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East West Link Project - audit.vic.gov.au · PDF fileEast West Link Project ix Audit summary The East West Link (EWL) was to be an 18 kilometre cross city road connecting the Eastern

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East W

est Link Project

201516:16D

ecemb

er 2015

Level 2435 Collins StreetMelbourne Vic. 3000

Telephone 61 3 8601 7000Facsimile 61 3 8601 7010www.audit.vic.gov.au

Victorian Auditor-Generals Report December 2015 201516:16

East West Link Project

93456 VAGO_East West Link Cover.pdf | Page 1 of 1 93456 VAGO_East West Link Cover.pdf | Page 1 of 1

V I C T O R I A

Victorian Auditor-General

East West Link Project

Ordered to be published

VICTORIAN

GOVERNMENT PRINTER

December 2015

PP No 108, Session 201415

This report is printed on Monza Recycled paper. Monza Recycled is certified Carbon Neutral by The Carbon Reduction Institute (CRI) in accordance with the global Greenhouse Gas Protocol and ISO 14040 framework. The Lifecycle Analysis (LCA) for Monza Recycled is cradle to grave including Scopes 1, 2 and 3. It has FSC Mix Certification combined with 55% recycled content.

ISBN 978 1 925226 39 3

Victorian Auditor-Generals Report East West Link Project iii

The Hon. Bruce Atkinson MLC The Hon. Telmo Languiller MP President Speaker Legislative Council Legislative Assembly Parliament House Parliament House Melbourne Melbourne

Dear Presiding Officers

Under the provisions of section 16AB of the Audit Act 1994, I transmit my report on the audit East West Link Project.

This audit examined whether the state had effectively managed the East West Link (EWL) project by assessing the total costs of the project, appropriateness of advice supporting key project decisions and the lessons for future major projects.

I concluded that the EWL business case did not provide a sound basis for the governments decision to commit to the investment and that key decisions during the project planning, development and procurement phases were driven by an overriding sense of urgency to sign the contract before the November 2014 state election. Over the life of this costly and complex project, advice to government did not always meet the expected standard of being frank and fearless. This highlights a risk to the integrity of public administration that needs to be addressed.

The audit also found that the EWL project was terminated in June 2015 with more than $1.1 billion paid, or expected to be paid, by the state. This cost includes expenditure on the planning, development, procurement and termination of the project and will be partially offset by future proceeds from the sale of properties acquired for the project. The Department of Treasury & Finance (DTF) estimates that these properties can be resold for around $320 million.

The report makes recommendations to DTF to provide guidance for development and delivery of major projects and for the Department of Premier & Cabinet to clarify requirements for frank and fearless advice from the public sector. Disappointingly, these departments have rejected the recommendations.

Yours faithfully

Dr Peter Frost Acting Auditor-General

9 December 2015

Victorian Auditor-Generals Report East West Link Project v

Contents

Auditor-General's comments .................................................................... vii

Audit summary .......................................................................................... ix

Conclusions ..............................................................................................................x

Findings ................................................................................................................... xi

Recommendations ................................................................................................. xvi

Submissions and comments received .................................................................. xvii

1. Background .......................................................................................... 1

1.1 Introduction ..................................................................................................... 1

1.2 Key project events and decisions .................................................................... 3

1.3 Project governance and management ............................................................ 4

1.4 Audit objective and scope ............................................................................... 7

1.5 Audit method and cost .................................................................................... 7

1.6 Structure of the report ..................................................................................... 8

2. Project costs ......................................................................................... 9

2.1 Introduction ................................................................................................... 10

2.2 Conclusion .................................................................................................... 10

2.3 Actual and expected project costs ................................................................ 10

2.4 Project costs if it proceeded .......................................................................... 12

2.5 Monitoring of project costs ............................................................................ 15

3. Planning the project ............................................................................ 19

3.1 Introduction ................................................................................................... 20

3.2 Conclusion .................................................................................................... 20

3.3 Project planning and development timing ..................................................... 20

3.4 The business case ....................................................................................... 22

3.5 Procurement and delivery model .................................................................. 29

3.6 Financial implications at planning stage ........................................................ 29

Contents

vi East West Link Project Victorian Auditor-Generals Report

4. Establishing the project contract .......................................................... 31

4.1 Introduction ................................................................................................... 32

4.2 Conclusion .................................................................................................... 33

4.3 Procurement of Stage 1eastern section .................................................... 33

4.4 Unresolved issues affecting the project......................................................... 37

4.5 Decision to enter the contract ....................................................................... 39

4.6 Executing the project contract ....................................................................... 41

5. Terminating the project ....................................................................... 47

5.1 Introduction ................................................................................................... 48

5.2 Conclusion .................................................................................................... 48

5.3 Decision to terminate the project .................................................................. 48

5.4 Achieving project termination ........................................................................ 51

5.5 Cost certification process ............................................................................. 54

6. Lessons for future projects .................................................................. 57

6.1 Introduction ................................................................................................... 58

6.2 Conclusion .................................................................................................... 59

6.3 Frank and fearless advice ............................................................................. 59

6.4 Transparency of advice and decision-making .............................................. 60

Appendix A. Key features of the project contract ...................................... 65

Appendix B. Termination agreements and costs ....................................... 77

Appendix C. Audit Act 1994 section 16submissions and comments ...... 81

Victorian Auditor-Generals Report East West Link Project vii

Auditor-Generals comments This audit assessed the East West Link (EWL) projectits total costs and the appropriateness of advice supporting key project decisions that influenced the projects outcomes and total costs.

The decisions to proceed with the EWL project and enter into a contract with the preferred consortium were based on flawed advice. The likely net benefits of the project were not sufficiently demonstrated and the failure to properly resolve project risks before entering contracts exposed the state to additional financial risk. It was clear the advice provided to the then government was disproportionately aimed at achieving contract execution prior to the 2014 state election rather than being in the best interests of the project or use of taxpayers money.

There were also shortfalls in terminating the EWL project. Following final settlement of outstanding costs, the state will have incurred in excess of $1.1 billion in costs o