Government told to heed proper IA process


Loose approach to assessment and spending weakens projects, joint committee finds

Government told to heed proper IA process
Federal ministers have been advised to follow prudent spending procedure

 

Coalition ministers have been warned to leave Infrastructure Australia (IA) alone do its work and to follow prudent spending practices on major projects.

The Joint Committee on Public Accounts and Audit’s (JCPAA) report, Commonwealth Infrastructure Spending, reviews the federal Auditor-General’s reports on finding of the cancelled East West Link in Victoria and the WestConnex project in New South Wales.

It wants government policy committed to require "all Commonwealth infrastructure projects exceeding $100 million to be subject to analysis by Infrastructure Australia to test cost-effectiveness and financial viability".

Urban infrastructure minister Paul Fletcher sought to downplay the Auditor-General’s findings, particularly on WestConnex, when they surfaced in February, but the joint committee appears to have supported its findings and added advice.

"The Committee noted the importance of the assessment processes undertaken by Infrastructure Australia (IA) and that the Government’s decision to depart from a full IA assessment of the East West Link and WestConnex projects reduced the evidence bases for decision making," its report says.

"Full business cases were not considered before funding was allocated and documents relevant to administrative activities were unavailable at key points in time.

"The Committee concluded that this approach is best avoided given the scale of public funding and the risks involved in infrastructure projects."

That aspect found Australian Logistics Council (ALC) support, saying JCPAA has "clearly underscored the important role that Infrastructure Australia plays in guiding responsible infrastructure investment decisions".

"ALC has been a consistent supporter of IA, because the freight logistics industry benefits from an independent expert body undertaking rigorous, evidence-based assessments of proposed infrastructure projects," ALC MD Michael Kilgariff says.

The joint committee also took aim at the Department of Infrastructure and Regional Development (DIRD)

Canberra contributed $1.5 billion in payments to both the East West Link and WestConnex projects as well as providing a $2 billion concessional loan for WestConnex.

The committee noted DIRD provided advice to the government on various matters in the lead-up to funding decisions but was concerned at the Department’s lack of consideration of some issues in designing and negotiating the WestConnex loan.

The committee was also concerned about DIRD’s project payments and management of milestones.

The committee’s chair, senator Dean Smith, said DIRD needed to give greater consideration to each of the concessions and risks involved in designing Commonwealth concessional loans and include this in its advice to decision-makers.

"The Department needs to better protect the Commonwealth’s interests when managing milestones to provide genuine incentives for funding recipients to progress projects and reduce the likelihood of payments being made too far in advance of need and delivery," Smith says.

The report makes five recommendations to DIRD, including:

  • Providing clear advice to Ministers on whether the requirements of land transport legislation have been met
  • Only making significant payments when they are required by a project and meet agreed milestones, and advising Ministers of any interest charges, other costs and risks arising from advance payment proposals
  • Requiring loan proponents to identify alternative funding strategies and justify why a Commonwealth loan would be the best funding option
  • Reviewing the department’s approach to drafting project approval instruments to identify relevant risks and incorporate mitigations
  • Reviewing DIRD’s infrastructure IT system to improve its recording of milestones, the quality of data it receives from project delivery agencies and capturing more specific expenditure data.

Two further recommendations made by the Committee include:

  • The Auditor-General consider a follow-up audit of the Department of Infrastructure and Regional Development’s administration of a concessional loan to the Sunshine Coast Airport expansion project
  • Treasury review the funding recovery provision in the Federal Financial Relations Act 2009 to consider the suitability of the current discretion applied to recover funding as well as the current inability to recover interest earned on unspent National Partnership payments.

A response from the federal government has been sought.

The full report can be found here.

 

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