Delivery of Projects on the AusLink National Network
The objective of this performance audit of construction projects on the AusLink National Network was to assess the effectiveness of the administration by DITRDLG in working with the States to deliver the outcomes expected by the Government and the broader community. To inform the audit assessment, the methodology included examination of both Australian Government and State Government records as well as site inspections in relation to 21 projects being delivered in three States (New South Wales (NSW), Queensland and Tasmania). DITRDLG and the respective State road transport authorities were consulted in the selection of projects to be examined in detail.
The AusLink White Paper was released on 7 June 2004. It announced1 that the AusLink National Network would replace the former separate National Highway System, Roads of National Importance and the interstate rail network. The National Network was to be a single integrated network of land transport linkages of strategic national importance. At the time of audit fieldwork, it comprised 24 transport corridors that take in Australia's major roads and railways, as well as freight terminals at major sea and air ports.
AusLink National Network funding, through the AusLink Investment Program, was to be guided and underpinned by five-year plans with an overall 20-year horizon. The first five years (referred to in this report as AusLink 1) operates between 2004–05 and 2008–09. The funding envelope for the second five year stage (referred to in this report as AusLink 2 but also known as the Nation Building Program) was announced in the May 2007 Budget, with payments to be made between 2009–10 and 2013–14. In total, $25 billion has been paid, or committed, for road and rail construction projects on the AusLink National Network2 between July 2004 and June 2014.
The June 2004 White Paper set out the projects that were to be funded during the first five year AusLink period. Various infrastructure funding agreements (referred to as Bilateral Agreements) were negotiated and signed between May and December 2005. The Bilateral Agreements included an Australian Government contribution of $3.4 billion towards 53 new AusLink projects.3
During the first five years there were two occasions in which a substantial increase in AusLink funding was announced for additional projects on the National Network, as follows:
- in June 2006, $1.82 billion was paid to five States and the Northern Territory to accelerate work on parts of the National Network with a specified completion date by 31 December 2009; and
- projects were announced as funding commitments prior to the 2004 and 2007 Federal Elections. A relatively small number of land transport projects were announced as election commitments during the campaign for the 2004 Federal Election. By way of comparison, over the course of the 2007 Election campaign, both the Coalition and the Australian Labor Party (ALP) made a substantial number of announcements involving funding for projects on the AusLink National Network.4
In July 2007, the then Shadow Minister for Transport, Roads and Tourism announced that the ALP was committed to the retention of all the AusLink programs. Accordingly, the forward estimates included in the 2008–09 Budget Papers continue to include substantial forward estimates for the AusLink Investment Program during the AusLink 2 period (including estimated program expenses for National Network projects of $4.2 billion in 2008–09).5
Audit Scope and Objective
ANAO's performance audit priority in the Infrastructure, Transport, Regional Development and Local Government portfolio is directed at the implementation of AusLink.6 Accordingly, this audit is one of a series of audits ANAO is undertaking of the AusLink land transport initiative.
The delivery of projects on the AusLink National Network involves both the Department of Infrastructure, Transport, Regional Development and Local Government (DITRDLG) and State7 road transport authorities. DITRDLG is involved in project planning (so as to ensure that Australian Government policy objectives and accountability responsibilities are satisfied) and State road transport agencies manage programs of works within each State, with individual construction projects being delivered by State agencies or third parties contracted by the State.
The objective of this performance audit of construction projects on the AusLink National Network was to assess the effectiveness of the administration by DITRDLG in working with the States to deliver the outcomes expected by the Government and the broader community. To inform the audit assessment, the methodology included examination of both Australian Government and State Government records as well as site inspections in relation to 21 projects being delivered in three States (New South Wales (NSW), Queensland and Tasmania).8 DITRDLG and the respective State road transport authorities were consulted in the selection of projects to be examined in detail.
As a key reference point, the audit drew on the National Guidelines for Transport System Management (National Guidelines) which were endorsed by the Australian Transport Council in November 2004, and updated in December 2006. The National Guidelines are based on a decision support system known as the Transport System Management Framework (see Figure 1), which is aimed at achieving high-level transport system objectives.9 The expectation is that working through this Framework will result in a structured approach to decision-making, without which decisions may lack consistency, resources may be misallocated and high level objectives may not be achieved.10 The National Guidelines were not in place at the time the AusLink White Paper was published, but the principles underlying the Guidelines were reflected in the AusLink Investment Program: National Projects Notes on Administration.11
Source: Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 2—Strategic transport planning and development, December 2006, p. 12.
A key aspect of the National Guidelines is a staged appraisal process.12 The intention is that projects pass through all filters such that they have demonstrated strategic merit and fit, and performed well in detailed appraisals. Detailed appraisals are expected to involve comprehensive analysis including detailed Benefit Cost Analysis, a financial or budget assessment, and specific impact analyses and impact statements (for example, environmental, social, regional, employment and equity).
A staged appraisal process drawing on economic analysis of anticipated project benefits and estimated whole-life costs reflects contemporary developments in managing large scale projects.13 For example a staged approach to project development and approval underpinned the recommendations of a 2007 independent review of major highway projects in the United Kingdom that was commissioned following large increase in estimates for projects. In addition, Infrastructure Australia's published infrastructure decision-making framework includes the use of economic analysis as part of the project assessment and prioritisation process.
In December 2008, the Government announced that a total of $7.4 billion would be spent across 46 rail, road and education infrastructure projects with the objective of strengthening the economy and supporting jobs.14 The project announcements included bringing forward the commencement of construction of 14 national road projects already announced under AusLink 2, with a total value of $4.5 billion.15 Of the 14 national road projects, 12 had been announced to receive funding during the 2007 Election Campaign.16 As audit fieldwork had been completed prior to the December 2008 announcement, ANAO has not examined assessment and risk management practices employed by DITRDLG for the projects announced at the end of 2008.
The delivery of AusLink National Network construction projects has been progressed through the development and implementation of new legislative, intergovernmental and program arrangements. Under these arrangements, up to 30 June 2008, more than $6 billion has been paid to the States for expenditure on National Network construction projects. Although there have been significant delays in some major projects, over 60 per cent of projects have been reported by the States as having been completed.
The majority of the AusLink 1 projects examined in the audit sample have been delivered, or are currently being delivered.17 However, the delivery cost of most of the sampled AusLink 1 projects is greater than that expected at the time Australian Government funding was approved (with increases ranging from 6 per cent to 249 per cent).18 There have also been significant delays in the delivery of some major projects. Key factors in these circumstances have included:
- projects being approved for funding after limited prior consultation with the States, and before the necessary planning and preconstruction work had been completed such that a robust estimate and delivery timeframe had not been established and/or without a comprehensive assessment of the likely net benefits of each candidate project; and
- shortcomings in estimating practices and DITRDLG scrutiny of estimates submitted by the States.
These budgeting and schedule issues underline the importance of developing robust project proposals that have been subject to rigorous scrutiny, and of care being taken with early project commitments and funding announcements. In particular, it is now recognised that project costs are not able to be estimated with confidence until after sufficient planning and scoping work has been undertaken.
At present, the documented project assessment and approval processes for National Network projects are premised on projects being considered for funding on a phased basis. However, it has become common for funding commitments for major roads projects to be made in the context of Federal Election campaigns. Many of the election commitment projects announced in both the 2004 and 2007 campaigns were at an early stage of development such that robust project proposals (including the likely delivery timeframe and expected cost) had not been developed. This was compounded by the aggregate cost of the project announcements made by each of the Coalition and the ALP exceeding the amount of available AusLink 2 funding. This situation creates challenges for DITRDLG and State transport agencies in delivering projects within the approved funding envelope.
Similarly, Infrastructure Australia identified four key weaknesses19 in submissions to it requesting funding for projects under the first National Infrastructure Priority List, although the proponent considered their project submissions were sufficiently developed that a funding prioritisation decision could be made. These instances included some projects nominated by States and Territories for which AusLink funding had already either been committed or requested.20 As indicated by Infrastructure Australia's response on this audit, Infrastructure Australia was established to improve the quality of infrastructure planning and investment strategy in Australia and believes it can play a positive role in helping States and Territories to improve their planning processes and to assist with capacity issues.
One of the significant changes proposed to be made under the AusLink planning and administration framework compared to the predecessor land transport program was the adoption of a comprehensive evaluation framework that would help improve the efficiency and effectiveness of program outcomes and project delivery. With the assistance of expert consultants, an evaluation framework was developed and documented in mid-2006. However, at the time of ANAO's audit, the framework had not been implemented. Feedback from the States to ANAO is that they support DITRDLG implementing the evaluation framework, in consultation with them. DITRDLG has advised ANAO of steps it is taking to implement the evaluation framework.
DITRDLG has advised ANAO that it takes seriously the need for it to have an active role in the monitoring and evaluation of projects, and it will continue to do so on an increasing basis as it reviews and refines its governance arrangements to meet policy requirements. DITRDLG also advised ANAO of the steps it is taking to implement the results of a 2007 consultant review of cost estimating practices. In addition, in response to the Issues Papers provided to agencies between August and November 2008, DITRDLG advised ANAO of various improvements it had made or was making to its administration of funding for National Network projects. Of particular note is:
- the implementation in November 2007 of the AusLink Project Management System (APMS) to enable improved reporting for program management with a number of reporting enhancements currently being made to the APMS product suite;
- changed organisational arrangements including the formation of new sections to review and develop business processes so as to enhance oversight, assessment and reporting within DITRDLG's Infrastructure Investment Division;
- improved procedures and guidance for DITRDLG staff to assist them better understand and apply the documented framework for project development, assessment, approval and monitoring;
- requirements for the States to document in project proposals their intended procurement strategy and delivery method, including the capacity of the State to manage arrangements such as alliance contracts; and
- the engagement of consultants to review practices and procedures regarding the Nation Building Program, identifying requirements and timeframes for the Nation Building initiatives and reporting on projects.
In developing the audit recommendations, ANAO has had regard to the improvements DITRDLG advised ANAO that it had already made or was making. ANAO has also had regard to the long term goal announced by Infrastructure Australia to improve the robustness and quality of project proposals from the States and other stakeholders for future spending on infrastructure, including land transport infrastructure. Specifically, in its December 2008 report to the Council of Australian Governments, Infrastructure Australia announced that it proposed to:
- publish more detailed guidelines, expanding on its decision making framework to give States and other organisations a clear process to follow;
- Publish detailed guidance on the type of evidence required to demonstrate a project's strategic fit; and
- work with the various jurisdictions, the Australian Transport Council and other sector bodies to produce national guidelines for project appraisal.21
In combination, these various initiatives, together with implementation of the recently promulgated cost estimating standard, can be expected to enhance the administration of funding for National Network projects and, consequently, the delivery of projects. ANAO has made four recommendations relating to DITRDLG:
- obtaining assurance that improvements to project estimation and assessment processes are implemented;
- explicitly addressing the department's role where projects are delivered through the alliance contracting method given the significant differences between alliance contracting methods and the more traditional contracting forms that have been typically used to deliver AusLink National Network projects;
- better managing scope risks for projects that receive accelerated funding; and
- documenting the improved administrative framework that has been developed where projects are announced for funding through political processes.
Governance framework (Chapter 2)
The AusLink White Paper was published in June 2004, with implementation of the White Paper commencing on 1 July 2004. The White Paper stated that legislative, intergovernmental and institutional mechanisms were a core component of AusLink. However, the ANAO observed that some key aspects of the project appraisal and funding approval arrangements for AusLink National Network projects involved a diminution in Australian Government control over the terms and conditions under which land transport funding is being provided to the States.
The AusLink policy was given formal effect by the AusLink Act, which was assented to on 6 July 2005. Part 3 (sections 8 to 27 inclusive) of the AusLink Act commenced on 28 July 2005. This Part sets out the legislative framework applying to AusLink National Projects. Section 8 of the AusLink Act defines an AusLink National Project as a project for which an approval by the Minister under subsection 9(1) is in force.22 Project Approval Instruments made under section 9 of the AusLink Act are a key element in the governance framework for the delivery of projects on the National Network.
With the introduction of AusLink, the then Government intended that arrangements covering funding contributions by States and Territories, the development of corridor strategies, future transport and land use planning, and assessment of projects would be set out in Bilateral Agreements to be negotiated between the Australian Government and each State. Negotiations with the States for the development of Bilateral Agreements were undertaken concurrently with the development of the AusLink legislation. Bilateral Agreements with each of the States were signed between 27 May 2005 (Victoria) and 8 December 2005 (Western Australia). Although funding is assessed and approved on a project by project basis and the Bilateral Agreements identified individual projects and the associated Australian Government funding amount, the Bilateral Agreements do not represent a binding commitment of Australian Government funding to the projects listed in a schedule to each Agreement.23 Rather, the Bilateral Agreements document the overall level of funding for each State.
The various Bilateral Agreements state that they operate in conjunction with the legislation and that the AusLink Act takes precedence, but they are not funding agreements under the AusLink Act.24 It was proposed that Bilateral Agreements not be recognised in the legislation, rather, that they would be on the same footing as agreements previously concluded with States for shared funding arrangements as such agreements were considered to have operated effectively within a well established and understood Commonwealth-State framework. However, the previous agreements with the States for shared funding had operated under a governance framework that included legally binding Notes on Administration.25
A sound understanding of the total estimated project cost is important to inform decisions concerning the commitment of Australian Government funding to individual projects. Including accurate data on total estimated project costs in the AusLink 1 Bilateral Agreements was also important:
- in circumstances where the Australian Government was either fully funding a project, or funding an uncapped percentage of project costs given the risks involved where total project costs increase; and
- to provide an accurate baseline against which to assess the management of the Program.
One of the key shortcomings in the approach adopted by DITRDLG in preparing and finalising the Bilateral Agreements in AusLink 1 was that the baseline data provided on individual projects did not, in some instances, reflect a robust and up-to-date estimate of the expected cost of delivering the project.26 DITRDLG also did not ensure that the Bilateral Agreements included current Australian Government funding amounts at the time of agreement.
Subsequent variations to projects have also not been well handled. In April 2006, DITRDLG had advised the then Minister that it would prepare amendments to Bilateral Agreements when new projects were added, project details significantly altered, additional Australian Government funding provided or significant reallocations of funds between projects. However, often such changes did not result in DITRDLG amending the relevant Bilateral Agreement.
A key policy objective outlined in the AusLink White Paper was that there would be increased sharing of costs with the States. The Bilateral Agreements gave effect to this policy objective with the proportion of projects where costs were to be shared increasing from 29 per cent of continuing projects to 58 per cent of new AusLink projects (representing 84 per cent of AusLink 1 funding). There was also a noticeable change in the nature of the intended cost sharing arrangements. As illustrated by Figure 2, the significant majority (72 per cent) of shared funded projects continuing from the predecessor program involved the capping of the Australian Government contribution at a specified amount. For new AusLink projects, it was more common (55 per cent compared to 26 per cent) for the shared funding arrangements to involve the Australian Government contributing a percentage of actual project costs. For 76 per cent of these projects, the Australian Government's share of costs was capped at a specified amount.
Source: ANAO analysis of Bilateral Agreements.
While the AusLink 1 Bilateral Agreements sought to address the financial risk to the Australian Government of project cost increases through cost sharing and cost capping arrangements, several areas still require attention:
- as noted, the Bilateral Agreements were not developed and maintained as an effective record of the projects being funded;
- agreed cost sharing arrangements were not reflected in the relevant Project Approval Instrument made under the AusLink Act; and
- for some projects where costs were to be shared, DITRDLG was not obtaining reports from the States that enabled it to assure itself that costs were actually being shared in the way intended.
DITRDLG advised ANAO that its approach to the second five year period addresses specific issues raised by the ANAO, including:
- DITRDLG had examined the role and legal status of Bilateral Agreements with the States. DITRDLG advised ANAO that a uniform Memorandum of Understanding (MoU) was to be executed bilaterally with each State/Territory in a way that meets the requirements of the National Partnership Payment process being rolled out under the Council of Australian Governments Commonwealth-State financial reform agenda;
- DITRDLG was working with its legal advisers to revise and strengthen the Notes on Administration to support the new MoU framework. Changes were expected to include clearer information for the States on performance reporting requirements, cost estimation practices, and project appraisal and approval frameworks; and
- any changes to the schedule of projects for the second five years of AusLink would be agreed with the States via a letter or at the project approval stage, and will be continuously recorded.
Project planning and delivery (Chapter 3)
Project estimates and actual costs
Notwithstanding the increased sharing of costs and use of cost capping arrangements, a feature of the first five year AusLink period was significant increases in the delivery cost of many projects compared to the estimate of costs at the time Australian Government funding was approved. In relation to the projects in the audit sample, the Australian Government contribution decreased for a small number of projects, with a maximum decrease of 17 per cent. It was more common for the delivery cost to be greater than the estimate at the time Australian Government funding was committed to the project, with increases ranging from 6 per cent to 249 per cent. Of the audit sample projects that were clearly identified in the drafting of the Bilateral Agreements, only three projects did not involve an increase or decrease in Australian Government contribution but, in each instance, a change in scope occurred which allowed the project to remain within the project estimate.27
ANAO's December 1993 report of a performance audit of predecessor National Highway Program included two recommendations in relation to estimating of project costs. The first was aimed at improving estimating performance and the accuracy of estimates. The second was aimed at the then Department of Transport and Communications assessing estimates consistently and objectively on a common basis for all States and for the Department to have greater control of the estimating process. However, it was not until a 2007 consultants' review of cost estimation practices in respect to certain projects in Queensland was completed that DITRDLG commenced the development of a national cost estimating standard. The review had concluded that DITRDLG should define its requirements better, that its staff should be trained to cast a more critical eye over the initial cost estimates for projects and that the lessons from the report should be implemented nationally.28
The ‘Best Practice Cost Estimation for Publicly Funded Road and Rail Construction' was provided to States in October 2008. DITRDLG has also advised that the use of the standard is expected to be a requirement for all parties under the next set of Commonwealth-State agreements. While it is not possible for the application of the standard to eliminate cost overruns,29 its promulgation, together with the associated training for DITRDLG staff, are positive developments. However, the cost estimation standard also observed that, given past non-compliance with estimating procedures within State agencies, compliance with the procedures outlined in the standard would be an ongoing issue. Accordingly, it will be important that DITRDLG take steps to be assured that the standard is being adhered to and that decision-makers receive clear advice on the level of confidence attaching to project estimates.
The Bilateral Agreements specify, for each State, the total amount the Australian Government would make available for projects in that State in the five years from 2004–05 to 2008–09. The maturity of projects included in the Bilateral Agreements varied. However, this situation was not reflected in the Agreements.30
Compared to the expected delivery timeframe at the time Australian Government approval for a project was first provided, there have been significant delays in the delivery of some major projects. Some of the factors that have contributed to this result have been:
- as part of approving a project for delivery, a project is required to comply with the Australian Government and relevant State's planning, environment and heritage legislation. The requirement to abide by this legislation has implications for timing and costs of projects. Accordingly, in these circumstances, it can be difficult to accelerate spending on the construction of land transport infrastructure without making compromises in other aspects of project delivery; and
- planning and detailed project development may not be undertaken until Australian Government funds are committed for delivery of the project. This in turn impacts on the ability to accelerate delivery of projects where planning works have not been previously completed.
Project timeframes were also impacted by the AusLink Act requirement that a State which is a funding recipient use a public tender process for AusLink National Network projects, unless they have obtained an exemption from the Australian Government. ANAO identified non-compliance with the tendering requirements in relation to planning, design and other preconstruction (including geotechnical, environmental studies and Aboriginal heritage) professional service contracts. Non-conformance to the tendering requirements differed between jurisdictions.31 Long-standing issues were also identified where initial contracts were competitively let for a certain scope of work but significantly varied. In most instances construction works were tendered or an exemption from calling public tenders was sought from the Federal Minister.32
Project delivery strategies
Construction projects can be delivered in a number of different ways, with the various delivery methods affecting the exposure of each party to risk. DITRDLG has advised ANAO that, whilst it has an interest in understanding the delivery method of the States, ultimately the States are responsible for choosing an appropriate delivery method and ensuring this is consistent with their obligations to the Australian Government. The choice of delivery method can take into account a range of factors including the state of the market, the type of project and the extent to which private sector partnering may be an important component of delivery. In addition, as a provider of significant amounts of funding for construction projects on the AusLink National Network, decisions made by the Australian Government, particularly in relation to funding of specific projects and the associated timing of payments can influence the choice of delivery method by the States.
In circumstances where projects were approved for Australian Government funding with limited prior consultation with the States, and before the necessary planning and preconstruction work had been completed such that a robust estimate and delivery timeframe had not been established, the capping of the Australian Government contribution has encouraged project delivery agencies to examine opportunities to minimise their own risk of cost overruns; this, in turn, may result in project scope reductions. In addition, where capping of costs has been combined with specification of a tight delivery timeframe, the project delivery options available to the States are narrowed, which for some of the sampled projects was a significant factor in the States deciding to use project alliances.
A key part of a successful alliance contracting arrangement relates to the scoping of the project and the setting of agreed targets. This ‘project definition phase' provides a key input to the alliance financial arrangements. Depending on the extent of DITRDLG's involvement, the negotiation process can make decisions on factors, such as the project scope, less transparent to the Australian Government than traditional contracting methodologies.33 For the projects examined by ANAO, DITRDLG's level of involvement in the development and finalisation of the alliance arrangements so as to protect the Australian Government's interest, varied.
Accelerated spending on National Network projects (Chapters 4 and 5)
To date, there has been two occasions in which spending on National Network projects has been accelerated above levels previously agreed with the States:
- to assist reduce a higher than expected Budget surplus, in June 2006 $1.82 billion was paid to five States and the Northern Territory to accelerate work on parts of the National Network with a specified completion date by 31 December 2009; and
- projects identified as election commitments.
The limited prior consultation with the States before funding decisions were made in relation to 2004 election commitments for certain projects and the accelerated funding provided in June 2006 meant that the necessary planning and preconstruction work had not been completed and also made it difficult for work to be scheduled by the States. This situation, together with the specification of challenging delivery timeframes as a condition to the provision of Australian Government funding can lead to higher project and program costs because of the ability of States to schedule work whilst having regard to the prevailing market environment and works already underway or committed. One flow-on effect can be requests for additional Australian Government funding.34
The National Guidelines advocate that all proposed projects, including those identified through political processes, should be subject to the same appraisal process35 and that appraised proposals should be prioritised to develop a forward program of preferred initiatives through a transparent process that is founded on sound economic and business investment principles (whilst recognising that Ministers will have the final say over the initiatives to be included in any program or works).36
Source: Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 2—Strategic transport planning and development, December 2006, p. 54.
The process through which ‘fast-tracked' funding for certain National Network road projects was progressed departed from that set out in the National Guidelines and the Notes on Administration. Specifically, after the Phase 4 (‘Identification of infrastructure and non-infrastructure initiatives') decision had been made, Phase 5 (‘Appraisal and Business Case') and Phase 6 (‘Initiative prioritisation and program development') were bypassed (see Figure 1 earlier).
As noted above, historically, DITRDLG and the States have had difficulties in estimating the cost of land transport construction projects. It is generally recognised that costs are not able to be identified with any precision until after planning and scoping work has been undertaken. In circumstances where decisions may be taken to accelerate funding in a short period of time (such as in the light of better than expected Budget outcomes and election commitments with near-term horizons) it is commonly the case that planning and preconstruction work has not been completed, adding to the risk of time and cost blow-outs. This was the case for each of the accelerated projects examined by ANAO as part of this audit.
Improving the National Network program (Chapter 4)
The $1.82 billion AusLink Improving the National Network administered program was announced in the context of the Portfolio Supplementary Additional Estimates Statements for 2005–06.37 As noted earlier, the program involved June 2006 payments to five States and the Northern Territory to accelerate work on parts of the National Network with a specified completion date by 31 December 2009.
While the AusLink White Paper identified the first five-year program of works, the selection of projects to be funded under the Improving the AusLink National Network program did not originate through the corridor strategy development process foreshadowed in the White Paper, or otherwise in consultation with the States and Territories and other stakeholders.38 Instead, the selection of projects was informed solely by advice from Australian Government agencies, in the context of Ministers seeking advice to assist to reduce higher than expected Budget surpluses.39
DITRDLG has advised ANAO that the then Government's aim under the Improving the National Network Program was to provide advance payment by 30 June 2006 to States. As indicated above, the then Government wanted payments made by 30 June so as to assist reduce a higher than expected Budget surplus and, accordingly, phased approval and linking payment to project needs was not an option. Against this background two key factors in the funding offers for the accelerated projects was that works be commenced early with completion by the end of 2009, and that the States bear the risk of cost overruns. However, there were two responses available to the States to mitigate the risk of cost increases, namely:
- ensuring that there was a broad description of the works being funded in the MoUs and Project Approval Instruments, therefore providing opportunities for the scope or standard of the work to be adjusted to maintain costs within the approved funding; and
- Including sufficient contingencies in cost estimates for the projects to be delivered.
In each of the three accelerated project packages examined by ANAO (covering three States), the accelerated approval of Australian Government funding enabled work to be undertaken earlier than would have otherwise been the case. Nevertheless, the limited prior consultation with the States and payment of funds before a robust estimate and delivery timeframe had been established40 also makes it more difficult for State delivery agencies to optimise the planning and scheduling of new works projects and to manage cash flows, with consequential risks arising in relation to:
- decision-makers not being provided with information on the uncertainty that is inherent in project estimates for ‘fast track' projects,41 creating unrealistic expectations concerning the delivery timeframe and cost;
- projects being broadly described in the MoU signed with each State and the related Project Approval Instruments, which provided opportunities for the scope and/or standard of the work to be adjusted to maintain costs within the amount of Australian Government funding that had been announced; and/or
- the available options for delivering major packages of works being reduced to project alliances and similar approaches—as outlined earlier, under project alliancing decisions on factors such as the project scope can be less transparent to the Australian Government than traditional contracting methodologies.
Projects identified as election commitments (Chapter 5)
During election campaigns, Ministers and other government and non-government candidates announce party election policies and commitments. Except where a Minister with the necessary authority has approved spending for the relevant project prior to the commencement of the caretaker period, party election policies and other election commitments announced during an election campaign represent political undertakings to provide certain funding, services or facilities in the event the relevant party is elected or re-elected to government.42
The financial framework requires that any decision by a Minister or authorised official to approve the expenditure of public money to satisfy an election commitment following an election must be undertaken in a manner that considers whether the proposed expenditure represents efficient and effective use of public money.43 An important role for the department in putting election commitment projects forward for funding approval following an election is to ensure Ministers are appropriately informed as to the nature of the project and whether it is likely to make efficient and effective use of the public money. This assists Ministers in carrying out their statutory obligations in respect to approving the expenditure of public money.44
Costing of election commitments
To enable the electorate to be better informed of the financial implications of election commitments, the Charter of Budget Honesty Act includes provisions for the costing by the Department of Finance and Deregulation (Finance) of commitments affecting outlays and expenses. The main purpose of these provisions is to provide public confidence in costings by having independent parties undertake them.45 However, it is up to the Government and the Opposition to decide which, if any, policies will be submitted for costing, and when. In this respect:
- none of the ALP's land transport funding announcements in the 2004 or 2007 Elections were submitted to Finance for costing; and
- of the five (of eight) 2007 Coalition land transport policies that were submitted for costing, Finance did not complete a costing of any of the policies that had been submitted. This was because additional information requested46 from the Coalition was not received for four of the policies and, for the final policy submitted for costing, the late stage at which it was submitted.
Accordingly, it was only in respect to the Coalition's 2004 land transport election commitments where Finance completed its costing work. Finance's costing was premised on an assumption that the commitments were to an absolute value of funding. However, this assumption was inconsistent with the nature of many of the commitments (some were to fully fund certain works with others involving an undertaking to fund a share of actual project costs). Because of the preliminary nature of the cost estimates underlying some of these commitments combined with increasing construction costs (a direct risk to the Australian Government where it is either fully funding a project, or contributing a share of actual costs) the amount of AusLink funding approved to meet the new funding commitments from the 2004 Election was $288 million higher than the $274 million in new commitments that had been announced. Delays have also occurred with the delivery of works, reflecting the limited planning that had been undertaken prior to the project being announced as an election commitment—an issue not addressed in Finance's costing.47
In the context of Operation Sunlight, the Government is undertaking a review of the Charter of Budget Honesty Act.48 In March 2009, Finance advised ANAO that the review was at a formative stage and options to increase the likelihood of policies being submitted for costing will be considered by Government upon its completion. There would also be benefit in Finance giving consideration to an expansion of its published guidance on the information normally required for a costing to reduce the likelihood that costings are delayed (and, potentially, not completed) due to insufficient information being submitted with the original costing request. On this issue, Finance advised ANAO that expanding the guidelines required detailed consideration and that this would occur in the review of the Charter of Budget Honesty that is underway.
ANAO's audit sample included two of the six new projects to which funding had been committed by the Coalition in the 2004 Election, and a further project which involved funding being brought forward for earlier construction. In each instance, the respective State moved quickly to give effect to the election commitment, however:
- in each instance, the amount announced as the election commitment was based on early estimates of project costs that were not prepared in ‘dollars of the day' and would therefore inevitably become higher on an outturn cost basis (that is, once the estimate of the project at current prices includes estimated cost escalation for the period up to the physical completion of the works within a specified program). Subsequent planning work led to significantly higher project costs being estimated. As a result, in order for works to proceed, the amount of Australian Government funding being provided to each project is now substantially higher than that announced as the election commitment;
- there have also been delays in the delivery of one project (which further increased costs). Whilst the election commitment to bring forward the timing of funds for this project so as to accelerate works succeeded in initiating the tendering process and preconstruction activities, construction was unable to commence due to the need to meet planning consent requirements.
Similar to the 2004 election commitment projects, typical features of many of the 2007 election commitment projects were that the project was at a concept or preliminary planning stage49 and reliable outturn estimates of the project cost had not yet been prepared (as planning and scoping activities had not yet been sufficiently progressed). It is generally recognised that, in these circumstances, the risk of time and cost blow-outs is increased.
At the time of the audit, DITRDLG advised ANAO that 2007 election commitments were being progressed as follows:
- Ministerial announcements concerning projects made in the 2008–09 Budget reflected a set of estimates and a statement of the Government's intent to fund the projects. These announcements were a precursor for the provision of information by the States to DITRDLG to enable the consideration of the project against relevant legislative requirements;
- project approval will occur at the time the Minister approves a project under the terms of the AusLink Act, at which time significant information50 is required to have been examined by DITRDLG so as to enable the assessment of the project against the requirements of the AusLink Act and the Financial Management and Accountability Regulations 1997; and
- early commencement of a number of election commitment projects has been provided for on the basis of the readiness of the States to commence the projects, and where the potential risk exposure to the Australian Government could be limited. A number of these ‘Early Start' projects were still at the development stage and are subject to the normal statutory requirements before DITRDLG provides advice to the Minister in relation to the necessary statutory approvals.
The staged decision-making framework for the 2007 election commitments is consistent with the National Guidelines and the Notes on Administration. The approach is also consistent with the principles of Ministerial discretion in deciding whether, and to what extent, they should approve funding for projects announced as election commitments, and Ministers' obligations under the financial framework to only approve funding after making reasonable inquiries that have satisfied themselves that the proposed expenditure represents efficient and effective use of public money.
In February 2009, DITRDLG advised ANAO that election commitment projects are required to meet all the eligibility and appropriateness tests as all other projects funded under the AusLink Act unless there is a Government policy decision to treat a project a specific way such as advanced funding. However, program administration has not adopted a consistent approach to requiring a Project Proposal Report (which is to include the proposed project scope, the estimated project cost and issues impacting on project risk) to be prepared—for some projects they were prepared for each approval stage by the relevant State, for others DITRDLG did not seek them. There would be benefit in the AusLink Investment Program: National Projects Notes on Administration being amended to address the truncation of approval stages and possibility of advance funding (and related risk management strategies) that are to be applied to projects such as those announced as an election commitment in 2007. Risks to program outcomes can be increased where agencies do not document and apply sound procedures to assess projects announced as election commitments, and/or do not effectively administer any funding that might be approved.
Program and project evaluation (Chapter 6)
Program monitoring and review is a fundamental element of sound governance and quality management.51 It supports ongoing assessment of progress and risks and informs decisions about whether program objectives are achievable, or whether the program's scope, timing or resourcing need to be reviewed.52
Consistent with these general principles, the final phase of the Framework promulgated by the National Guidelines (referred to as ‘performance review') is to involve assessing the ex-post efficiency and effectiveness of decisions, planning and implementation processes, and transport system performance.53 Post-completion evaluation of individual projects, or of entire programs, is expected to provide lessons from past experience that could lead to improvements in future capital investment decisions.54
One of the significant changes proposed to be made under the AusLink planning and administration framework compared to the predecessor land transport program was to involve the adoption of a comprehensive evaluation framework that would help improve the efficiency and effectiveness of program outcomes and delivery.55 The AusLink White Paper had envisaged that evaluation of completed projects would be directed at achieving continuous improvement in project assessment, decision-making and implementation, and that they would reinforce the need for project proponents to be rigorous in their estimation of both benefits and costs in the economic assessments undertaken at the project proposal stage.56
Substantive work on the AusLink evaluation framework commenced in late 2005, some 18 months after the White Paper was issued. Specifically, in November 2005 DITRDLG decided to appoint consultants to develop the AusLink evaluation framework. The consultants provided the final report to DITRDLG in July 2006.
In a subsequent review of AusLink undertaken for the then Government, finalised by DITRDLG in October 2006, implementation of the AusLink Evaluation Framework was identified as a major priority for the next two years. At that time, the then Minister for Transport and Regional Services was advised by DITRDLG that evaluations of the various components of AusLink and the business processes that support them would commence in 2007, and that this would facilitate periodic review of AusLink policy to ensure AusLink outcomes and processes are effective and appropriately focused. However, there has been considerable slippage in the implementation of the evaluation framework. DITRDLG has advised ANAO that timing of evaluation activities was delayed due to the November 2007 Federal election and the need to establish and implement the priorities of the new Government. Of particular importance has been the absence of evaluations of completed projects.
Ex-post project evaluations
The Bilateral Agreements outlined a process for the use of project-specific performance indicators so as to enable the regular measurement of achievement of the AusLink objectives. The final report of the AusLink evaluation framework consultancy envisaged that post-opening evaluations undertaken six to 18 months after opening of the project to traffic would comprise the majority of project evaluations. The report of the consultants engaged by DITRDLG proposed that post-project evaluations would be ongoing from July 2006. The consultants' final report further noted that, in addition to the results of individual project evaluations, further insights can often be gained by grouping project results and identifying common trends or errors.
As of September 2008, there were 43 National Network projects that had been completed since August 2006 and had been open to traffic for at least six months. However, DITRDLG records examined by ANAO did not identify that any of the 43 projects (across six States) had been subject to a post-opening evaluation.57 In addition, where project evaluations were undertaken by the States, DITRDLG did not obtain copies for its information and consideration.58
In February 2009, DITRDLG advised that a program of post-project reviews of 30 projects that had been completed by December 2007 (15 projects with a cost greater than $20 million, and 15 smaller projects) was underway with the final report expected in June 2009. In addition, DITRDLG has advised ANAO that improvements to its business processes will include:
- a draft project assessment checklist to ensure that all aspects of assessment are considered by staff before submissions to the Minister are prepared; and
- a template letter to the States advising of project approvals has been prepared to ensure that at the conclusion of a project a completion report is provided to the department summarising performance against scope, schedules, budget and quality. It is expected that the report will also articulate lessons learnt and any opportunities for improvement in current practices including organisational strategies, business processes, project planning and delivery.
Summary of agency responses
A copy of the proposed report was provided to DITRDLG, Finance, the Department of the Prime Minister and Cabinet, and Infrastructure Australia. Extracts of the proposed report were also provided to the three State road transport authorities included in the audit, namely, the NSW Roads and Traffic Authority (RTA), Queensland Department of Main Roads (QDMR), and the Tasmanian Department of Infrastructure, Energy and Resources (DIER).
DITRDLG, Finance and Infrastructure Australia provided formal comments on the audit report. These are reflected in Appendix 1 to the report. Comments were also received from State road authorities, and are contained in Appendix 2 to the report. Summary comments received from Commonwealth entities were as follows:
The department agrees to the ANAO Report's four Recommendations and will put in place strategies for their implementation. The department is committed to continuously improving administration of the Government's land transport infrastructure investment program and notes the recognition in the ANAO's Report of the significant administrative improvements put in place by the department over the past eighteen months.
Finance supports the general tenor of the report. Finance also supports the report's four recommendations. Nevertheless, the report could have better addressed the issue of election costings, particularly in regard to developments, such as clarification of the scope of work, which often occur subsequent to an election.
Finance considers that the report does not make sufficiently clear that costed election commitments are usually further considered after an election, for example, in the light of refined policy options or new proposals. This subsequent consideration may result in a revised scope of the proposals originating from election commitments and this may result in higher levels of expenditure. If such factors are not considered, incorrect inferences may be made about the precision of the costings provided under the Charter of Budget Honesty.
The points made in respect of the need to consider the provision of further advice in The Charter of Budget Honesty, Costing of Election Commitments, Guidelines to facilitate the costing process are valid and will be considered in the review of the Charter of Budget Honesty.
It is the case that election commitments are usually considered after an election, as indicated by Finance, and reflected in the audit report. The audit report also draws attention to Finance's role in independently costing election commitments prior to polling day, as the Charter of Budget Honesty intends that these costings are to assist the electorate be better informed about the financial implications of election commitments. For Finance's costings, the issue raised by the audit report does not relate to any clarifications or scope changes that may occur after the election, but to opportunities for Finance to improve its pre-election costing analysis. In this respect, the report recognises that additional information was sought by Finance so as to better inform its costing of 2007 election commitments (compared to the approach taken for the 2004 costings).
Infrastructure Australia provided comments in relation to its own processes as well as noting a number of comments in light of the ANAO report. The latter are reproduced below, with Infrastructure Australia's full response in Appendix 1.
There is of course an important read-across between projects being funded by AusLink and projects proposed to Infrastructure Australia.
This read across is two-fold. First, from a transport planning perspective, to understand the case for certain projects we need to understand the associated AusLink investments and the impact on demand. Second, in a number of cases, States and Territories have requested support from Infrastructure Australia (and therefore the Building Australia Fund) for projects for which AusLink funding has either been committed or requested.
However, as Infrastructure Co-ordinator, I do not have a role in the selection or delivery of AusLink projects .…
Your letter notes that Infrastructure Australia's 2008 report to COAG identifies four weaknesses in submissions, and discusses various reasons for those weaknesses.
I do not believe that the reason that many of the analytical steps were missing from submissions can be explained by the nature or basis of the submissions process or the timetable
First, it is entirely appropriate that different project proposals are at different stages of development. In some cases, projects will be "ready to go". In other cases, projects will be at the conceptual stage. Many more will be somewhere along the spectrum between these two points. Therefore variation in the depth and thoroughness of submissions is to be expected.
Second, the comments in the 2008 report relate to the quality of some submissions that proponents believed were ready for decision. I do not believe that the basis on which submissions were called nor the timeframe is an explanation. Whilst the original call for submissions was outside the control of Infrastructure Australia (as the call predated its inception), Infrastructure Australia moved quickly to publicise its framework and its methodology, giving proponents many months to meet our needs.
We engaged regularly with proponents, who had many opportunities to submit more information to Infrastructure Australia over a period of nearly 9 months.
Third—and perhaps more significantly—our process is not radically innovative in substance. The fundamental elements have long been central to good infrastructure policymaking. In short, all proponents should already have been going through the various analytical steps in the course of normal decision making.
Your letter also suggests that variable State or Territory planning processes, and issues of capacity, may be responsible for the weaknesses in submissions. I believe both to be true in some cases. One of the very positive roles Infrastructure Australia can play is to help States and Territories to improve their planning processes and to assist with capacity issues. Again, though, neither explanation suffices: good planning and sufficient capacity is crucial to good infrastructure policy, regardless of Infrastructure Australia's requirements.
Infrastructure Australia was set up to improve the quality of infrastructure planning and investment strategy in Australia. Perhaps we should not therefore be surprised that some of the submissions we received contained weaknesses. A number of explanations can be provided for those weaknesses. Ultimately, I believe it comes down to a simple choice. We can continue to take decisions on large infrastructure projects based on poor planning and insufficient evidence—or we can take those decisions following careful planning and rigorous assessments.
All the members of the Infrastructure Australia Council are committed to the latter approach. We will continue to implement that approach in our own processes; and we will continue to help the Commonwealth, States, Territories and other bodies to implement the approach in their own processes.
1 The Hon. John Anderson MP, Deputy Prime Minister and Minister for Transport and Regional Services and Senator the Hon. Ian Campbell, Minister for Local Government, Territories and Roads, AusLink White Paper, June 2004, pp. x.
2 Section 5 of the AusLink Act specifies the network as the 'AusLink National Land Transport Network'. Throughout the report the term AusLink National Network and the term AusLink National Land Transport Network are used interchangeably.
3 They also included 85 continuing projects, with an aggregate Australian Government contribution of $1.9 billion.
4 DITRDLG advised the Senate Rural and Regional Affairs and Transport Committee (during the May 2008 Estimates Hearings) that National Network funding for the AusLink 2 period had been fully committed to projects on the basis of 2007 Election Commitments. On 5 February 2009, the Council of Australian Governments announced that the States had agreed to finalise by 1 March 2009 National Partnership Agreements for the Program that was formerly known as AusLink, within the Commonwealth's existing funding envelope. Additional funding of $150 million in 2008–09 to help the States fund additional regional road maintenance projects was conditional on the National Partnership Agreements being signed.
5 The projects to be funded under AusLink 2 are expected to be a combination of projects not finished in the first five years and those announced by the ALP during 2007 prior to the November 2007 Federal Election. At the time the audit was being completed, agreements with the States to cover the second five year period were being negotiated.
6 ANAO, Planned Audit Work Programme 2007–2008, July 2007, p. 106.
7 Consistent with the AusLink (National Land Transport) Act 2005, the term ‘State' used throughout this report includes the Australian Capital Territory and the Northern Territory.
8 The State selection provided audit coverage of 65 per cent of the AusLink National Network funding for the period 2004–05 to 2008–09.
9 Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 1—Introduction to the Guidelines and Framework, December 2006, p. 11.
10 Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 1—Introduction to the Guidelines and Framework, December 2006, p. 11. The AusLink Investment Program: National Projects Notes on Administration (March 2006, updated in November 2006), reiterate this expectation. Specifically, the Notes explain that the Government has committed to progressively adopt a nationally consistent project appraisal methodology drawing upon the National Guidelines. Further, Project Proposal Reports (PPRs) and supplementary information requirements set out in the Notes on Administration (when updated in November 2006) were prepared in line with the National Guidelines methodology.
11 While the National Guidelines were not in place when projects were identified in the AusLink White Paper, the Notes on Administration explained that a funding recipient must submit a PPR for each project prior to funds being approved for that project. As noted earlier, information required by the Notes on Administration to be provided in a PPR for appraisal and, subsequent funding approval, was prepared in accordance with the National Guidelines methodology.
12 The staged appraisal process outlined in the National Guidelines is reiterated in the Notes on Administration.
13 Mike Nichols, Chairman & Chief Executive of The Nichols Group, Report to Secretary of State for Transport: Review of Highways Agency's Major Roads Programme, March 2007, p. 10.
14 Nation Building: Rail, Road, Education & Research and Business, Statement by the Honourable Kevin Rudd MP, Prime Minister, the Honourable Julia Gillard MP, Deputy Prime Minister and Minister for Education, Employment, Workplace Relations and Social Inclusion, the Honourable Wayne Swan MP, Treasurer and the Honourable Anthony Albanese MP, Minister for Infrastructure, Transport, Regional Development and Local Government, 12 December 2008, p. 3.
15 Nation Building: Rail, Road, Education & Research and Business, Statement by the Honourable Kevin Rudd MP, Prime Minister, the Honourable Julia Gillard MP, Deputy Prime Minister and Minister for Education, Employment, Workplace Relations and Social Inclusion, the Honourable Wayne Swan MP, Treasurer and the Honourable Anthony Albanese MP, Minister for Infrastructure, Transport, Regional Development and Local Government, 12 December 2008, p. 3.
16 Of these 12 projects, six were included in the list of ‘Early Start' projects approved in April 2008. In most instances, the ‘Early Start' funding had been approved for necessary planning work in advance of a decision being made as to whether construction funding would be provided, whereas the December 2008 announcement involved the commitment of funds to accelerate construction works.
17 At the time of audit fieldwork, two projects in the audit sample were not proceeding to construction, namely:
- funding to construct the F3 Freeway to Branxton project in NSW was not approved as a result of a significant increase in the project estimate. The project was included in the Bilateral Agreement with an estimated cost of $382 million. The estimated cost for the project was increased to $765 million (2005 dollars) in May 2005 and to $1200 million (2007 dollars) in July 2007. The F3 to Branxton link was included in Infrastructure Australia's December 2008 list of 94 infrastructure proposals for prioritisation provided to the Council of Australian Governments with an approximate capital cost of $1.1727 billion (in 2008 dollars); and
- rather than continue the planning and preconstruction work on the previous Government's $2.2 billion project known as the Goodna Bypass in South East Queensland, in the 2007 Federal election the ALP committed $1.1 billion to the Ipswich Motorway Upgrade between Dinmore and Goodna.
18 For further details, see Table 3.1 in the body of the report.
19 See paragraph 6.28 in the body of the report.
20 Infrastructure Australia does not have a role in the selection or delivery of AusLink projects.
21 Infrastructure Australia, A Report to the Council of Australian Governments, December 2008, p. 77.
22 The transitional arrangements put in place through the AusLink (National Land Transport – Consequential and Transitional Provisions) Act 2005 (Transitional Act) included making provision for projects that had been approved under the ALTD Act to be treated as if they had been approved under, and to therefore be administered under, the AusLink Act. The Transitional Act also amended the ALTD Act to provide that no new approvals of projects or programs under the ALTD Act were to be given by the Minister on or after 28 July 2005 (being the commencement date of Parts 3 to 8 of the AusLink Act).
23 This means, for example, that States have no legal entitlement to Australian Government funding for a project until the project and the funding amount have been reflected in a Project Approval Instrument under the AusLink Act.
24 In this respect, whilst the Act permits funding agreements to be used for projects being delivered by the States or a local government authority, it does not require funding agreements to be used.
25The AusLink Notes on Administration reinforce the mandatory conditions set out in the AusLink Act. They also provide additional requirements for funding recipients in terms of the administration of AusLink National Projects, including in relation to reporting and accountability requirements. The 2005–06 AusLink Annual Report stated that the AusLink Notes include instructions for assessing projects, the conditions of approval, tendering arrangements and contract specifications and the system of payments. They also cover audit and programme evaluation issues to ensure taxpayers get value for money in the delivery of projects. (Source AusLink Annual Report 2005–06, DITRDLG, April 2007.)
26 Some of the understatements were substantial in monetary terms. For example, in the F3 Freeway to Branxton project, the RTA's most recent project estimate at the time the White Paper was finalised was $577 million (in 2003 dollars). The RTA's estimate of project costs was increased in May 2005 to $765 million (in 2005 dollars based on detailed engineering and environmental information). However, the Bilateral Agreement signed four months later with NSW (on 29 September 2005) included an estimated project cost of $382 million (which was a 2001 concept estimate adjusted to 2003 dollars). As a result, the then-current estimate of costs was $383 million higher (or more than double) the amount included in the Bilateral Agreement.
27Two of the three projects involved a package/program of works that enabled some flexibility and cost changes to be absorbed.
28 Minister for Transport and Regional Services, The Hon Mark Vaile MP, Speech: A Strong Plan For Queensland's Roads And Railways, VS15/2007, 19 July 2007.
29 The cost estimation standard recommended that both P50 and P90 estimates (or their equivalent) be provided in any submission for Australian Government funding. This means that, even where there has been sound project management and cost planning, it is probable that the overall estimate will be exceeded:
• for half of all projects where a P50 estimate is used; and
• for one out of ten projects where a P90 estimate is used.
30 Whilst the Bilateral Agreement made a distinction between a continuing project and a new project, this distinction did not necessarily relate to the level of development of the project (for example whether it was at a concept planning stage or whether design work had been substantially completed such that preconstruction work could begin), rather the distinction related to whether there was an existing commitment to fund the project as opposed to a new funding commitment.
31 For example, in Queensland non-conformance appeared to be driven more by the capacity of local consultants to undertake the high level of work underway, whereas in NSW, tendering requirements were being circumvented due to timing pressures.
32 In January 2008, one project in the audit sample (Molong HML bridge project) was planning to proceed to construction without having an exemption provided by the Minister. An exemption was sought by RTA in April 2008 yet it was not until 26 February 2009 when the exemption was provided.
33 Reductions in project scope so as to constrain initial construction costs can increase total maintenance costs for the Network and/or require further construction work to be undertaken sooner.
34 For example, due to a clash of tender closing dates with a large State-funded contract, the closing date for tenders on the Hume Highway—Coolac Bypass project (NSW) was extended. Of the six pre-qualified companies available to tender, three companies declined to tender because of resourcing issues. Further, the tender prices substantially exceeded the budget provisions in the cost estimate having been received by RTA at a time when tender prices in the construction industry were increasing well in excess of the general rate of inflation. As a result, an increase in project funding from $116.5 million to $141.3 million was sought by the RTA.
35 In relation to the accelerated funding of the Bruce Highway Tully floodworks, QDMR advised ANAO on 28 July 2008 that ‘QDMR had submitted a PPR and Stage 2 variation request but the approval process was overtaken with the announcement of the full funding for the project.'
36 Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 1—Introduction to the Guidelines and Framework, December 2006, pp. 18–20.
37 DITRDLG, Annual Report 2005–06, p. 79. These funds were part of $2.4 billion in AusLink funding paid by DITRDLG in June 2006. The other two elements were: $270 million to the Australian Rail Track Corporation (ARTC); and $307.5 million in supplementary funding paid under the Roads to Recovery Program.
38 While the AusLink White Paper stated the then Government's objective to duplicate the Hume Highway by 2012 (page 38); in partnership with the NSW Government, to duplicate the Pacific Highway by 2016 (page 36); and to extend the duplication of the Bruce Highway past Gympie by 2020 (page 45), only certain projects were specifically identified.
39 See, in this respect, ANAO Audit Report No.22 2007–08, Administration of Grants to the Australian Rail Track Corporation, 14 February 2008, p. 16.
40 In this respect, a recent report on scoping practices in Australian construction and infrastructure projects observed that the consequences from project scoping inadequacies are substantial, with survey respondents (36 per cent of whom were from the road or rail sectors) reporting cost overruns, delayed completion and disputes. The report commented that: ‘Project timetables occasionally are driven or determined in light of political imperatives or commercial factors, which are not necessarily linked or assessed for the overall smooth running of the project. Such factors can arise in either the public or private sectors. Project delivery timetables should be determined with realistic time periods based predominantly on the project demands and requirements, and not influenced unnecessarily by external factors.' Source: Blake Dawson, Australian Constructors Association and Infrastructure Partnerships Australia, Scope for Improvement 2008: A report on scoping practices in Australian construction and infrastructure projects, 2008, pp. 7 and 24.
41 For example, this can result from factors such as a lack of clarity regarding the project scope, design and/or delivery timeframe.
42 ANAO Audit Report No.14 2007–08, The Regional Partnerships Programme, Canberra, 15 November 2007, Volume 2—Main Report, p. 139.
43 ANAO Audit Report No.14 2007–08, The Regional Partnerships Programme, Canberra, 15 November 2007, Volume 1—Summary and Recommendations, p. 56.
45 Parliamentary Library, Charter of Budget Honesty: Pre election Provisions, Research Paper 10 of
2001–02, 25 September 2001.
46 In March 2009, Finance advised ANAO that it had created a spreadsheet that was used to track 2007 Coalition land transport funding commitments and outlined expenditure profiles for these commitments where these existed. This spreadsheet, as well as Finance's knowledge of the existing estimates, was the basis for seeking, and framing, questions for further information to undertake the costing. Finance considered that there was no need for further analytical work to be undertaken given the lack of supporting information on the 2007 Coalition land transport funding commitments.
47 In this respect, the cost estimation standard (Best Practice Cost Estimation for Public Funded Road and Rail Construction) referred to earlier notes that outturn estimates, when prepared in an early phase of a project that may not be implemented for several years, are significantly influenced by the cost escalation component such that any changes to the implementation program or fluctuation in annual escalation rates can significantly alter an outturn estimate.
48 ANAO's Planned Audit Work Programme for 2008–09 includes a proposed audit of the administration of the costing of election commitments by the Department of the Treasury (in respect to policies affecting revenue) and Finance (in respect to polices affecting outlays and expenses). The proposed audit would assess the effectiveness of the costing of elections commitments under the Charter of Budget Honesty, with particular reference to the caretaker period for the 2007 general election. The audit will not commence until the results of the review of the Charter of Budget Honesty Act are known.
49 The Notes on Administration provide that, except for small or straightforward projects, funding will not be approved for construction until the project has been scoped and detailed planning and design has been completed.
50 For example, the first stage of information gathering by DITRDLG for assessment purposes occurred in March 2008 when State transport agencies were requested to provide DITRDLG with ‘project concepts' for the identified election commitment projects and any others that reflect Government commitments on which activity could commence in 2007–08 or 2008–09. DITRDLG asked that the ‘project concepts':
- address the information requirements set out in the AusLink Notes on Administration for the Strategic Merit Test;
- include a best cost estimate (both in current dollars and outturn dollars), with the stage of estimation and risks clearly identified. In addition, a contingency was to be included in the estimate that was commensurate with all risk factors so that there would be a high degree of confidence that the risk estimate would not be exceeded;
- provide a cash flow for the project reflecting the announced Australian Government contribution and State/Territory contributions (where the Australian Government contribution is capped or represents a share of the cost) as well as a benefit cost analysis; and
- advise on the stage of development of the project, including when construction work is likely to commence.
51 Department of the Prime Minister and Cabinet and ANAO, Implementation of Programme and Policy Initiatives: Making implementation matter, Better Practice Guide, Canberra, October 2006, p. 52.
52 Department of the Prime Minister and Cabinet and ANAO, Implementation of Programme and Policy Initiatives: Making implementation matter, Better Practice Guide, Canberra, October 2006, p. 52.
53 Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 1—Introduction to the Guidelines and Framework, December 2006, p. 20.
54 Australian Transport Council, National Guidelines for Transport System Management in Australia, Volume 3—Appraisal of Initiatives, December 2006, p. 97.
55 In this respect, an April 2001 internal review of the management and administration of roads commissioned by DITRDLG following tabling of ANAO's third audit of the management of the predecessor National Highways Program found that, if a formal evaluation of the department's roads programs had been undertaken within a four to five year cycle, it could have established the existence of a number of administrative and management issues in a timely way and proposed initiatives for their resolution.
56 The Hon. John Anderson MP, Deputy Prime Minister and Minister for Transport and Regional Services and Senator the Hon. Ian Campbell, Minister for Local Government, Territories and Roads, AusLink White Paper, June 2004, p. 120.
57 DITRDLG advised ANAO that the Bureau of Infrastructure, Transport and Regional Economics has been undertaking an ongoing program of ex-post reviews of the economic and social impacts of specific projects under AusLink 1. However, ANAO comparison of the five project locations advised by DITRDLG and those project locations included in the AusLink White Paper and the Bilateral Agreements identified that none of the five projects were approved under AusLink or were considered continuing at the time of introducing AusLink 1.
58 In December 2008, the NSW RTA provided ANAO with evidence of Project Completion Reviews for 37 of its projects (12 of which were projects federally funded in full or part). DITRDLG did not obtain these evaluations (which focus on the two main aspects of delivery and strategy and are conducted shortly after project opening).