CBD and South East Light Rail Project

Transport for NSW

GPO Box 12

Sydney NSW 2001

The Legislative Assembly

Parliament House

Sydney NSW 2000

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The Legislative Council

Parliament House

Sydney NSW 2000

278

Light Rail Project: Transport for NSW.

Margaret Crawford

Auditor-General

30 November 2016

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audit.nsw.gov.au

1

Contents

Conclusion 2

Key findings 3

Recommendations 4

Context 5

CSELR project at a glance 5

About the audit 8

1. Planning and procurement 9

2. Project scope, costs and benefits 14

3. Probity and due diligence 19

Appendix 1: Response from Transport for NSW 24

Appendix 2: Chronology of CSELR project development 25

Appendix 3: Assurance policies and guidelines 27

Appendix 4: About the audit 32

2

Executive Summary

The Central Business District and South East Light Rail (CSELR) project is a large public transport infrastructure project. Its current estimated capital cost is $2.1 billion in 2014 dollars, excluding finance, operation and maintenance costs.

The project has attracted much public interest and has economic, environmental and social impacts for the State. Chapter 1 sets out the project in detail.

This audit assessed how well Transport for NSW (TfNSW) ensured that planning and procurement for the CSELR project achieved value for money within the parameters set by the NSW Government. These included timeframes for planning, procurement and delivery.

We examined the period from the development of the Sydney Light Rail Strategic Plan, which started in August 2011 and was published in October 2012, through to the finalisation of the major construction contract in February 2015.

Conclusion

The CSELR project suffered many of the same problems we reported for WestConnex, Large construction projects and the Albert Tibby Cotter Walkway at Moore Park.

The established assurance framework provided that TfNSW undertake the assurance reviews of the CSELR project. However, this approach did not provide the independent assurance required for such a major infrastructure project. In addition, the planning and governance arrangements, while approved by the NSW Government, skipped important assurance steps. And tight timeframes meant planning was inadequate and normal governance systems were not initially in place. This contributed to underestimating costs and overestimating benefits.

As a result, between 2011 and 2014, TfNSW did not effectively plan and procure the CSELR project to ensure it maximised value for money for New South Wales.

TfNSW continues to manage problems created because of these shortcomings. Above all, it did not finalise key third party agreements that affected the design and scope of works before issuing tenders and signing the major public private partnership (PPP) contract. This has increased the project's complexity and risks, and reduced value for money.

TfNSW is on track to deliver the CSELR project. But it will come at a higher cost and with lower benefits than expected in the approved business case. The project benefit-to-cost ratio decreased from 2.4 to 1.4 by the time the NSW Government awarded the PPP contract. As this remained a positive result, the project still went ahead.

Our audit found that TfNSW’s due diligence and probity in the procurement process was detailed and met NSW Government requirements.

Since the planning stages, TfNSW improved the project’s governance and assurance framework. It implemented rigorous monthly assessments to monitor risks that may affect the timeframe and budget. There is also stronger external oversight by the CSELR project Advisory Board and Infrastructure NSW. TfNSW advised that it has progressively finalised third party agreements, with one outstanding in October 2016.

More generally, since our reports on WestConnex and Large construction projects, the NSW Government has strengthened assurance processes for infrastructure projects. Infrastructure NSW now independently administers risk-based assurance reviews for capital projects, and advises the NSW Government of any risks so they can be addressed.

From this point, TfNSW should finalise design and scope issues as soon as possible and continue robust monitoring and reporting of the CSELR project. But our more important recommendations centre around the need to apply the lessons learned from the CSELR project to large capital projects in the future.

Key findings

Planning and procurement did not ensure the best value outcome for the State

Between 2011 and 2014, Infrastructure NSW delegated assurance reviews of major transport projects, including the CSELR project, to TfNSW using the TfNSW Investment Gating and Assurance Framework. Despite this delegation being provided for in the assurance framework at the time, this approach did not provide the independent assurance required for such a major project.

TfNSW followed project-specific planning and procurement processes for the CSELR project.

The NSW Government approved these processes because of the project’s significance and to meet its preferred timelines.

However, these processes departed from the Major Project Assurance Framework and TfNSW’s own Investment Gating and Investment System by not requiring a preliminary business case and two early independent gateway assurance reviews.

These systems are designed to provide assurance that projects remain viable throughout their life cycle. They are flexible, but they require agencies to make the case that a government commitment will:

•      be cost-effectively delivered

•     achieve maximum benefits

•      have affordable operating costs.

By departing from the established process, the CSELR project suffered similar problems to those we reported for other infrastructure projects. Common problems include -

1.    tight timeframes without justification,

2.    project scope defined too narrowly,

3.    under-estimated costs; and

4.    over-estimated benefits.

TfNSW pursued tight project timelines for the CSELR project without fully documenting its consideration of the impact on costs, risks and benefits, and it presented a business case with an inadequate economic appraisal.

There were also problems specific to the CSELR project. Internal and external reviews repeatedly drew attention to the need to finalise the project’s design and scope of works. Yet TfNSW did not finalise key third party agreements that would affect the design and scope of works before tendering or before signing the two main contracts. This added to the project’s complexity and risk, and reduced value for money for the State.

TfNSW advised us that:

•     project contingency funds will be sufficient to cover any contract variations

•     such funds have been ‘ring-fenced’ in the project budget • scope changes will be managed effectively within the existing contingency allowance.

Some of the project contingency funds have already been applied to these changes. But contingency funds also need to cover unknown risks that may emerge during construction and delivery. TfNSW will need to closely monitor risks to the project timeframe and budget, with independent oversight by the project’s Advisory Board and Infrastructure NSW.

In November 2013, the project business case summary estimated the CSELR would cost $1.6 billion. At that time, TfNSW still needed to address outstanding issues, such as:

•     fully assessing capital costs

•     ensuring the economic appraisal was realistic

•     negotiating traffic management assumptions with Roads and Maritime Services (RMS)

•     finalising third party agreements.

By the time TfNSW signed the main works PPP contract in December 2014, the capital budget had increased by $549 million to $2.1 billion. Some of this increase was due to scope changes and planning modifications. However, most – $517 million – was caused by mispricing and omissions in the business case.

Similarly, CSELR project benefits decreased from the business case estimate of $4.0 billion to an estimate of $3.0 billion in December 2014. This was mainly due to increases in travel time assumptions flowing from changes in project scope.

These changes meant the benefit-to-cost ratio decreased from 2.4 to 1.4. This was still a positive result and the project went ahead.

Agencies must follow probity and due diligence requirements to show their project procurement is fair and objective. These are set out in NSW Government procurement policies, and in national and state PPP guidelines.

Overall, TfNSW met these requirements for the CSELR project. It adopted a detailed probity framework. An independent probity advisor concluded that TfNSW's evaluation process for selecting the two main contractors was fair and had due regard to probity. TfNSW also applied due diligence to the PPP bidders, consistent with its guidelines for projects of this kind.

At the same time, the early works package should have been included in a key gateway review. The tender evaluation process was comprehensive. However, TfNSW had used incorrect assumptions in the Public Sector Comparator (PSC) benchmark to assess value for money. It is normal practice for the PSC to be updated as a project evolves. TfNSW presented the first PSC calculation with the CSELR project business case. It then updated the PSC on a number of occasions to reflect changes in the project costs and benefits. In October 2014, TfNSW made the final adjustment to the PSC because a key assumption was incorrect.

The incorrect assumption was that management effort and associated contract interface risks would be the same for a traditional delivery model as a PPP.

It is unfortunate that TfNSW discovered the incorrect assumption in the PSC so late in the process, and after tenders for the PPP were evaluated. National PPP guidelines permit the PSC to be adjusted after bids are received in certain circumstances, including where changes to assumptions are required. We note that external reviews found that the PSC update process was consistent with the national PPP guidelines and did not unfairly impact proponents.

We found no evidence that the PPP contract TfNSW entered into will not be delivered. TfNSW included provisions in this contract to mitigate the risk to the NSW Government that the contractor cannot fully deliver against its obligations.

Recommendations

For the CSELR project, Transport 1. for NSW should, by December 2016:

a)     finalise outstanding design and scope issues

b)     ask the project Advisory Board to confirm that controls over the budget and use of contingency funds are consistent with NSW Government decisions and NSW Treasury guidelines

c)     update and consolidate information about project costs and benefits and ensure that it is readily accessible to the public

d)     ensure the Sydney Light Rail Project Director provides six-monthly briefings to the TfNSW Audit and Risk Committee.

2.     For all capital projects, Transport for NSW should comply with the Infrastructure Investor Assurance Framework - updated in Feb 2020.

Introduction

Context

Capital works projects are a major investment and financial risk for the State. The NSW

Government has allocated $41.5 billion over the next four years – more than half of its

infrastructure budget – to transport-related projects. Transport for NSW (TfNSW) will deliver many of these.

Robust planning and procurement are essential to ensure projects deliver public benefits and

achieve value for money. They also underline the importance of learning from past experience

and following best practice guidelines for project planning, procurement, delivery and assurance.

In March 2011, the NSW Government, then in opposition, announced during the election campaign that it wanted to build a light rail system through the CBD. In December 2012, the government chose its preferred route from several options in the Sydney Light Rail Strategic Plan.

TfNSW is responsible for planning, procuring and delivering the Central Business District and

South East Light Rail (CSELR) project. It must also ensure the project is delivered costeffectively

to maximise the benefits within parameters the NSW Government set in 2012.

agencies planned and procured during this period. Our previous reports – WestConnex:

Assurance to the Government (December 2014), Large construction projects: Independent

assurance (May 2015), and Albert ‘Tibby’ Cotter Walkway (September 2015) – informed the context in this report.

CSELR project at a glance

The CSELR project involves constructing a new light rail service that will run from Circular

Quay along George Street to Central Station, through Surry Hills to Moore Park, then to:

Exhibit 1 shows the route for the light rail.

Exhibit 2 captures the main project stages from planning and procurement to construction and delivery.

Source: Transport for NSW 2015.

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Source: Audit Office research 2016.

See Appendix 2 for a detailed chronology of the CSELR project development.

Government

committed to

building light rail in

the CBD along

George Street, and

to feasibility studies

into building light

rail to the University

of NSW and

University of

Sydney.

August: TfNSW

started developing

a Sydney Light Rail

Strategic Plan.

completed the

Strategic Plan,

identifying six

shortlisted routes

along the light rail

corridors announced

in 2011.

December: The

NSW Government

announced its

preferred route

through the CBD to

Randwick and

Kingsford.

November: The

NSW Government

announced the

business case

details for the

CSELR project,

with an estimated

capital cost of

$1.6 billion and

with almost

$4.0 billion worth

of benefits.

Procurement

began for the two

major construction

contracts.

June: TfNSW awarded

the contract for essential

early works.

October: The NSW

Government announced

its preferred bidder,

Connecting Sydney

(later renamed ALTRAC

Light Rail), to design,

construct, operate and

maintain Sydney’s light

rail networks as part of a

PPP.

December: The PPP

contract was signed.

The NSW Government

announced

modifications to the

CSELR project and an

increased capital cost

budget of $2.1 billion.

February: The project

and financing

agreement of the PPP

contract between

TfNSW and ALTRAC

Light Rail (financial

close) was signed.

July: ALTRAC Light

Rail took responsibility

for operating and

maintaining light rail

services on the Inner

West Light Rail as

part of the PPP

contract for the

CSELR.

October: Major

construction started.

Major construction is due to be completed

in 2018, with passenger services starting

in early 2019.

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About the audit

Our audit examined whether TfNSW ensured that:

We audited TfNSW’s activities against NSW Government capital project planning and

procurement policies and guidelines to assess whether it applied appropriate processes.

The processes that apply to the CSELR project include:

guidelines

assurance reviews) at key decision points in a project’s life cycle, as shown in

Appendix 3

money in delivering government services.

The audit did not examine the merits of NSW Government policy objectives or the merits of

project-related decisions. We also did not review the appropriateness of the selected technical

solution for the CSELR.

Appendix 4 outlines the audit scope and focus, and lists the relevant policies and guidelines.

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Key Findings

1. Planning and procurement

All agencies must show how they achieve value for the public money they spend. For major

works such as the CSELR project, agencies should show how they will achieve the objectives

and goals of a policy commitment in a cost-effective way. This should be set out in the

project’s business case, implementation plans and procurement model.

There were significant problems with the way TfNSW managed the CSELR project between

2011 and 2014. These problems increased the project’s complexity and risk, and reduced the

value-for-money outcomes for the State.

To begin with, the established assurance framework provided that TfNSW undertake the

assurance reviews of the CSELR project. However, this approach did not provide the

independent assurance required for such a major infrastructure project. The CSELR project also

departed from the planning process in the State’s Major Projects Assurance Framework. This

meant TfNSW skipped two mandatory gateway reviews that could have forced it to resolve

deficiencies in the project’s governance arrangements and economic appraisal.

These problems were similar to those we found in our previous reports on WestConnex and

Large construction projects. In response, the NSW Government has now strengthened the role

of Infrastructure NSW and the Independent Investment Assurance Framework. The CSELR

project adopted this framework in mid-2015.

Second, the governance arrangements did not initially reflect the complexity and significance of

the project. During planning, there was no dedicated project team and the distinction between

commissioning and delivery roles was unclear. TfNSW has now established a dedicated project

team and an independent Advisory Board.

Finally, inadequate planning and tight timeframes meant third party agreements and project

scope were not finalised before starting the tender process or before signing the main works

PPP contract. Scope uncertainty may have increased bid prices and exposed the project to

ongoing cost increases.

TfNSW has been progressively finalising the scope of works, and is closely monitoring risks to

the timeframe and budget. Some of the project contingency funds have already been applied to

changes in the scope of works as a result of TfNSW finalising third party agreements. But

contingency funds also need to cover unknown risks that may emerge during construction and

delivery. TfNSW considers the current project contingency can cover any further scope changes.

1. For the CSELR project, Transport for NSW should, by December 2016:

a) finalise outstanding design and scope issues

b) ask the project Advisory Board to confirm that controls over the budget and use of

contingency funds are consistent with NSW Government decisions and NSW Treasury guidelines

d) ensure the Sydney Light Rail Project Director provides six-monthly briefings to the

TfNSW Audit and Risk Committee.

2. For all capital projects, Transport for NSW should comply with the Infrastructure Investor Assurance Framework.

10

TfNSW managed the gateway assurance review of the CSELR project business case. It was

within its authority to do so because, between 2011 and 2014, Infrastructure NSW delegated

assurance reviews of major transport projects to TfNSW using the TfNSW Investment Gating and Assurance Framework.

Despite this delegation being provided for in the assurance framework at the time, this

approach did not provide the independent assurance required for such a major project. Our

previous report on Large construction projects in 2015 found TfNSW reviews were robust and comprehensive, but not sufficiently independent.

Independent gateway reviews complement good internal controls. They provide a fresh set of

eyes and arm’s length independence not available from even the best internal controls. This is

a key principle of the NSW Government’s Major Projects Assurance Framework.

In 2015, the NSW Government strengthened this assurance process. Infrastructure NSW now

independently administers the Infrastructure Investor Assurance Framework for capital

projects, which outlines a risk-based approach to project assurance. This includes:

In 2011, the NSW Government endorsed the Major Projects Assurance Framework (MPA

Framework). This set mandatory independent assurance reviews at all seven stages of a

capital project’s life cycle, along with regular reporting to Cabinet.

However, the project-specific planning process the NSW Government approved for the

CSELR project departed from this framework. While TfNSW’s process addressed many

aspects of the MPA framework, the CSELR project suffered from:

We found many of the same problems in our reports on WestConnex, Large construction

projects and the Albert ‘Tibby’ Cotter Walkway.

Normally, after an initial project justification gateway assurance review, agencies must

complete two steps before progressing to a final business case:

The NSW Government did not require TfNSW to complete these steps for the CSELR project.

Instead, TfNSW set out to deliver the NSW Government policy to build a light rail network in

the CBD. In August 2011, it started developing the Sydney Light Rail Strategic Plan (Strategic

Plan) to assess light rail routes in the CBD from Circular Quay to Central railway station, and

on to Randwick, Kingsford and the University of Sydney.

In December 2012, the NSW Government announced its preferred light rail route from six

options in the Strategic Plan. TfNSW then based its final business case on the selected route.

11

TfNSW considers that the Strategic Plan addressed NSW Treasury requirements for a

preliminary business case. And this plan did outline various route options and a bus

alternative. However, it did not include elements that are normally part of a preliminary

business case, such as the:

The two missed assurance reviews would have prompted TfNSW to resolve deficiencies in

the economic appraisal and governance arrangements that the final business case retained.

TfNSW planned the CSELR project to meet the NSW Government’s commitment that work

would start in 2014 and include a public private partnership (PPP) arrangement. TfNSW met

these timeframes to award two main contracts, including the PPP.

However, meeting such a tight timeframe meant an inadequate business case, poor

governance in the planning stage, and uncertain scope during tendering. These combined to

increase the project’s complexity and risk, and reduce value for money for the State.

Next, the economic appraisal with the final business case underestimated costs and

overestimated benefits. It did not adequately account for significant costs and disadvantages.

This improved the reported benefit-to-cost ratio, which was assessed as 2.4 (excluding wider

economic benefits) when the NSW Government announced the project. Exhibit 3 sets out key

issues with the appraisal.

Underestimated

some capital costs

TfNSW underestimated the capital costs for utilities, traffic management, and

contractors’ indirect costs. In August 2013, TfNSW commissioned a peer

review of the capital cost plan which found it was at the lower end of the

estimated range for projects of this type. However, the review noted the total

risk allowance and client cost allowance should compensate. Similarly,

TfNSW’s Program Management Office found that the contractors’ indirect

costs and design cost estimates appeared low.

Did not quantify

disruption impacts of

construction

TfNSW did not quantify unavoidable disruption impacts of building the CSELR.

While the economic appraisal and EIS acknowledged disruption impacts, they

were limited to a qualitative description and an outline of mitigation strategies.

Construction of the CSELR has begun and will continue until March 2019. This

will significantly affect road users.

Had an optimistic

assessment of wider

economic benefits

TfNSW expects the CSELR project will generate a range of wider economic

impacts, including higher density development. The final business case notes

it will increase the attractiveness of living and working along the route, which

will in turn increase demand for residential and commercial floor space and

attract higher density development. While the economic appraisal included

these benefits, it did not include disadvantages that may result.

Did not adequately

define costs of

related transport

projects

The success of the CSELR project depends on the delivery of several other

key projects. The economic appraisal included the scope, costs and benefits

for two of these projects – the inner Sydney bus network reconfiguration and

the Randwick urban activation precinct. But it did not include the extra cost to

TfNSW of managing and coordinating the integration of these projects.

The final business case gateway review in September 2013 also found that

the boundaries between related projects were unclear.

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For example, TfNSW did not define the costs for road works needed to realise

the full benefits of the CSELR project.

Source: Audit Office research 2016.

TfNSW was aware of some of these issues, but did not adjust the final business case enough

before submitting it for approval. After it was approved, TfNSW still needed to address

outstanding issues such as refining the economic appraisal and governance structure, and

finalising third party agreements.

Some of these issues have since increased the project cost significantly. We discuss this

Further, the initial project governance framework for the CSELR project was not effective.

There was no dedicated project team or clear distinction between commissioning, assurance

and delivery roles.

During the project planning stage, decision-making accountability for the project rested with a

Deputy Director-General of TfNSW. He was the nominated CSELR Project Sponsor but was

also responsible for delivering many other major transport projects.

While this is not unusual for TfNSW projects in the concept stage, there is an inherent conflict

in not separating the commissioning (Project Sponsor) and delivery (Project Director) roles for

a project of this scale.

The Sponsor’s role is to define the outcomes and quality required to meet broader

government and organisation objectives. The Sponsor also monitors progress and evaluates

results. If the commissioning and delivery roles are combined, there may be a temptation for

the Sponsor/Director to define outcomes and quality according to what s/he is able to deliver,

rather than what will meet objectives. The assessment of progress and results is similarly

conflicted.

We note TfNSW has since addressed this concern. After the NSW Government approved the

final business case, TfNSW consulted the Department of Premier and Cabinet, NSW Treasury

and Infrastructure NSW on an appropriate governance model. An independent Advisory

Board was appointed from January 2014. The Board provides assurance and strategic

oversight of the procurement and delivery stages so there is an independent, critical review of

how TfNSW is managing the CSELR project.

In April 2015, the Secretary of TfNSW also strengthened project management. He set up a

dedicated delivery office for the project, with the Project Director reporting directly to him.

Ideally, this governance structure should have been in place during planning and business

case development.

We also note that in mid-2015, Infrastructure NSW strengthened its assurance role to:

Assurance Framework

While these processes all represent good practice, putting them in place before the business

case was approved would have strengthened planning and helped to maximise value for

money.

Tight timing in the planning process also increased the risks of scope creep. TfNSW signed

the two main contracts before it finalised key third party agreements, so the project design

and scope of works were not yet complete.

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In the final business case, TfNSW noted third party agreements needed to be in place to

mitigate the risk of scope creep. Before the two main contracts were awarded, internal and

external reviews repeatedly drew attention to the need to finalise agreements with

stakeholders such as utility providers and local councils to complete the project’s design and

scope of works.

However, we found TfNSW did not finalise agreements with 12 key stakeholders before

starting the tender process for the main works PPP contract on 7 March 2014. It told bidders it

would finalise the agreements and update the scope of works halfway through the request for

proposal (RFP) consultation period. This had not happened when tenders closed on 11 July

2014.

It also signed the contract for the early works package, noting the risk of scope creep and the

cost increases that might occur due to issues that had not been finalised.

TfNSW was responsible for resolving any scope uncertainty to get the best outcome from a

competitive RFP process. It did not meet this responsibility. As a result, we cannot assess the

extent to which bidders may have included risk-pricing in their bids to compensate for this

uncertainty.

Put simply, bid prices may have been higher than if the scope of works had been finalised

before tendering.

TfNSW advised it has been finalising third party agreements since the two main contracts

were signed. At the time of writing this report, only one agreement remains unresolved.

However, negotiations are continuing with the selected contractors over scope changes. This

has increased complexity as TfNSW and the contractors have had to divert resources to

requesting, assessing and negotiating design and scope of works changes in contract

modifications.

TfNSW renegotiated aspects of the early works managing contract as changes in scope

occurred. But because the contract had been awarded, there was reduced pressure on the

contractor to offer best value prices for new or revised elements.

TfNSW acknowledges that after appointing the contractor, there was no longer any

competitive tension to achieve value for money.

The PPP contract allows both TfNSW and the contractor to propose modifications as the

project progresses. Where TfNSW does so, it assesses the value for money of the

contractor’s estimated price before confirming the change. The PPP contract also allows the

contractor to claim reimbursement if the cost to deliver a contract item exceeds its estimate

due to circumstances outside its control.

For some of the agreements finalised after the PPP contract was awarded, TfNSW is waiting

for the PPP contractor to assess the impacts of requests to modify the design and scope of

works. The large number of unresolved scope issues is unusual for a PPP contract.

TfNSW advised us that:

TfNSW closely monitors risks that could affect the timeframe and budget, with independent

oversight by the Advisory Board and Infrastructure NSW. TfNSW presents a register of

modifications and contractor claims to the Advisory Board. It also presents a quantified risk

and contingency management update to provide evidence there is enough contingency to

14

manage scope risk. In February 2016, TfNSW reported to the Advisory Board that it had

received 25 modification requests.

At the February 2016 Advisory Board meeting, the TfNSW contingency update reported it is

91 per cent confident it will deliver the CSELR project within the cost estimate of $2.1 billion.

TfNSW advised that it now knows the design and scope changes from the finalised third party

agreements, and has applied some of the project contingency funds to these changes.

Of course, contingency funds also need to cover unknown risks that may emerge during

construction and delivery.

2. Project scope, costs and benefits

Our audit reviewed what generated changes in the project scope, costs and benefits, and

whether the changes were justified and reasonably foreseeable. We also looked at whether

TfNSW reassessed the economic appraisal to justify proceeding with the project.

Some of the cost increases for the CSELR project were caused by changes in project scope

that emerged from the tender process.

In February 2014, the Minister for Transport announced a shortlist of three bidders would be

invited to tender for the PPP contract. In line with normal practice for major construction

projects, TfNSW issued the RFP based on a reference design and scope of works. However,

bidders were encouraged to innovate and improve on this design.

Two bids met the assessment criteria, and the successful bidder proposed a different design

and scope from the reference design. TfNSW concluded that these changes aligned with

project requirements and provided a better technical solution.

The design changes announced in December 2014 included:

In November 2013, the CSELR business case estimated the project would cost $1.6 billion. The

budget rose $549 million to $2.1 billion by the time TfNSW signed the main works PPP contract in

December 2014.

While part of this increase was due to scope changes and planning modifications, $517 of the

$549 million increase was caused by mispricing and omissions in the business case.

At the same time, the project benefits had decreased from the 2013 business case estimate of

$4.0 billion to an estimated $3.0 billion in December 2014. This was mainly due to increases in

travel time assumptions.

These changes reduced the project’s benefit-to-cost ratio from 2.4 to 1.4, excluding wider

economic benefits. The project still went ahead because the ratio remained positive. However,

TfNSW should have updated the business case and conducted an independent gateway review to

maximise transparency and confirm value for money.

1. For the CSELR project, Transport for NSW should, by December 2016:

c) update and consolidate information about project costs and benefits and ensure that it is

readily accessible to the public.

2. For all capital projects, Transport for NSW should comply with the Infrastructure Investor

Assurance Framework.

15

Design changes were also made to the location of the Randwick Racecourse stop and the

alignment along Alison Road to address proposals from third party agreement negotiations.

TfNSW assessed the impact of these design and scope changes on the project costs and

benefits. In December 2014, it released a CSELR Modifications Report to seek planning

approval for the changes. After public consultation, the Minister for Planning approved the

planning modifications in February 2015.

In November 2013, the CSELR project business case summary estimated costs at

$1.6 billion. As Exhibit 4 shows, the budget increased by $549 million to $2.1 billion when

TfNSW announced the main works PPP contract had been signed in December 2014.

Note: BCR = benefit-to-cost ratio (excluding wider economic benefits).

* The BCR was updated only for costs, not benefits.

Source: Audit Office research 2016.

The scope and costs were uncertain when the business case was approved, and this became

more evident during procurement. By October 2014, TfNSW reported that mispricing and

omissions in the business case had caused $517 million of the $549 million capital cost

increase. The remaining increase was due to scope changes and planning modifications,

some of which TfNSW knew about before submitting the business case for approval.

TfNSW should have addressed these issues when preparing the business case, and certainly

well before procurement began for the two major contracts.

For example, in June 2013, the CSELR project team identified significant design issues. Yet

TfNSW did not recognise or resolve them in the business case. While TfNSW included most

design changes in the RFP documents, it did not accurately estimate the related costs.

By August 2013, TfNSW commissioned an independent peer review of the business case’s

capital cost estimate. This found the cost estimate to be low in several areas, including some

of those outlined in Exhibit 5. At the same time, the review noted the risk allowance and client

cost allowance should compensate for this.

The review recognised the contractors’ indirect costs needed to be revised to reflect the

complexity of constructing a road-based light rail system in a dense urban environment.

However, TfNSW did not update these estimates in the business case.

In September 2014, TfNSW addressed the issues from the review, which increased the

budget to $2.0 billion. The Advisory Board noted the business case capital cost estimate had

mispriced and omitted several items, and that market condition assumptions had changed.

In October 2014, TfNSW further increased the budget to $2.1 billion. This increase was mainly

due to approved variations in the main works PPP package, such as the change in alignment

to Alison Road and changes to stops.

16

Contractors’

indirect costs

(preliminaries)

Business case estimate for design based on a benchmark

against comparable light rail projects. Project requirements and

complexity far higher than assumed.

Bottom-up approach used, instead of high-level, top-down

allowance, in business case.

183.4

Utilities Considerable amount of utility investigation updated utility

estimates in the scope of works, giving much greater detail.

43.6

Design Business case estimate for design based on a benchmark

against comparable light rail projects, underestimating impact of

partly pedestrianising George Street.

42.2

Depot and

stabling

Retaining structure omitted in error at Rozelle depot.

Some plant and equipment understated or excluded in error.

12.8

Signalling, rail

systems and

power

Pricing errors for stops and precinct lighting. 3.9

Overhead and

profit

Consequential adjustment and reallocation of TfNSW cost to

manage PPP component.

73.4

Escalation Consequential adjustment. 25.4

Insurances Consequential adjustment. 5.6

Risk Transferred and retained risk adjustments. 126.6

Source: Transport for NSW 2014.

By December 2014, CSELR project benefits were valued at $3.0 billion. This reduced the

$4.0 billion benefit reported in the November 2013 business case summary by 25 per cent.

The key contributor to this decrease was the estimated journey time, which grew because of

changes in traffic priority assumptions. Put simply, longer CSELR vehicles would not receive

the expected priority at traffic lights. This increased the estimated average peak journey times

from Circular Quay to both Randwick and to Kingsford from up to 34 minutes to up to 38

minutes.

TfNSW’s CSELR Project Benefits Realisation Plan (April 2015) states the original business

case scope remains the aspiration for the project. It also states:

…the realisation of customer and operating benefits is paramount to the

success of the project, and that any further erosion of these benefits could

erode the project’s net present value and benefit cost ratio, rendering the

project unviable.

Journey times and service capacity, which are largely governed to [sic] green

times and traffic signal priority, are central to realising customer benefits. This

analysis (and the patronage analysis) shows that customers are unlikely to

accept the slowness in trips, even with the substantially higher capacity

available, so there will be pressure to improve this. TfNSW needs to work

hard with Roads and Maritime Services and other stakeholders to maximise

outcomes.

TfNSW advised that, although the estimated benefits fell during procurement, the CSELR

project may still realise higher benefits during the delivery and operations phases.

17

The final benefits the CSELR project will realise remain uncertain.

CSELR journey times may change when TfNSW finalises traffic priority arrangements with

Roads and Maritime Services (RMS). Despite RMS’ participation on all CSELR project

governance committees since 2011, TfNSW and RMS are still finalising the modelling of traffic

and signalised intersections for the operational phase of the project.

TfNSW advised it expected to release an update of the modelling in October 2016. This will

then be subject to ongoing updates due to design finalisation and other dependencies, such

as development proposals and bus plan changes.

The PPP project deed currently specifies journey times up to 38 minutes from Circular Quay

to both Randwick and to Kingsford. Journey times may be revised to reflect operational

performance once full services start. Any reductions in traffic priorities that RMS deems

necessary will limit TfNSW’s ability to achieve service frequencies.

Timely and accurate information is vital when managing a project of this size and complexity.

Yet some of the information released by TfNSW to the public has not been correct or timely.

For example, in December 2014, TfNSW announced the increase in the capital cost of the

project to $2.1 billion. It explained that costs had increased because of the ‘huge wins’ offered

by the preferred bidder of the PPP. These included 50 per cent more capacity than the 9,000

passengers per hour previously planned.

However, this was not correct. As noted above, 94 per cent of the $549 million increase was

due to incorrect estimates in the business case.

Further, in January 2015, TfNSW incorrectly responded to community and stakeholder

concerns about the project’s cost and value for money. In the CSELR Submissions Report to

Project Modifications, it stated that the benefits of the project remained at $4.0 billion. They

had fallen to $3.0 billion in December 2014.

In November 2015, TfNSW published the main works PPP contract award notice, showing

that the benefit-to-cost ratio had reduced from 2.4 to 1.4. Under NSW PPP guidelines, TfNSW

should have disclosed that information within 60 days of contract execution. It awarded the

contract in December 2014. TfNSW acknowledges this was an oversight.

To maximise transparency and accountability, TfNSW should maintain high standards when

releasing information, particularly when there are major changes to project outcomes.

In December 2014, TfNSW completed a rapid economic appraisal and informed NSW

Treasury and the NSW Government that the project’s benefit-to-cost ratio had reduced from

2.4 to 1.4 (see Exhibit 6). It justified proceeding with the project in part because the ratio

remained positive.

The Advisory Board endorsed TfNSW’s recommendation to award the main works PPP

contract.

However, TfNSW should have also updated the business case and arranged an independent

gateway review of the project. These steps would have:

Given the substantial changes in costs and benefits, revising the business case would have

been in line with TfNSW’s Investment Gating and Assurance Framework.

18

An independent assurance (gateway) review would have helped to confirm whether its

decision to proceed would still provide value for money. The NSW Government’s Major

Projects Assurance Framework also requires this.

TfNSW’s own guidelines explain that reviews are important as they check if a project has:

within scope, and will deliver the objectives of the business case and the tender

documents

commercial and project management factors

evaluation and benefits realisation plan

environmental costs.

Travel times Longer travel times due to different traffic signal timing and intersection layouts.

Services from Circular Quay to Randwick and Kingsford estimated to increase

from up to 34 to up to 38 minutes.

Vehicle length Longer light rail vehicles with capacity for 466 passengers per vehicle

(108 seated and 358 standing), compared with the original 300 passengers per

vehicle (100 seated and 200 standing).

Service frequency Less frequent services to complement higher capacity vehicles. Service intervals

increased to four minutes in the CBD and eight minutes on the branches

compared with three minutes in the CBD and six minutes on the branches

previously assumed for 2021 (with 2.5/5 minute intervals beyond 2036).

Number of stops Removal of World Square stop due to construction complexity and proximity to

adjacent stops.

Capital costs Increase in capital cost estimates from around $1.6 billion (nominal 2012 dollars)

to $2.0 billion (nominal 2014 dollars).

Operating costs Increase in the stand-alone operating cost (excluding Inner West Light Rail) from

around $34.9 million a year (nominal 2012 dollars) to $62.5 million (nominal

2014 dollars) across the appraisal period.

Source: Transport for NSW 2014.

19

3. Probity and due diligence

Exhibits 7 and 8 outline the delivery strategy for the CSELR project, divided into two

packages.

Coverage Discrete early works, including

major service relocations

Finance, design, construction, operation and

maintenance of the CSELR

Includes service relocations and operating and

maintaining the Inner West Light Rail

Managing contractor model Design, construct, operate and maintain PPP

contract that runs until 2034

Value $45.0 million when TfNSW awarded

the contract in June 2014

$2.1 billion when TfNSW awarded the contract

in December 2014

Source: Transport for NSW 2013.

Agencies must follow probity and due diligence requirements to show their procurement for a

project has been fair and objective. These are set out in NSW Government procurement policies,

and in national and state PPP guidelines.

Overall, TfNSW met these requirements for the CSELR project.

TfNSW adopted a detailed probity framework. An independent probity advisor concluded its

evaluation process to select the managing contractor and PPP contractor was fair and had due

regard to probity. TfNSW also applied due diligence to the PPP bidders consistent with its

guidelines for projects of this kind.

We also found no evidence that the PPP contract will not be delivered. TfNSW has included

safeguards to mitigate the risk that the contractor cannot fully deliver on its obligations.

At the same time, the early works package should have been included in a key gateway review.

The tender evaluation process was comprehensive. However, TfNSW had used incorrect

assumptions in the Public Sector Comparator (PSC) benchmark to assess value for money. It is

normal practice for the PSC to be updated as a project evolves. TfNSW presented the first PSC

calculation with the CSELR project business case. It then updated the PSC on a number of

occasions to reflect changes in the project costs and benefits. It is unfortunate that TfNSW

discovered the incorrect assumptions in the PSC so late in the process, and after tenders for the

PPP were evaluated. We note that external reviews found that the PSC update process was

consistent with the national PPP guidelines and did not unfairly impact proponents.

20

Source: Transport for NSW 2013.

Our audit reviewed the procurement and tendering processes for these two major contracts.

We assessed whether TfNSW:

capital assurance system and PPP contract requirements.

We found there was a strong governance structure for the procurement of the works

packages, including:

However, a potential conflict of interest was not recognised or addressed.

Good governance of large capital projects calls for independent scrutiny of procurement

processes to ensure objectivity and value for money. NSW Treasury and the Advisory Board

played a major role in reviewing the procurement processes for the works packages.

The Advisory Board conducted detailed reviews and guided all aspects of procurement for the

main works PPP package. Board meeting papers for the two years to January 2016 showed

an active interest in all aspects of the package, including critical review and endorsement of:

The Advisory Board also monitored procurement progress for the early works managing

contractor package.

NSW Treasury worked with TfNSW to finalise the main works PPP package tender and

largely finalise the evaluation documents before releasing the request for proposal (RFP).

NSW Treasury was also involved in the tender evaluation, and was satisfied with contract

negotiations and finalisation. It confirmed that TfNSW materially complied with the NSW and

national PPP guidelines.

NSW Treasury also reviewed each of these key stages for the main works PPP package in

response to TfNSW reports.

21

TfNSW engaged an independent probity advisor to oversee the tender and evaluation phases

of both works packages. The advisor concluded TfNSW’s evaluation of both works contractors

was fair and had due regard to probity.

The overall probity framework was detailed and included:

measures were in place

and the PPP.

We found no evidence that the PPP contract will not be delivered. TfNSW has included

provisions that mitigate the risks of the contractor not fully delivering on its obligations.

During the tender evaluation, TfNSW identified issues that could affect the financial strength

of both bidders, including a serious fraud conviction in one of the bidder’s related entities.

TfNSW applied its standard risk assessment process and put in place contract provisions to

manage this risk. This is consistent with the usual approach for this type of risk.

We identified a potential conflict of interest with two members of the main works PPP contract

pre-tender assurance review panel. This was because they worked for organisations actively

involved in the development of the CSELR project.

One of these members declared the conflict of interest, and the probity advisor monitored it.

The other member did not, and TfNSW did not address this in its submissions to the NSW

Government. Rather, the submissions for approval of the RFP for the main works PPP

highlighted the independence of the consultants.

We do not question the capability or diligence of these members. But to maintain confidence

in a procurement process, it is vital that any potential perception of conflict of interest is

recognised and addressed.

While the underlying governance structure was sound, we found that unresolved issues

increased risks in tendering and that the early works package should have been included in a

gateway review.

The tender evaluation process itself was comprehensive and met relevant guidelines. But, late

in the process, TfNSW identified an error in the PSC benchmark used to assess value for

money.

TfNSW met the March 2014 timeframe to release the RFP for the CSELR project. However,

many unresolved issues increased the risks and decreased value for money, including:

We found that TfNSW did not adequately finalise the following information for the RFP:

22

Not having this information available meant PPP proponents may have applied risk pricing in

the tender estimates, in turn reducing value for money.

Chapter 2 discussed the implications of not finalising key third party agreements by the time

TfNSW signed the PPP contract.

Overall, the pre-tender assurance review was thorough and provided a greater level of

scrutiny than would normally be expected from a mainstream gateway review. This reflects

the transport-specific assurance framework that TfNSW uses and NSW Treasury endorsed.

However, the review did not adequately address the:

The review also did not include the early works package, even though it acknowledged the

potential risks of not managing the overlaps with the main works PPP package. This is a

concerning omission, particularly after the CSELR project business case assurance review

made similar observations.

TfNSW advised that, given the value, criticality and complexity of the PPP compared to the

early works package, the PPP was its primary focus. However, we believe it was necessary to

consider the early works managing contractor package in the context of the potential risks of

overlaps with the main works PPP package.

The review also did not address concerns the peer review identified about the underestimated

capital cost in the business case. This is despite the review being required to consider the

robustness of the cost estimate. As noted earlier, these uncertainties led to increases in the

project budget.

The main works PPP tender evaluation process was comprehensive. TfNSW completed the

evaluation in line with the evaluation plan and followed NSW and national PPP guidelines.

The evaluation report, including the probity comments, confirmed the assessment complied

with relevant NSW Government policies and guidelines. The probity advisor validated the

process and did not raise any probity issues.

The tender evaluation report concluded that:

quantitative benchmark

It is normal practice for the PSC to be updated as a project evolves. TfNSW presented the

first PSC calculation with the CSELR project business case. It then updated the PSC on a

number of occasions to reflect changes in the project costs and benefits.

In October 2014, TfNSW made the final adjustment to the PSC because it found that a key

assumption was incorrect. The incorrect assumption was that management effort and

associated contract interface risks would be the same for a traditional delivery model as a

PPP.

It is unfortunate that TfNSW discovered this error so late in the process, and after tenders for

the PPP were evaluated. National PPP guidelines permit the PSC to be adjusted after bids

are received in certain circumstances, including where changes to assumptions are required.

23

It is evident that PSC updates were scrutinised and endorsed by the Advisory Board and

reviewed by the probity advisor. Those reviews found that the PSC update process was

consistent with the national PPP guidelines and did not unfairly impact proponents.

TfNSW also worked with its independent advisors and NSW Treasury to develop a negotiation

plan to resolve the outstanding commercial issues, including risk sharing parameters,

identified in the tender evaluation report.

24

Appendices

Appendix 1: Response from Transport for NSW

25

Appendix 2: Chronology of CSELR project development

September 2010 The former Premier announced commitment to build a CBD light rail system, with

a 2010–15 Memorandum of Understanding (MOU) between the NSW Government

and the City of Sydney. The MOU included design and construction of light rail

through the CBD, and immediate detailed analysis to determine the alignment of

the Sydney CBD light rail extension.

March 2011 The NSW Government announced commitment to build light rail through the CBD

to Barangaroo, with a preferred route along George Street. It also committed to

feasibility studies into the construction of light rail through the CBD and from the

CBD to the University of NSW and University of Sydney. TfNSW started

developing a Sydney Light Rail Strategic Plan (Strategic Plan).

TfNSW’s 2011–12 budget included $103 million to expand light rail, with funding

for the Inner West Light Rail (IWLR) extension and to examine the feasibility of

running light rail through the CBD and out to the universities.

April 2012 TfNSW established a Light Rail Steering Committee. Members included the

Deputy Director-General of Transport Projects (TfNSW chair), TfNSW senior

officials and a representative from Roads and Maritime Services. One of its main

objectives was to guide the Strategic Plan. The Committee Chair reported to the

then Director-General of TfNSW.

December 2012 After completion of the Strategic Plan, the NSW Government announced a light

rail system would be built through the CBD to Randwick and Kingsford. The cost

was estimated at $1.6 billion, with work starting in 2014 through a public private

partnership (PPP) arrangement.

TfNSW’s 2013–14 budget included $423 million (committed to 2016–17) to plan,

design and construct the CSELR. TfNSW received this funding after the NSW

Government announced the project would proceed.

April 2013 The Light Rail Executive Steering Committee replaced the Light Rail Steering

Committee. Additional members included NSW Treasury and the Department of

Premier and Cabinet. The committee was to endorse key project decisions and to

keep stakeholders informed of progress and issues that may affect project

objectives.

June 2013 TfNSW appointed a new project director to manage delivery.

October 2013 The NSW Government announced a new Director-General for TfNSW.

November 2013 TfNSW published the business case summary for the CSELR project. The

estimated cost of building the CSELR was $1.6 billion. TfNSW estimated the

CSELR would generate almost $4.0 billion in benefits, a benefit-to-cost ratio of 2.5

(including wider economic benefits).

June 2014 The Minister for Planning granted planning approval with 131 conditions. The

environmental impact statement for the CSELR project was on public exhibition

from 14 November to 16 December.

January 2014 The project Advisory Board was appointed and first met in January 2014. One of

its key objectives is to provide oversight and independent assurance and advice to

the Minister for Transport, the Minister for Roads and Ports, and the Premier. The

Advisory Board reports directly to the Minister for Transport. Three members are

external to the NSW Government, including the chair. Board members include

representatives from Infrastructure NSW, Roads and Maritime Services, and NSW

Treasury.

26

June 2014 TfNSW awarded the early works managing contract to carry out up to $45.0 million

of essential early works. These started in October 2015 and include relocating

buried utilities such as water, telecommunications, gas and electricity cables and

pipes, and initial work around Moore Park.

October 2014 The NSW Government announced its preferred bidder, Connecting Sydney (later

renamed ALTRAC Light Rail), to design, construct, operate and maintain the

Sydney Light Rail network as part of a PPP. The bidder comprised Transdev

Sydney, Alstom Transport Australia, Acciona Infrastructure Australia and Capella

Capital.

December 2014 TfNSW signed the main works PPP contract on 17 December.

The Minister for Transport announced changes to the CSELR project. The major

changes involved:

• revising platform lengths at all stops to allow longer light rail vehicles

(67 rather than 45 metres)

• redesigning several stops

• switching technologies for delivering a wire-free section

• removing a proposed stop at World Square.

The minister also announced the project cost had increased from $1.6 billion to

$2.1 billion. (This is capital expenditure only and excludes financing, operation and

maintenance costs.)

February 2015 The Department of Planning and Environment approved the change to the CSELR

project after public exhibition in December 2014.

The project and financing agreement of the PPP contract between TfNSW and

ALTRAC Light Rail (financial close) was achieved.

April 2015 TfNSW established a stand-alone major project delivery office to deliver the

CSELR and oversee the operation of the existing IWLR, with direct reporting to the

Acting Secretary.

June 2015 The NSW Government announced the appointment of a new Secretary of TfNSW.

The appointee had been Acting Secretary since February 2015.

July 2015 ALTRAC Light Rail took responsibility for operating and maintaining light rail

services on the existing IWLR as part of the PPP contract for the CSELR.

August 2015 The NSW Government appointed a new CSELR Project Director.

Source: Audit Office research 2016.

27

Appendix 3: Assurance policies and guidelines

Introduced a six-stage independent gateway review process as part of reforms to

capital project assurance process. This included:

• gateway reviews generally to take one week, using three or more

independent experts to review a project stage against seven success factors:

service delivery, affordability (value for money), sustainability, governance,

risk management, stakeholder management and change management

• mandatory gateway reviews on the final business case to inform funding,

regardless of whether a government or internal agency decision

• agencies encouraged to initiate gateway reviews at the other five stages,

particularly at pre-tender award stage

• gateway review teams to be independent of the project and sponsor agency

• final business case gateway reviews linked to the Budget, with the sponsor

agency submitting review reports and the final business case to NSW

Treasury with their bid for capital funding

• gateway reviews facilitated by the (then) Department of Commerce

• sponsor agencies to submit a procurement strategy and pre-tender estimate

reports to NSW Treasury, which reconfirm the business case before calling

tenders

• sponsor agencies to submit a post-tender review report to NSW Treasury

reconfirming the business case before contract award

• sponsor agencies to submit after contract award material variations reports

to NSW Treasury, highlighting major changes to project scope, cost and time

as they occur.

These reforms applied to all government agencies, statutory authorities, trusts

and other government entities except State Owned Corporations (SOCs).

Introduced Capital Expenditure Authorisation Limits as a budget control measure.

This allowed ministers to add to or amend Cabinet-approved capital projects

outside the annual Budget if they stay within portfolio authorisation limits.

However, existing approved projects cannot be varied by more than 10 per cent

of the approved estimated total cost in Budget Paper 4. For further projects

costing $1.0 million or more, ministers must submit a final business case to the

Treasurer for approval. Projects costing $10.0 million or more must also complete

a gateway review before seeking this approval.

The circular is silent on what happens if ministers wish to change an existing

approved project by more than 10 per cent, although NSW Treasury advice is

that the Treasurer would need to approve a change. This does not address

whether a revised final business case or a gateway review report is also required.

28

Introduced a new process for developing the State’s ten-year infrastructure

strategy and submission of business cases and gateway review reports on

projects costing $10.0 million or more.

With their annual Total Asset Management (TAM) submissions, general

government sector agencies and ‘nominated’ SOCs had to submit to NSW

Treasury:

• a preliminary business cases and a strategic gateway review report for

projects planned to start in the next two to four years

• a final business case and its gateway review report for projects proposed for

funding approval in the coming budget year.

Detailed guidelines and templates for preliminary and final business cases for

capital projects.

The NSW Treasury Gateway Unit to facilitate all gateway reviews. Preliminary

business case submissions and gateway review reports to be submitted to NSW

Treasury before projects are included in the Budget forward estimates, the State

Infrastructure Strategy or other public statements.

Updated NSW Treasury Circular TC 08/09 by increasing the lower threshold for

submission of preliminary and final business cases on capital projects to NSW

Treasury from $1.0 million to $5.0 million.

Updated NSW Treasury Circular TC 06/20 on the use of Capital Expenditure

Authorisation Limits as a budget control measure.

Portfolio ministers were replaced with cluster coordinating ministers, and

ministers could operate within the consolidated authorisation limits for the whole

cluster. The threshold for submission of final business cases to the Treasurer for

proposed new projects within the cluster authorisation limits was raised to

$5.0 million.

Legislation established Infrastructure NSW (INSW) to review and evaluate

proposed major infrastructure projects costing $100 million or more, and to

oversee and monitor their delivery.

INSW became responsible for mandatory gateway reviews on all seven stages of

a project life cycle and for reporting regularly to Cabinet on project status.

INSW became responsible for gateway reviews on projects costing $100 million

or more using TfNSW’s seven gate Investment Gating and Assurance Framework

for transport related projects. TfNSW to facilitate these reviews.

NSW Treasury to facilitate gateway reviews on non-transport related projects

costing $100 million or more, using the existing NSW Gateway system upgraded

to seven stages. INSW can determine its role in such reviews, such as selecting

the review team, acting as reviewer, or participating as an observer.

NSW Treasury retained responsibility for facilitating gateway reviews for all

capital projects, including transport related projects, costing less than

$100 million.

29

Updated agency annual TAM submissions to NSW Treasury to support the

Budget process outlined in NSW Treasury Circular TC 08/06.

All general government sector agencies and ‘nominated’ SOCs must submit TAM

plans around October or November each year, with business cases and Gateway

review reports as outlined in NSW Treasury circulars TC 10/13 and TC 12/19.

However, the circular and paper do not fully reflect the December 2011 and May

2013 assurance arrangements involving INSW for capital projects costing

$100 million or more. Gateway reviews are still only mandatory at preliminary and

final business case stages.

Infrastructure Investor Assurance Framework (IIAF) replaced the Major Project

Assurance Framework. The IIAF seeks to increase the NSW Government’s

confidence and assurance in planning and implementing capital projects

throughout their lifecycle.

Projects with an estimated capital cost of $10.0 million or more must be:

• registered with INSW

• risk-profiled

• assigned an appropriate project tier.

For Tier 1 (High Profile/High Risk) projects, such as the CSELR project, the

seven independent gateway assurance reviews are mandatory. The sponsoring

agency must prepare a Project Assurance Plan consistent with the Project Tier

for the infrastructure Investor Assurance Committee to endorse.

Agencies must then:

• ask INSW to facilitate the gateway reviews and health checks

• submit relevant project reports to INSW in line with the Project Assurance

Plan.

Source: Audit Office research 2016.

30

Source: Infrastructure NSW State Infrastructure Strategy 2012.

31

Source: Transport for NSW 2013.

32

Appendix 4: About the audit

This audit assessed how well TfNSW ensured that the planning and procurement for the

CSELR project achieved value for money, within the parameters set by the NSW

Government. These included timeframes for planning, procurement and delivery.

To answer the audit objective, the audit examined whether TfNSW ensured that:

money

We used relevant policies and guidelines to assess whether TfNSW applied ‘appropriate

processes’. These included:

procedures – interim arrangements (March 2014)

The main focus of the audit was TfNSW’s planning and procurement up to the award of the

PPP contract. We examined the period from the development of the Sydney Light Rail

Strategic Plan, which started in August 2011, to when the major construction contract was

finalised in February 2015.

The audit did not examine the merits of NSW Government policy objectives or the merits of

project-related decisions. However, we examined whether key project decisions considered

issues and recommendations raised by assurance processes, and whether key project

decisions were supported by robust analysis and business cases in line with relevant policies

and guidelines.

We also did not review the appropriateness of the selected technical solution of the CSELR.

However, we examined the processes applied to provide assurance that project decisions

were robust and the CSELR project represents best value for money.

Despite this, we may comment on these issues where they affect our findings or provide

context.

The audit collected performance information and evidence, and produced its report by:

1. holding interviews

2. analysing collected performance information, reports and documents

33

corroborating and assessing per 3. formance against criteria

4. documenting findings

5. holding exit interviews to consult on the audit’s findings, conclusion and

recommendations for improvement.

The audit approach was complemented by quality assurance processes within the Audit

Office to ensure compliance with professional standards.

Our performance audit methodology is designed to satisfy Australian Audit Standards ASAE

3500 on performance auditing. The Standard requires the audit team to comply with relevant

ethical requirements and plan and perform the audit to obtain reasonable assurance and draw

a conclusion on the audit objective. Our processes have also been designed to comply with

We gratefully acknowledge the co-operation and assistance provided by Transport for NSW

and NSW Treasury officials. In particular, we would like to thank our liaison officers, and the

staff who participated in interviews and provided audit material.

Jasmina Munari and Giulia Vitetta conducted the performance audit. Expert advice was

provided by Ted Smithies and Rosemarie Risgalla, Value Network Pty Ltd. Kathrina Lo

provided direction and quality assurance.

Including staff costs and overheads, the estimated cost of the audit is $416,000.00.

34

Performance auditing

Performance audits determine whether an agency is carrying out its activities effectively, and doing so

economically and efficiently and in compliance with all relevant laws.

The activities examined by a performance audit may include a government program, all or part of a

government agency or consider particular issues which affect the whole public sector. They cannot

question the merits of government policy objectives.

Audit Act 1983.

Performance audits provide independent assurance to parliament and the public.

Through their recommendations, performance audits seek to improve the efficiency and effectiveness of

government agencies so that the community receives value for money from government services.

Performance audits also focus on assisting accountability processes by holding managers to account for

agency performance.

Performance audits are selected at the discretion of the Auditor-General who seeks input from

parliamentarians, the public, agencies and Audit Office research.

Performance audits have three key phases: planning, fieldwork and report writing. They can take up to

nine months to complete, depending on the audit’s scope.

During the planning phase the audit team develops an understanding of agency activities and defines

the objective and scope of the audit.

The planning phase also identifies the audit criteria. These are standards of performance against which

the agency or program activities are assessed. Criteria may be based on best practice, government

targets, benchmarks or published guidelines.

At the completion of fieldwork the audit team meets with agency management to discuss all significant

matters arising out of the audit. Following this, a draft performance audit report is prepared.

The audit team then meets with agency management to check that facts presented in the draft report are

accurate and that recommendations are practical and appropriate.

A final report is then provided to the CEO for comment. The relevant minister and the Treasurer are also

provided with a copy of the final report. The report tabled in parliament includes a response from the

CEO on the report’s conclusion and recommendations. In multiple agency performance audits there may

be responses from more than one agency or from a nominated coordinating agency.

Following the tabling of the report in parliament, agencies are requested to advise the Audit Office on

action taken, or proposed, against each of the report’s recommendations. It is usual for agency audit

committees to monitor progress with the implementation of recommendations.

In addition, it is the practice of Parliament’s Public Accounts Committee (PAC) to conduct reviews or

hold inquiries into matters raised in performance audit reports. The reviews and inquiries are usually

held 12 months after the report is tabled. These reports are available on the parliamentary website.

Our performance audits are subject to internal and external quality reviews against relevant Australian

and international standards.

Internal quality control review of each audit ensures compliance with Australian assurance standards.

Periodic review by other Audit Offices tests our activities against best practice.

The PAC is also responsible for overseeing the performance of the Audit Office and conducts a review

of our operations every four years. The review’s report is tabled in parliament and available on its website.

No fee is charged for performance audits. Our performance audit services are funded by the NSW

Parliament.

For further information, including copies of performance audit reports and a list of audits currently in

progress, please see our website www.audit.nsw.gov.au or contact us on 9275 7100.

audit.nsw.gov.au

Our vision

Making a difference through audit excellence.

Our mission

To help parliament hold government

accountable for its use of public resources.

Our values

accountable, and work as a team.

and have a balanced approach to work.

for our independence and integrity

and the value we deliver.

Professional people with purpose

Making a difference through audit excellence.

Level 15, 1 Margaret Street

Sydney NSW 2000 Australia

audit.nsw.gov.au