalating and extending the tolls on CityLink by more than necessary.
  • There were no better alternatives than Transurban's proposal to fund and finance the project.
Analysis of funding options

DTF did not comprehensively assess other approaches to funding and financing the project, such as:

  • borrowing through securitisation of future CityLink tolls
  • monetising future CityLink tolls through a competitive process.

DTF's assessment approach deprived the government of critical information to support its decisions on whether, and how, to progress the proposal.

DEDJTR's business case for the project did not assess the difference between the costs and benefits of raising funds from tolls on CityLink compared to other state sources of funding such as taxes and charges, borrowing or other monopoly concessions.

Tolling revenue estimates

Transurban and DTF knew that the valuation of the tolling revenue was critical for the proposal to succeed, because those estimates influenced not only the size of the state's contribution but also the respective size and extent of the CityLink toll escalation and extension.

From Transurban's perspective, demonstrating VFM for the state was a balancing act. Transurban had a commercial incentive to undervalue its tolling estimates to strengthen the argument to escalate and extend the CityLink concession. Conversely, if Transurban's tolling estimates were higher than the state's, then this would reduce the state's contribution to the project, making the proposal attractive to the state.

Transurban also faced a real risk that the state would not proceed with the proposal if the state assessed Transurban's forecast tolling revenues as unrealistic and not providing VFM against state benchmarks.

Reliability of the state VFM benchmark

A large proportion of the reported VFM benefits to the state in Transurban's proposal arose from the differences between Transurban's and the state's valuations of future tolling revenue.

DTF rightly obtained its own estimates of revenues to develop its VFM benchmark range.

At the Stage 4 assessment, the state's lower CityLink escalation toll revenue estimate was the major contributor to the overall difference of $272 million in net present value (NPV) between the Transurban proposal and the midpoint of the state's VFM benchmark range. This was because the state's low estimate had the effect of dropping the bottom end of the benchmark range.

Transurban had little incentive to overstate revenue and may have had better information than the state about the traffic flows underpinning its revenue estimates on CityLink. DTF's Stage 3 assessment report noted that Transurban's ownership and operation of the CityLink concession provided it with in-depth knowledge of the revenue, costs and risks that no other party had.

Where Transurban's estimates were higher than the state estimates, DTF's assessment and advice would have been more comprehensive had it used the Transurban estimates as a sensitivity test and shared the results with government. It did not.

Traffic demand forecasts

The forecasts of traffic demand and the selection and application of discount rates drove the differences in the two valuations of future tolling revenue.

Those differences were most noticeable in the valuations of the CityLink escalation revenues.

The lower end of the state's benchmark range for the CityLink escalation revenues was 65 per cent less than Transurban's estimate, driven by an assumption that 6 to 7 per cent of traffic would be diverted off CityLink. DTF's Stage 4 assessment did not discuss the possibility that the state benchmarks undervalued the CityLink escalation revenue.

Discount rates

Discount rates are important because, like interest rates, they express the value of money at a particular time. Organisations use them in discounted cashflow analyses as a method of valuing a project. To determine the NPV of a project in today's dollars, its estimated future cashflows, revenues and costs are discounted at a rate, the discount rate, that represents the cost of funding.

DTF applied different discount rates to its estimates of the WGT project revenues and costs to derive a benchmark range against which it could assess the VFM of Transurban's proposal. However, DTF did not explain in the Stage 4 VFM assessment why it applied the discount rates differently for the CityLink escalation revenue. Specifically, it did not explain why the nominal CityLink escalation revenue figures used in the state benchmark were discounted using the reverse of the discount rates they applied to all other revenue estimates. Not explaining this was an omission because the state VFM benchmark was sensitive to the CityLink escalation revenue low-traffic scenario.

Discount rate sensitivity of VFM state benchmark range

DTF's commercial adviser discounted a single set of nominal cashflows using a 'high scenario' discount rate and a 'low scenario' discount rate provided by an investment bank engaged by DTF. This produced a 'high scenario' NPV and a 'low scenario' NPV for each stream of nominal cashflows, which determined the range for the state's VFM benchmarks.

DTF advised that the discount rate range reflected uncertainty around the true commercial rate of return appropriate for this project that was largely caused by the risk and uncertainty involved in forecasting the future toll revenues. However, it is unusual to express discount rates solely as ranges, without also determining a best single point estimate within the range. Adopting this approach meant it was unclear whether all points in the range were equally likely and understanding this would have been useful given the Transurban proposal did not represent VFM at all points in the range. DTF advised that the uncertainty in estimating project toll revenues meant that a best single point estimate would have been inherently unreliable.

Most of the WGT project's design and construction costs occur in the first five years of the project, but the revenues are spread over the 29-year life of the project. A slight change in the discount rate applied to estimated future revenues annually over 29 years makes a significant difference to the present value of those cashflows.

This means that the state's VFM benchmark range was highly sensitive to the discount rate range and any discount rate changes.

Transurban used its estimate of the weighted average cost of capital (WACC) as its discount rate. The WACC represents the weighted average expected return to debt and equity investors.

The discount rates that informed the state's VFM benchmark range were generally higher than the rate Transurban used, so the state estimated higher commercial rates of return than those adopted by Transurban.

In an investment of this scale, where the discount rate was so influential to the outcome, the reasons why the state's assumed required commercial rates of return was generally higher than Transurban's should have been set out explicitly and unambiguously in the VFM assessment by DTF. They were not.

DTF should have performed a sensitivity analysis to challenge key assumptions underpinning the state's VFM assessment, and to support the state securing the best possible outcome. We have not seen evidence that this testing and challenge occurred.

Issues with the state contribution

Transurban's proposal involved a state contribution of $1.96 billion in present value terms, mostly towards design and construction costs.

Transurban calculated the size of the state contribution in its proposal as the nominal amount needed to ensure the project achieved an NPV of zero after delivering its required expected commercial rate of return for the project. Transurban derived this figure using a discount rate reflecting its commercial rate of return that it applied to all other cashflows in its proposal.

The VFM assessment adopted the nominal state contributions proposed in Transurban's final offer. These nominal state contribution cash flows were then discounted in the VFM assessment using the state's estimates of a commercial rate of return.

A commercial rate of return was not the right discount rate for the non‑commercial risks associated with the part of the design and construction costs funded by state contributions to the project. There was no commercial risk to Transurban for the $1.389 billion of nominal state contributions towards design and construction costs that the state had agreed to pay. The discount rate for this part of the project should have been a risk-free rate, which was far lower than the commercial rate of return adopted in the VFM assessment. Applying the correct discount rate to the state contributions cash flows related to design and construction costs would have reduced the VFM of the Transurban proposal.

Lack of transparency over basis and reasonableness of assumptions underpinning the state's discount rate estimates

The discount rates used in the state's VFM assessment were highly sensitive to assumptions and calculations DTF's investment bank made about them, such as the rate of return equity investors require in commercial toll roads. The basis for these assumptions is not clear and it was not possible to determine whether those input assumptions are reasonable.

DTF provided us with evidence that it had interactions with its investment bank about the discount rate issues. However, the extent of scrutiny DTF applied to the investment bank's assumptions was unclear from the material DTF provided.

Advice to the government

DTF's advice to the government on the Stage 4 VFM assessment results showed the Transurban proposal as having an NPV of zero dollars. The figure below shows how DTF presented Transurban's proposal to the government.

Figure A
Presentation of Stage 4 VFM assessment results to the government

Figure 1 shows presentation of Stage 4 VFM assessment results to the government

Source: DTF.

DTF's presentation approach showed the Transurban proposal falling within the range provided by the state's VFM benchmarks and meeting the VFM assessment criterion that it needed to be above the midpoint of these benchmarks.

We note that:

  • the state's commercial adviser responsible for developing the VFM assessment provided no indication of the likelihoods attached to the 'high' and 'low' state VFM benchmark scenarios and did not express any opinion on the most likely benchmark outcome
  • it was probably not the case that any point within the range was equally likely
  • the upper and lower bounds of the range were driven very materially by the state's discount rate range, and we have raised questions about the lack of review and transparency over the basis for and reasonableness of assumptions underpinning the discount rate estimates used in the state's VFM assessment.

The VFM assessment analysis and advice to the government would have been more useful and transparent if DTF had provided a single point best estimate of the state VFM benchmark as well as the benchmark range shown in Figure A. The single point estimate should have reflected DTF's best view on the cost to the government of delivering the project itself. The government could have used this estimate as the key comparison point for the Transurban proposal.

Victoria Police Centre

DTF's SSP delivers office accommodation and property management services for Victorian Government leased and owned properties including accommodation suitability assessment and selection.

In early 2015, Victoria Police discussed plans for a competitive process to obtain new accommodation with the Shared Service Provider (SSP) business unit within DTF and would have run an expression of interest in the absence of the VPC proposal from Cbus/Australia Post.

In November 2016, the government authorised the Treasurer and Minister for Police to approve the VPC proposal and lease agreement. This was based on DTF and Victoria Police advice that the proposal provided VFM, including meeting the VFM benchmarks set by the government. The lease agreement commits the state to a 30-year lease with a starting total lease cost of $44.6 million a year.

The 30-year lease is unusually long for a government tenancy and the lease agreement is $14.8 million a year more than the annual lease costs Victoria Police pays for its accommodation at the WTC. Victoria Police plans to recoup some of these costs from sub-tenants.

The increased cost reflects a 30 per cent increase in the accommodation space available when compared to the WTC, to accommodate potential subtenants. In November 2016, none of the proposed subtenants had provided a binding commitment to take up space in the VPC.

The interdepartmental committee (IDC), DTF and the SSP challenged whether the VPC proposal represented VFM for the state throughout the assessment process. These challenges prompted ongoing negotiations with the proponents on key commercial terms and led to changes in the offer.

The government's VFM benchmarks for the VPC specified annual rental costs in total and on a per-square-metre basis, rather than as whole-of-life costs. Victoria Police and DTF provided accurate advice to government on the Stage 4 assessment that the government VFM benchmarks were met. However, the factors that most significantly contributed to this outcome were the:

  • increase of the lease term from 20 to 30 years
  • increase of the building size from about 42 000 square metres in net lettable area to more than 60 000 square metres to accommodate potential, unconfirmed subtenants.

These adjustments increased the risk and whole-of-life costs of the VPC proposal for the state. Two of the three proposed subtenants withdrew after the state signed the lease agreement. This has left the state exposed to meeting any shortfall in rental costs for the entire VPC building.

Victoria Police continues to work with the SSP to seek other tenants. Actual achievement of the VFM benchmarks is contingent on Victoria Police recouping some of the lease costs from sub-tenants. There is also a risk that other tenants will diminish the security benefits sought by Victoria Police.

Alternative proposals

While the 2015 interim MLP guideline includes the government objective of ensuring a transparent and fair process, it does not include a process that explains how lead agencies should fairly assess 'competing' MLPs for the same project.

The state received two alternative proposals while it considered the VPC proposal from Cbus/Australia Post, one from the owners of the WTC and one from another property developer. The government rejected both at Stage 1—the WTC proposal in November 2016 and the other proposal in January 2017.

The government rejected the WTC proposal based on DTF's assessment and advice that the proposal could not meet Victoria Police's critical security requirements and was unlikely to offer VFM for the state.

While the IDC identified the need for DTF and Victoria Police to assess the WTC and the VPC proposal against the same requirements, Victoria Police did not provide the WTC proponents with the same information on its security specification as it provided to the VPC proponents.

The government also received an alternative proposal for the WGT project from Cintra in October 2015. DTF's assessments of this proposal at Stage 1 and Stage 2 were comprehensive in addressing the requirements and intent of the MLP guideline. In December 2015, the government approved DTF's recommendation that the proposal not progress to Stage 3.

Meeting MLP process requirements

DTF and Victoria Police largely met the MLP guideline requirements for due diligence, probity, governance and approval, consultation and public disclosure for the WGT and VPC proposals.

There were two exceptions.

The only significant non-compliance identified for the WGT proposal was DTF's decision to not publicly disclose details of the Cintra proposal for an alternative WGT project after the Stage 2 assessment of this proposal and decision not to progress it to Stage 3 in December 2015.

The MLP guidelines require public disclosure of summary details of proposals at the end of Stage 2 in the MLP process. DTF advised the government that it would publicly disclose details of the Cintra proposal, but then determined that it would not do so on the basis that it wished to maintain competitive tension with Transurban. DTF disclosed the Cintra proposal on the MLP website in September 2019.

Public officials involved in assessing the MLPs examined in this audit did not document declarations that they had no conflicts of interest during the assessment process. DTF took the view early in the MLP process that departmental and agency staff only needed to complete conflict of interest declarations where there was an actual or potential conflict and did not require a 'positive' declaration of no conflict.

This approach was inconsistent with the conflict of interest declaration form included in DTF's Probity Plan requirements that applied at the time, which provided for positive declarations. DTF advised us that it acknowledges there was inconsistency between the requirements of the plan and the attached conflict of interest form, but confirmed its view that the Probity Plan for Stages 1 and 2 assessments did not require 'positive declarations of no conflict'.

DTF later amended the MLP process to make it clear that public officials need only complete conflict of interest declarations if involved in Stage 2 assessments and beyond, in its updated Probity Plan for Stage 1 and Stage 2 assessments in August 2018.

Improving and supporting the MLP guideline

DTF has actively supported the MLP process by improving the specificity and rigour of the guidance and underlying assessment process since the government first established it in 2014.

The current MLP guideline could be further enhanced to provide guidance on ensuring equity and procedural fairness when assessing 'competing' MLPs for the same project.

Recommendations

We recommend that the Department of Treasury and Finance:

1. documents the assumptions and calculations underpinning advice it presents to decision-makers about market-led proposals, including advice provided by third parties

2. undertakes sensitivity analyses to test key assumptions of value for money assessments for market-led proposals

3. clarifies the market-led proposals guidance about:

a. the nature and weighting of primary and secondary sources of uniqueness

b. how material uniqueness benefits need to be to support exclusive negotiations

c. whether agencies should measure uniqueness benefits against a state benchmark or other private providers

d. whether agencies should demonstrate the merits of market-led proposals against a value for money range and/or a point estimate

e. how agencies should assess concurrent alternative market-led proposals.

Responses to recommendations

We have consulted with DPC, DTF, DoT, Victoria Police and DJPR, and we considered their views when reaching our audit conclusions. As required by the Audit Act 1994, we gave a draft copy of this report to those agencies and asked for their submissions and comments.

The following is a summary of those responses. The full responses are included in Appendix A:

DPC and DJPR noted the report and provided no substantive comments.

DTF did not support the findings in the report and did not accept the recommendations. We have written to DTF's Secretary outlining our concerns with this response.

DoT supported DTF's response to the report in relation to the WGT MLP.

Victoria Police did not accept the report findings on the VPC MLP and supported DTF's response in relation to the VPC.

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