Part 4 Operational tools, checklists and further guidance
This section of the Guide provides entities with more detailed background and guidance to assist them in managing their asset portfolios. A number of standard ‘templates’ are included which should be tailored by entities so, where relevant, they are made ‘fit-for-purpose’ to suit the individual circumstances of the entity.
4.1 The legislative and regulatory environment
The Commonwealth's regulatory framework relating to asset management is quite diverse. Some of the more prominent principles and processes relating to the capital budgeting and procurement process through to general asset management and disposal are discussed below. Entities requiring more detailed information regarding obligations they may have in respect of individual elements of the regulatory framework should, in the first instance, seek clarification through the Department of Finance and Deregulation (Finance).
Financial Management and Accountability Act 1997
The FMA Act provides for an executive management structure, with each FMA Act entity governed by a Chief Executive. The Chief Executive is responsible for managing the entity in a way that, as stated in sub section 44(1) of the FMA Act, promotes the proper use of the Commonwealth resources for which the Chief Executive is responsible.
This section is supplemented by a requirement, in the FMA Regulations, for an approver not to approve a spending proposal unless the approver is satisfied, after reasonable inquiries, that giving effect to the spending proposal would be a proper use of Commonwealth resources. This approval is to occur before any arrangements are entered into that would, or could, lead to the spending of public money.4
Section 63 of the FMA Act provides for the Finance Minister to make Orders on certain matters identified in the Act, and on any matter on which regulations may be made. The principal matters covered by the FMA Orders concerning asset management are: the responsibility of Chief Executives to maintain entity accounts and records; and the requirements for the preparation of annual financial statements by entities.
Commonwealth Authorities and Companies Act 1997
The CAC Act sets out the financial management, accountability and audit obligations on Commonwealth statutory authorities and companies in which the Commonwealth has at least a direct controlling interest, and which are in addition to any specific requirements of their enabling legislation.
The FMA Act regulatory framework for asset management
A selection of standards and codes of practice are disclosed in Section 4.2 to illustrate some of the key requirements that FMA Act entities must comply with, and include:
- implementation guidelines for the National Code of Practice for the Building and Construction Industry;
- Energy Efficiency in Government Operations policy;
- Chief Executive Instructions (CEIs);
- the Australian Government Protective Security Manual;
- the Australian Government Information Security Manual; and
- IT Governance Standards.
An example of the diverse regulatory framework governing asset management is shown in Figure 4.1 below, which provides an outline of some of the processes involved when FMA Act entities are funding asset acquisitions as part of the asset management process. These processes have limited applicability to CAC Act entities who normally are not subject to the same budgetary framework.
Figure 4.1: Overview of the capital budget process
Budget elements relate to the development of key documents to support capital expenditure and include New Policy Proposals and capital business cases.
Scrutiny and validation of these budget elements may be undertaken through various control elements, such as the Public Works Committee, Gateway Review, and Cabinet Committee approval.
Some of the more prominent principles and processes relating to the capital budget process diagrammatically represented above, or for asset management more generally, are discussed below and include:
- the Commonwealth Procurement Guidelines;
- the Australian Government Property Ownership Framework;
- the Commonwealth property disposals policy;
- the Public Works Committee;
- the capital budget approval process for large construction projects;
- the capital budget approval process for large Information, Communication and Technology (ICT) projects; and
- the Gateway Review process.
Commonwealth Procurement Guidelines (CPGs)
The CPGs are issued by the Finance Minister under the FMA Regulation 7 and establish the policy framework for procurement within the Australian Government.
The core CPG principle is value for money underpinned by non-discriminatory competitive procurement processes, using resources in an efficient, effective and ethical manner and making decisions in an accountable and transparent manner consistent with government polices.
Though CAC entities are not necessarily subject to the CPGs many adopt some or all of the requirements in line with good practice.
Entities determine their own procurement practices, consistent with the CPGs, generally through Chief Executive Instructions or equivalent documents.
Australian Government Property Ownership Framework
From 1 July 2005, the Australian Government Property Principles were replaced by the Australian Government Property Ownership Framework and the new principles apply to all FMA entities and CAC Bodies. The rationale behind the framework is that the government's core business excludes property ownership unless particular circumstances apply.
The objective of the framework is that all decisions to own or divest properties must support specific government objectives or represent value for money. The Commonwealth's expectations in relation to the management of property (within Australia) are articulated in the Commonwealth Property Management Guidelines.
Commonwealth property disposals policy
Entities are required to report their landholdings to the Department of Finance and Deregulation on an annual basis as well as demonstrate the need to retain these assets through the Commonwealth land audit process.
As a general rule Commonwealth property, having no alternative efficient use, is to be sold on the open market at full market value. Exceptions to this general rule are where the land is considered suitable for optimising the Government's commitment to advancing housing and community outcomes or where a priority sale is made to a specific purchaser under special circumstances.
Public Works Committee
The Parliamentary Standing Committee on Public Works (known as the Public Works Committee (the Committee)) was established in 1913. It is constituted by the Public Works Committee Act 1969 (the PWC Act). The PWC Act provides that a public work with an estimated cost5 exceeding a $156 million threshold shall not be commenced unless:
- it has been referred to the Committee; and
- the House of Representatives has resolved, following examination of the report by the Committee, that it is expedient to proceed with the work (that is, an ‘expediency motion’ is passed).
Under the PWC Act, a public work, the cost of which exceeds the threshold, may only be commenced without such referral under certain specific exemption conditions, namely that:
- the House of Representatives has resolved that, by reason of the urgent nature of the work, it is expedient that it be carried out without having been referred to the Committee;
- the Governor-General has, by order, declared that the work is for defence purposes and that the reference of the work to the Committee would be contrary to the public interest (for example, for security reasons); or
- the work has been declared, under the Act, as being a repetitive work (for example, general maintenance work).7
The entity that is carrying out or contracting public works that are required to be referred to the Committee prepares a submission (also referred to as a ‘Statement of Evidence’). The submission includes information on why the work is necessary, other options considered, estimated cost, and any plans or drawings that will help the Committee understand the purpose and scope of the work. At the same time as providing the Statement of Evidence, entities are required to provide the Committee with a separate table showing a breakdown of the major cost components of the proposed work (referred to as the Confidential Cost Breakdown). In order to protect the integrity of the tendering process and assist the Commonwealth in maximising its value for money in funding the project, the practice of the Committee is that only Committee members and secretariat staff view the Confidential Cost Breakdown.
Subsequently, the Committee holds public hearings in relation to public works projects referred to it. Members of the Committee intending to attend the hearing on a particular project will generally inspect the proposed construction site prior to the hearing.8 At the public hearing, officers from the proponent entity appear before the Committee and any organisation or person who has sent in a submission to the Committee on the particular project may be invited to give evidence. Private hearings, involving the Committee members and the proponent entity, are also held to allow discussion about cost details of the work, which may include sensitive tendering information.
After the public hearing and responses have been made to any questions on notice, the Committee prepares a report to present to the Parliament. The Committee is able to make any recommendations it sees fit within the bounds of the Act, and may recommend the proposed public work does not proceed.
Once the report is tabled in the Parliament, a motion is made by the Minister for Finance and Deregulation (or delegate) to proceed with the work. This is the ‘expediency motion’ and usually supports the Committee's recommendations. The Act provides that work may not commence on a public work referred to the Committee until the House of Representatives has ‘resolved that it is expedient to carry out the work’.
Capital budget approval process for large construction projects
In 2004-05, a new mandatory two-pass approval process was introduced for Defence capital acquisitions. A similar process was introduced following the 2007–08 Budget, for non-Defence major capital works valued at $30 million or more.
Under the arrangements for Defence, first-pass approval is, in effect, approval for the department to proceed with more detailed analysis and costing of broad capability proposals. It is the point at which the government considers alternatives and approves a capability development option(s) to proceed with more detailed analysis and costing, with a view to subsequent approval of a specific capability. Second-pass approval is formal approval by the government of a specific capability solution to an identified capability development need. It is the point at which the government agrees to fund the acquisition of a specific capability system with a well-defined budget and schedule, and to allocate future provision for through life support costs.
For non-Defence projects, in the first stage of the approval process, the relevant portfolio Minister seeks in- principle approval for a project from Cabinet on the basis of a business need and broad order of costs, and funding to fully develop the project's scope and an accurate cost estimate, for further consideration by Cabinet. In the second stage of the approval process, the relevant portfolio minister seeks Cabinet agreement to full funding to commence construction, based on the project scope being developed to functional design brief standards, full costing of the project scope and an analysis of project benefits, risks, timetable, contingencies and any offsets.
Capital budget approval process for large Information, Communication and Technology (ICT) projects
The Australian Government Information Management Office (AGIMO) provides advice and coordinates significant ICT project capital bids. Entities are required to submit a First Pass business case that supports the sponsoring minister's Cabinet submission to AGIMO for review and seek in-principle agreement from the Expenditure Review Committee (ERC) to proceed. If successful, a more detailed Second Pass business case is prepared, reviewed by AGIMO and put forward to the ERC for consideration. A Secretaries' ICT Governance Board has been established to provide advice for matters referred by either Finance or the ERC.
The Gateway Review process
The Gateway Review process has been used in the United Kingdom since the year 2000, and in Victoria since 2003. The Victorian model is based largely on the initiative underway in the UK, through the Office of Government Commerce (OGC). Gateway is a project assurance methodology involving short, intensive, high-level reviews by an independent expert team at critical points (‘gates’) in a project's life-cycle.
In November 2005, the Australian Government endorsed the adoption of the OGC Gateway Review Process.9 Gateway, as implemented by the Australian Government, does not provide an approval to proceed with a project, or with a particular phase of a project-it is the responsibility of the relevant entity to determine what action will be taken in respect of recommendations made in a Gateway review.
Gateway applies to new projects requiring Government approval undertaken by entities operating under the FMA Act which satisfy certain financial and risk thresholds. The current financial thresholds are:
- $10 million and over for information technology (IT) projects; and
- $20 million and over for other procurement and infrastructure projects.10
These thresholds relate to the total costs, excluding administered payments, but inclusive of all related departmental expenses over the forward estimates.
Risk is assessed using the Gateway Assessment Tool (GAT). The GAT provides a standard set of high-level criteria and multiple choice questions to be answered by the relevant entity in relation to a proposed project, to determine the level of project risk (high, medium or low). The GAT takes into account factors such as the effects on stakeholders; the complexity of the project scope; the nature of any procurement processes to be undertaken; the degree of change required in the delivering entity; and identified capability to deliver the project. On the basis of answers provided by the entity, an indicative risk rating is assigned to the project, which is then confirmed by the Gateway Unit in Finance.11
- FMA Regulations 9, 10 and 13
- The Act defines ‘estimated cost’, in relation to a public work, to mean an estimate of cost made when all particulars of the work substantially affecting its costs have been determined.
- The threshold was increased from $6 million in November 2006.
- See sub-section (8) of section 18 of the Act. There is no guidance or examples provided of what constitutes an urgent, defence purpose or repetitive work in the Committee's Manual of Procedures for Departments and Agencies, although it does note that when an exemption is sought, officers of the entity should attend a meeting of the Committee to explain the background to, and the need for, the exemption.
- The public hearing is usually conducted either at or close to the site, following the Committee members' inspection.
- Department of Finance and Administration, Guidance on the Gateway Review Process - A Project Assurance Methodology for the Australian Government, Canberra, August 2006, p. 2.
- These financial thresholds relate to the total value of the project, regardless of the timeframe taken to deliver the objectives. ibid., p. 10.
- The Gateway Unit located in Finance provides guidance, support and additional information on the Gateway methodology to the Gateway Review Teams and FMA entities as required. The Gateway Unit does not undertake Gateway reviews.