At a glance
The Public Administration Act 2004 (the Act) seeks to ensure the maintenance of an apolitical public sector that responds to government priorities in a manner that is consistent with public sector values. The Act imposes an obligation on public officials to provide frank, impartial and timely advice to government.
The planning, development, procurement, contracting and termination of the East West Link (EWL) project spanned two governments with directly opposing policy positions on the merits of pursuing the project. These circumstances created significant challenges for the public officials tasked with providing comprehensive advice in the best interests of the Victorian community.
Advice to government over the life of the EWL project did not always meet the required standard of being frank and fearless. This highlights a risk to the integrity of public administration that needs to be addressed.
- The audit identified instances where advice did not provide clear recommendations or gave too much emphasis to the benefits of approaches that were in line with a government's known preferred outcome and little emphasis to the analysis and benefits of alternative approaches.
- The 'compartmentalisation' of knowledge and/or roles at key points in the project may have constrained the ability of key agencies and advisers to obtain the 'fullpicture' relevant to their role, and compromised their ability to provide comprehensive advice.
That the Department of Premier & Cabinet consults with the Victorian Public Sector Commission to support further guidance to clarify the requirements for frank, impartial and timely advice in the public sector.
The Public Administration Act 2004 (the Act) seeks to ensure the maintenance of an apolitical public sector that responds to government priorities in a manner that is consistent with public sector values. Figure 6A shows key public sector values specified in the Act. Values of particular relevance to our assessment of the quality of advice provided to government on the East West Link (EWL) project are shown in bold text.
Public sector values specified in the Act
Public officials should demonstrate responsiveness by:
Public officials should demonstrate impartiality by:
Public officials should demonstrate accountability by:
Public officials should demonstrate respect for colleagues, other public officials and members of the Victorian community by:
Source: Victorian Auditor-General's Office based on section 7(1) the Act.
The audit included examination of advice provided to government by the:
- Department of Premier & Cabinet (DPC)
- Department of Treasury & Finance (DTF)
- former Department of Transport, Planning and Local Infrastructure now the Department of Economic Development, Jobs, Transport & Resources (DEDJTR)
- Department of Environment, Land, Water & Planning (DELWP)
- Linking Melbourne Authority (LMA).
The planning, development, procurement, contracting and termination of EWL spanned two governments with directly opposing policy positions on the merits of pursuing the EWL project. In addition, key decisions on the project were taken shortly before and after a state election. These circumstances created significant challenges for the public officials tasked with providing comprehensive advice in the best interests of the Victorian community.
Meeting the obligation to provide frank and fearless advice means there is sometimes a need to provide advice that a government may not necessarily want to receive. While the advice to government examined in this audit was generally comprehensive and clear, it did not always meet the required standard of being frank.
This highlights a risk to the integrity of public administration that needs to be addressed. Action and leadership is required from government to reinforce these standards and the related expectations for public servants.
6.3 Frank and fearless advice
The instances where the advice provided was not sufficiently frank involved advice that did not provide recommendations or that gave too much emphasis to the merits of approaches that were in line with the government's preferred outcome and little emphasis to alternative options that were more aligned with the best interests of the state.
The clearest example of this was advice provided to government in September 2014 in the lead-up to its decision to sign the contract with East West Connect (EWC) for Stage 1 of the project. While the submission to government about the decision on whether or not to sign the contract was from the Minister for Transport, DPC and DTF did not provide a recommendation to government on the best option for the state.
Outlining options to government without a recommendation in circumstances where public officials know that the option clearly favoured by government will expose the state to significant potential risk and costs is not in the best interests of the state. It is not sufficient for officials in such circumstances to stop at disclosing the potential consequences of the available options, they need to provide a recommended course of action. This advice is examined in detail in Part 4 of this report.
Similarly, the audit identified that advice to the new government following the November 2014 state election failed to properly assess the option of terminating the project against the revised costs and benefits of continuing the project. While this was consistent with the new government's announced policy position it meant there is limited assurance that the termination represented the best use of public funds. This is considered in Part 5 of this report.
DPC and DTF disputed this and advised that the Code of Conduct for Victorian public sector employees (the Code) requires the public service to implement government policy decisions once the government of the day has made a clear policy decision. This is a quite narrow reading of the Act and the Code because neither explicitly state or imply that the requirement to 'implement government policy' sits at the apex of public sector values.
This suggestion is also inconsistent with the objects set out in section 3 of the Act. The Act does not oblige public servants to implement government policy at any costs. Rather, it seeks a public service which responds to government policy priorities in a manner that is consistent with public sector values. Those values include:
- providing frank, impartial and timely advice to the government
- making decisions and providing advice on merit
- objectively considering all relevant facts and fair criteria
- seeking to achieve best use of resources
- using their views to improve outcomes on an ongoing basis.
The Act and Code empower and oblige public servants to act with integrity and, most importantly, with impartiality. This high standard of conduct cannot be achieved by the public service if this narrow reading of the Act and the Code holds sway.
This interpretation has contributed to the serious deficiencies in the advice provided to government on the EWL project.
Some public officials consulted in the course of this audit indicated that providing frank and fearless advice when they believe a government does not necessarily want to receive it is naive and creates a risk that they will lose influence or career opportunities. If this attitude becomes pervasive in the public sector there is a significant risk to the integrity of government decision-making and public administration, with consequential implications for the effective management of public resources and services.
Further guidance and support is needed to clarify and emphasise the existing requirements for frank and fearless advice in the public sector.
6.4 Transparency of advice and decision-making
The EWL project should now be used to identify lessons to prevent similar wastage of significant public and private resources on future projects in the state.
6.4.1 Broader lessons
At a high level, some of the drivers behind the significant wasted expenditure on the EWL project included:
- lack of transparency around the business case for the overall project and around the decision to prioritise the eastern section
- signing the project contract in circumstances where the merits of the project and the validity of the planning approvals were contested
- the nature of long-term public private partnerships (PPP), which typically involve high bid costs and high up-front payments to financiers, advisers and subcontractors.
In terms of the broader lessons from the project, areas for consideration by government include:
- encouraging greater transparency around business cases
- strengthening the role of non-partisan institutional bodies in investigating and prioritising investments
- ensuring that transaction time lines allow for the effective contribution of planning authorities and public consultation processes.
On the transparency of business cases, an inquiry into the circumstances surrounding the side letter to EWC commissioned by DPC in early 2015 recommended legislation requiring the release of business cases for major infrastructure projects to enable public scrutiny and increase transparency. The new government publicly released the March 2013 EWL business case and the final business case at the end of 2014.
On strengthening the role of non-partisan institutional bodies in investigating and prioritising investments, the Victorian Parliament passed legislation creating Infrastructure Victoria in early September 2015. When announcing this, the government indicated that Infrastructure Victoria will:
- take short-term politics out of infrastructure planning
- be tasked with ensuring Victoria's immediate and long-term infrastructure needs are identified and prioritised based on objective, transparent analysis and evidence
- consult widely, consider the needs of the whole state and prioritise the projects that deliver the best results
- support government decisions by assessing business cases for major projects.
6.4.2 Advice to government—potential lessons learned
'Compartmentalisation' of advice
LMA and its advisers did not have any direct involvement in the judicial review proceedings associated with the legal challenge to the Minister for Planning's approval decision. Advice to government in relation to the judicial review was presented to a different committee of Cabinet than that to which LMA typically presented. At a critical time in the project, this meant that:
- in one 'compartment', government was being advised on the likelihood that the plaintiffs would be successful in the judicial review proceedings, and on the importance of expediting the hearing
- in another 'compartment', LMA were being asked to consider the legal and commercial implications of proceeding to contractual and financial close while the judicial review remained undetermined, and to advise on the inclusion of a new clause in the project contract relating to the judicial review (clause 58).
This 'compartmentalisation' of knowledge and/or roles created silos and may well have constrained the ability of key agencies and advisers to obtain the 'full picture' relevant to their role, and may have compromised their ability to provide comprehensive advice that adequately assessed the risks and benefits of alternative options.
To illustrate, advice to government clearly stated that an assessment of the state's exposure under clause 58 depended on the outcome of the judicial review. At the same time, the sign-off letters provided by the state's commercial and legal advisers prior to awarding the contract stated that 'We understand that LMA is not involved in the judicial review and, as our scope of work does not include providing advice in relation to the judicial review, we make no comment in this respect'.
Sign-off letters in relation to PPPs
In accordance with standard practice for PPPs, LMA obtained 'sign-off' letters from its legal and commercial advisers in relation to the alignment of the project contract with the National PPP Policy and Guidelines.
In relation to the sign-off letters customarily provided in connection with PPP projects prior to contractual close, it would be beneficial if:
- relevant advisers were given formal access to any separate advice to government that is relevant to the opinions expressed
- any 'non-standard' qualifications or exclusions from adviser sign-off letters were specifically noted in relevant advice to government
- sign-off letters were more specific as to:
- the aspects of the National Commercial Principles and jurisdiction-specific guidance that have been used to inform development of the PPP contract—for example which aspects of the principles for 'social' and 'economic' infrastructure projects have been applied
- the areas of the PPP contract that represent project-specific departures or are otherwise not consistent with relevant aspects of the National Commercial Principles and/or jurisdiction-specific guidance
- relevant client instructions.
Although these issues are unlikely to have affected the final outcomes of the EWL project, the value of the sign-off letters will be increased if these suggestions are implemented.
Entering contracts with other critical issues unresolved
At the time the project tender submissions were due, 28 April 2014, the access arrangements for the connection of the eastern section to CityLink were still being negotiated, creating uncertainty for bidders. This remained unchanged when the preferred bidder was appointed on 9 September 2014. In addition to the uncertainty this situation created for bidders, this potentially compromised the states negotiating position.
Also, delays in completing, and challenges to, the statutory planning process meant there was a lack of certainty regarding the final design and scope of EWL when the preferred bidder was announced.
DTF should develop enhanced guidance for identifying and managing risks associated with concurrent planning, scoping and procurement processes.
Nominal dollars, net present value and discount rates
The differences between cost and benefit forecasts in nominal dollar terms—the amount it cost when it was announced—versus net present value—what that amount of money is worth today—often leads to confusion in public debate, and has the potential to undermine the clarity of advice to government.
For example, advice to the current government in relation to the proposed cancellation of the project and the settlement with EWC:
- noted the state's commitment in nominal dollar terms over the 25 to 30-year contract term, which totalled $10.7 billion
- commented that this commitment 'created significant economic and opportunity costs' with reference to the initial EWL business case which suggested a direct economic benefit of 45 cents in the dollar.
This advice was presented without specifying the nominal dollar value of forecast toll revenue, or highlighting the state's commitment in present value terms. The way this advice was presented tended to overstate the net costs of completing the project.
Advice to government, and any associated public statements, should wherever practicable present costs and benefits in both nominal and present value terms, with the discount rate and other key assumptions explicitly stated.
- That the Department of Premier & Cabinet consults with the Victorian Public Sector Commission to support further guidance to clarify the requirements for frank, impartial and timely advice in the public sector by:
- establishing clear minimum standards for agencies on how to satisfactorily discharge this obligation when providing advice to government
- advising government on strategies and options for addressing any cultural issues underpinning the serious deficiencies in the advice provided to government highlighted by this report.