Market-led proposals

Tabled: 27 November 2019

5 Alternative proposals for a new police headquarters

Since the MLP interim guideline was issued in early 2015, it has included the government objective of ensuring a transparent and fair process, with the highest level of probity and public accountability maintained throughout.

While the state was considering the VPC proposal from Cbus/Australia Post, it received two alternative MLPs for a Victoria Police headquarters, one of which was from the owners of the WTC, which currently houses the Victoria Police headquarters.

Figure 5A
Two alternate MLPs

Alternative MLP proponent

Proposed Site

Submitted

Assessment outcome

WTC owners

WTC*

February 2016

Rejected at Stage 1 in November 2016

MAB Corporation

NewQuay

December 2016

Rejected at Stage 1 in January 2017

Note: *Existing Victoria Police headquarters location.
Source: VAGO.

This Part examines the assessment process and outcomes for these alternative proposals.

5.1 Conclusion

The WTC proposal was rejected largely because DTF and Victoria Police assessed it as incapable of meeting Victoria Police security requirements. However, despite an extended Stage 1 assessment, DTF and Victoria Police did not give the WTC proponents the same opportunity to address these security requirements as the VPC proponents. There was no clear reason why the requirements could not have been shared with the WTC proponents.

The MLP guidelines do not provide specific guidance on ensuring equity and procedural fairness when assessing 'competing' MLPs for the same project.

5.2 The WTC proposal

The MLP from the WTC owners was based on providing ongoing accommodation for Victoria Police at their current location. Figure 5B shows key events in relation to the WTC proposal.

Figure 5B
WTC proposal: Key events

Date

Key event

2015

 

Victoria Police discussed end-of-lease options for the WTC with its owners

2015

March

Victoria Police commissioned a report on security weaknesses at the WTC site

November

The government publicly announced that the Cbus/Australia Post VPC MLP has been approved to proceed to Stage 3

2016

February

WTC owners submitted an MLP to provide ongoing accommodation for Victoria Police at the WTC.

This was assessed against Stage 1 MLP guideline requirements.

March

WTC owners expressed concerns to the Minister for Finance saying they understood that Victoria Police was considering an expression of interest process for its future and that they would have an opportunity to participate in that process.

November

The government accepted DTF's recommendation that the WTC proposal not progress to Stage 2.

Source: VAGO, based on information from DTF and Victoria Police.

Lease terms, features and benefits

The WTC proposal included commitments to:

  • upgrade and refurbish the existing WTC complex including enhancing security
  • enter into a new lease commencing 1 January 2018.

Figure 5C outlines the key features and benefits claimed in the WTC proposal.

Figure 5C
WTC proposal claims

Features

Claimed benefits

A-grade office campus between 40 000 and 50 000 square metres

600 car parks

Location

Accelerated time frame for project delivery

15-year term

Commencing rent of $360 to $385/m2

Annual rental reviews of 3.75 to 4 per cent

Rental abatement or fit-out incentive of 20 to 25 per cent

Some fit-out and relocation costs to be paid by the state

Enhanced security

Direct access to arterial roads and the Yarra River

Close proximity to the CBD, including the City West Police Complex at 313 Spencer Street

Mitigation against relocation risks such as timing, movement of critical infrastructure and operational continuity

A $153 million saving to the state over the term of the lease

Source: VAGO, based on information from DTF.

Victoria Police's commercial adviser estimated the annual rental costs under the WTC proposal at about $19.25 million based on a rental rate of $385 per square metre over 50 000 square metres.

DTF and Victoria Police did not know whether the WTC proposal included the costs for car parking and other outgoings in this rental cost and did not resolve this uncertainty despite an extended Stage 1 assessment period.

Assessment of WTC proposal and IDC oversight

The MLP guideline describes the Stage 1 assessment as a 'preliminary filtering process' that DTF should complete within 30 days. The guideline specifies assessment criteria that primarily relate to:

  • sufficiency of information provided
  • potential to meet or demonstrate ability against service need, VFM, benefits, deliverability and uniqueness criteria.

DTF completed the Stage 1 assessment of the WTC proposal with significant input from Victoria Police and oversight from the IDC. This process took approximately eight months.

The key reason for the delay was lack of consensus between DTF, Victoria Police and the IDC on whether the proposal should progress to Stage 2.

The government rejected the WTC proposal at the end of November 2016, nine months after DTF received it. This decision was based on DTF's Stage 1 assessment and advice that the proposal could not meet Victoria Police's critical security requirements and was unlikely to offer VFM for the state.

Figure 5D summarises key issues and events as DTF and Victoria Police assessed the WTC proposal during 2016.

The IDC clearly identified the need for all MLP submissions to receive procedural equity and be considered on their merits, and that the WTC and VPC proposals be assessed against the same requirements.

However, Victoria Police did not provide the WTC proponents with the same information provided to the VPC proponents on its security specification requirements.

Figure 5D
WTC proposal assessment: key issues and events

2016

Key issues and events

April

The IDC:

  • received a presentation from the WTC proposal proponents
  • noted an extended time frame for the Stage 1 assessment to allow the proponents to provide additional information
  • discussed the approach to assessing two alternative proposals for the Victoria Police headquarters given the VPC proposal was in the public domain and the WTC proposal was confidential
  • agreed that the WTC and VPC MLPs had to be assessed using the same process and against the same outcome requirements, including for security, determined by Victoria Police to ensure consistency in the evaluation.

May

The IDC discussed the need for Victoria Police to provide a security benchmark to enable consistent evaluation of the VPC and WTC proposals.

Victoria Police advised the IDC that:

  • its security requirements were principle-based and it was completing a security specification document for its CBD buildings that could be used for benchmark purposes
  • the sensitivity of this document prevented its circulation to the IDC.

The IDC agreed that a DTF officer with appropriate security clearance would review the report on the IDC's behalf.

June

The IDC:

  • received a summary physical security specification report from Victoria Police and advice that a DTF officer had reviewed the full document and was satisfied that Victoria Police had applied a robust methodology
  • agreed that the security specification requirements should be communicated to Cbus/Australia Post so they could address the requirements in a revised VPC offer
  • noted that the Stage 1 WTC proposal also needed to be assessed against the same security specifications.

Victoria Police advised the IDC that it did not consider that the WTC site met the security requirements.

Figure 5D WTC proposal assessment: key issues and events—continued

2016

Key issues and events

July

The IDC discussed a draft Stage 1 assessment report on the WTC proposal. This draft report did not include any recommendations and DTF and Victoria Police had divergent views in some areas. The IDC:

  • noted that the WTC proposal generally met the MLP guideline requirements for Stage 1
  • noted concerns about whether the WTC facility and site location met Victoria Police security requirements
  • agreed that further information was needed to assess the proposed security enhancements at WTC
  • noted that the Cbus/Australia Post proposal was at Stage 4 of the MLP process and agreed that all MLP submissions should receive procedural equity and be considered on their merits
  • noted the Victoria Police view that the WTC proposal could not meet its security requirements and recommendation that the WTC proposal not progress Stage 2
  • considered various options to progress the WTC proposal including:
    • not progressing the proposal to Stage 2
    • undertaking an extended Stage 1 assessment focused on security
    • progressing the proposal to Stage 2 and seeking further information from the proponents on how proposed security enhancements would meet Victoria Police's security requirements.

The IDC agreed:

  • to recommend that the WTC proposal progress to Stage 2 of the MLP process as the proposal met the MLP guideline requirements for Stage 1 regarding sufficiency of information, scope and potential to meet the assessment criteria
  • that the WTC proponent be requested to provide additional information on the proposed security enhancements and the commercial lease offering
  • that the state formally advise the VPC proponents that it had received another MLP regarding end‑of-lease options for the Victoria Police headquarters.

The Chief Commissioner of Victoria Police requested a meeting with the DTF Secretary to discuss the IDC recommendation that the WTC proposal progress to Stage 2.

August

The Chief Commissioner of Police and DTF Secretary agreed that:

  • the WTC proposal should not progress to Stage 2
  • further information would be sought from the proponent regarding the proposed security enhancements at the WTC.

DTF asked the WTC proponents to respond to questions prepared by Victoria Police on proposed security enhancements to the WTC facility.

The WTC proponents raised concerns with DTF about the fairness of the MLP assessment process, advising:

  • that they were alarmed by the absence of a specification document outlining Victoria Police's future requirements to enable the state to assess the WTC and Cbus/Australia Post proposals fairly
  • that they wanted a copy of any such specification to enable them to formally respond.

DTF advised the proponents that the MLP guideline allows only limited interaction with proponents in Stage 1 and that the Victoria Police requirements would be disclosed if their proposal progressed to Stage 2.

September

The WTC proponents:

  • met with DTF and Victoria Police on the request for additional security information
  • provided a draft and then final response to the additional security information request.

Victoria Police advised DTF that the proponent's responses to the security questions were inadequate.

October

Victoria Police approved a detailed security specification for the new police headquarters.

DTF:

  • updated the Stage 1 assessment report on the WTC proposal and recommended that it not proceed to Stage 2
  • provided IDC members with the updated assessment report.

November

DTF provided the final Stage 1 assessment report on the WTC proposal to the government.

The government agreed with DTF's recommendation that the proposal not move to Stage 2.

DTF advised the WTC proponents of the outcome.

Source: VAGO, based on information from DTF and Victoria Police.

WTC Proposal and Victoria Police security requirements

During the assessment process, DTF asked the WTC proponents to respond to a set of questions prepared by Victoria Police on how they would address Victoria Police security requirements. The WTC proponent's responses sought to address these questions, but included requests for additional information to enable a more comprehensive response on some matters.

The WTC proponents raised concerns about this lack of information. It was not unreasonable for the WTC proponents to expect the same opportunity as the VPC proponents to understand, respond to and address the Victoria Police minimum security requirements.

DTF explained to us that Victoria Police did not provide the WTC proponents with the same set of security specifications provided to the VPC proponents due to:

  • security considerations
  • the government not generally sharing information with proponents in Stage1 given the preliminary nature of the assessment.

DTF's extension of the time frame for the Stage 1 assessment meant it had advanced beyond a preliminary assessment. Given the WTC proponents were the landlord for Victoria Police's existing headquarters, we expect they would be trusted to access this information.

Victoria Police security specification

Following receipt of the WTC proposal in February 2016, the IDC repeatedly stressed the need for Victoria Police to document a security requirements specification. It desired this to enable a fair and consistent assessment of the two MLPs. Victoria Police did not approve a detailed security specification for the new police headquarters until October 2016.

Victoria Police completed the draft Victorian Police Physical Security Specifications (VPPSS) in June 2016. This draft document:

  • was designed for 'major police facilities', not specifically for the new police headquarters
  • was high-level and based on broad references to security framework guidance for Victoria Police and government buildings.

The VPPSS document we examined is broad and summary in nature and lacks specific technical design information. The draft specification could be largely reconstructed using information, policies and security framework guidance in the public domain and was not highly sensitive. There was no clear reason why Victoria Police and DTF could not have shared the VPPSS with the WTC proponents.

Victoria Police drafted a more detailed security requirements specification document for the new police headquarters during August 2016 and engaged security consultants to assist in preparing this document. Victoria Police finalised and approved this document, the 'Victoria Police Precinct Security Strategy', in October 2016.

Advice to the government on the Stage 1 assessment of the WTC proposal

DTF's advice to the government, in late November 2016, on the Stage 1 assessment outcome for the WTC proposal indicated that the proposal did not meet the criteria required by the MLP guideline as:

  • it did not satisfy the critical security requirements of the VPPSS, therefore did not meet a service need of Victoria Police
  • once fully costed, the project would be unlikely to be affordable within existing budgets and would not offer VFM
  • it did not fully demonstrate the proposed upgrade and refurbishment works had potential to be unique, and the time frame for completion appeared unfeasible
  • commercial and financial advisers engaged to provide additional independent analysis concluded that the savings claimed by the proponent were excessive and unlikely to materialise.

We examine the basis for key aspects of this advice.

Advice on security

DTF's advice to the government described the process by which:

  • it extended the Stage 1 assessment process
  • Victoria Police developed detailed security questions for the WTC proponents.

However, DTF's advice did not inform the government that the WTC proponents had qualified their response to the security questions. The WTC owners had raised several areas where they requested further information and consultation with Victoria Police to better understand and respond to the questions raised.

DTF's advice to the government claimed that expert security consultants had reviewed security at the current WTC complex against the specifications in the VPPSS and concluded that:

  • the WTC complex posed a significant security risk that was not acceptable given the current and emerging threat environment
  • the WTC site had security risks that could not be rectified due to geographical constraints as it is surrounded by a range of commercial, residential and public land uses as well as major roads and the Yarra River
  • the WTC site had numerous approaches for attack such as air, water, roads and multiple pedestrian points, all of which were difficult to secure
  • planned further development in the surrounding areas increased the vulnerability for the WTC complex and the risk to the general public in its vicinity.

DTF did not have a copy of the security consultant's report because Victoria Police would not release it on security grounds. DTF provided its advice to the government based on:

  • written advice it received from Victoria Police, in May and July 2016, that referred to and included quotes from the security consultant's report
  • advice from a DTF officer with an appropriate security clearance who sighted Victoria Police security-in-confidence information on the security risk and threat profile of the WTC.

However, DTF's advice to the government on this report was not comprehensive because:

  • the security consultant review and report were completed in April 2016, two months before the VPPSS was drafted, which means that the report could not have reviewed the WTC facility against the VPPSS specifications
  • there is no evidence that either DTF or Victoria Police specifically documented an assessment of the proposed WTC security features against the specific requirements in the VPPSS
  • Victoria Police's advice to DTF on the scope and content of the security consultant report did not include any reference to, or claim that, the review specifically assessed the WTC against the VPPSS
  • DTF's summary of the conclusions from the review reflects the advice from Victoria Police, but the quotes from the security consultant's report included in Victoria Police's advice to DTF do not include the specific conclusions attributed by DTF to the review.

We have reviewed the report from the security consultant and confirm that the report did not include a conclusion that 'the WTC complex poses a significant security risk that is not acceptable given the current and emerging threat environment'.

The security consultant clearly found significant inherent security risks in relation to the location and configuration of the WTC facility. However, the consultant focused on identifying key risks, possible treatments and residual risk levels. Of the seven key risks identified, five were rated as very high prior to treatment, but none were rated as very high if the identified treatments were implemented and only one was rated as high after treatment.

This indicates that the security consultant considered that all risks except one could be mitigated to a medium level. This may not have been acceptable to Victoria Police, but that is not what the consultant concluded. Victoria Police advised us that many of the mitigations recommended by the consultant included the need for further comprehensive risk and threat assessments and process-based controls that are considered less effective than physical security controls.

In addition, the security consultant review cited by DTF and Victoria Police was of the WTC as at April 2016, not the refurbished facility proposed by the WTC owners. The review was undertaken before the WTC proponents had provided additional information in response to Victoria Police questions on specific security issues. Given this, DTF's advice to the government on the outcome of the review did not provide a comprehensive assessment of the extent to which the WTC proposal could meet Victoria Police security requirements.

DTF's advice to the government included further statements indicating that:

  • DTF had assessed the proposal taking into account the identified security risks at the current complex and concluded that while the proposal may potentially address aspects of the security requirements in relation to the WTC building, the proposal could not address the site-specific requirements
  • given that the WTC proponents needed to address both the site and building-related requirements, DTF considered that the proposal did not satisfy the critical security requirements in the VPPSS and therefore, this proposal could not meet a service need of Victoria Police
  • Victoria Police had also assessed the proposal and advised that they did not consider the proposed security enhancements satisfied the requirements of the VPPSS in relation to both the WTC building and site.

We have seen evidence supporting the basis for the claim about Victoria Police views on the security suitability of the WTC site. However, the basis for DTF's conclusions is unclear given that we saw no evidence that it documented an assessment of the proposed WTC security features against specific requirements in the VPPSS.

The security risks associated with the WTC site were clearly significant. However, a subsequent report from the same security consultant in August 2016 highlighted that the co‑location of the VPC with the City West Police Complex and the proposed subtenancies involving the AFP and another law enforcement agency significantly increased the potential for that site to be a target for known threat actors, noting that the risks could be mitigated.

Advice to the government on costs and VFM

DTF's summary advice to the government stated that:

  • once fully costed, the WTC proposal would be unlikely to be affordable within existing budgets
  • the WTC proposal would be unlikely to offer VFM
  • commercial and financial advisers engaged to provide additional independent analysis concluded that the savings claimed by the proponent were excessive and unlikely to materialise.

This advice was broadly consistent with the advice from Victoria Police's commercial adviser. However, DTF's summary advice to the government did not highlight that the WTC proposal did not require any increase to comparable recurrent leasing costs for Victoria Police or an up-front capital contribution from the state.

In addition, DTF's advice did not compare, or reconcile the differences, between the rental costs to Victoria Police under the WTC proposal with the advice to the government on the estimated rental costs at the WTC as part of the VFM benchmark for the VPC proposal. The upper bound of the rental charge sought by the WTC proponents was $385 per square metre, while the Victoria Police estimate of this cost in its VFM benchmark advice on the VPC proposal was $408 per square metre, about 6 per cent higher.

DTF's advice to the government stated that financial analysis by Victoria Police's commercial adviser indicated at Stage 4 that the VPC proposal was lower in cost than what would be expected from the WTC proposal and referenced an attachment that supposedly evidenced this claim. We could not locate this advice in the submission and attachments provided to the government and the basis for this comparison is unclear. The lease transaction entered into by the state for the VPC proposal involves significant whole-of-life costs as discussed in Part 4.

5.3 NewQuay proposal

The MAB Corporation submitted an MLP to DTF on 12 December 2016 to develop a new VPC at 396 Docklands Drive, NewQuay, Docklands, and lease the facility to the state for 15 years.

The proposal indicated that the upgraded facility would deliver an 'A-grade' office complex of between 50 000 and 66 000 square metres. The proponents considered that the facility would meet the security requirements of Victoria Police and highlighted the risk-mitigation benefits associated with accepting their proposal because this would deliver a police headquarters in a different location to the relatively new City West Police Complex at 313 Spencer Street.

DTF documented its Stage 1 assessment of this proposal in January 2017 and recommended that the proposal not progress to a Stage 2 assessment.

DTF stated in its assessment report that given the government was due to execute contracts for the VPC by the end of January 2017, there was no service need for a new Victoria Police headquarters. DTF also assessed the proposal as not sufficiently unique, and therefore not meeting the MLP guideline.

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