Fast facts

• $23.7m is the estimated minimum direct cost of the 2019 DPIE changes to date, noting additional ICT costs will be incurred
• $4.0m is the estimated minimum direct cost of the 2020 DRNSW changes, with an estimated $2.7 million ongoing annual cost
• 40+ NSW Government entities affected by the 2019 machinery of government changes

Conclusion

It is unclear whether the benefits of the machinery of government changes that created the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) outweigh the costs. The anticipated benefits of the changes were not articulated in sufficient detail and the achievement of directly attributable benefits has not been monitored. The costs of the changes were not tracked or reported. The benefits and costs of the machinery of government changes were not tracked because the Department of Premier and Cabinet (DPC) and NSW Treasury did not require departments to collect or report this information. The implementation of the machinery of government changes was completed within the set timeframes, and operations for the new departments commenced as scheduled. This was achieved despite short timelines and no additional budget allocation for the implementation of the changes.

The rationale for establishing DPIE was not documented at the time of the 2019 machinery of government changes and the anticipated benefits of the change were not defined by the government or the department. For DRNSW, the government’s stated purpose was to provide better representation and support for regional areas, but no prior analysis was conducted to quantify any problems or set targets for improvement. Both departments reported some anecdotal benefits linked to the machinery of government changes. However, improvements in these areas are difficult to attribute because neither department set specific measures or targets to align with these intended benefits. Since the machinery of government changes were completed, limited data has been gathered to allow comparisons of performance before and after the changes.

DPC and NSW Treasury advised that they did not define the purpose and benefits of the machinery of government changes, or request affected departments to do so, because these were decisions of the government and the role of the public service was to implement the decisions.

We have attempted to quantify some of the costs of the DPIE and DRNSW changes based on the information the audited agencies could provide. This information does not capture the full costs of the changes because some costs, such as the impact of disruption on staff, are very difficult to quantify, and the costs of ICT separation and integration work may continue for several more years. Noting these limitations, we estimate the initial costs of these machinery of government changes are at least $23.7 million for DPIE and $4.0 million for DRNSW. For DPIE, this is predominantly made up of ICT costs and redundancy payments made around the time of the machinery of government change. For DRNSW it includes ICT costs and an increase in senior executive costs for a standalone department, which we estimate is an ongoing cost of at least $1.9 million per year.

For the DPIE machinery of government change, there were risks associated with placing functions and agencies that represent potentially competing policy interests within the same 'cluster', such as environment protection and industry. We did not see evidence of plans to manage these issues being considered by DPIE as a part of the machinery of government change process.

The efficiency of machinery of government changes could be improved in several ways. This includes providing additional standardised guidance on the allocation of corporate functions and resources when agencies are being merged or separated, and consolidating guidance on defining, measuring and monitoring the benefits and costs of machinery of government changes.

Fast facts

4 years

between commitments in the NSW Climate Change Policy Framework, and DPIE and NSW Treasury producing key supports to agencies for climate risk management.

$120bn

Value of physical assets held by nine NSW Government entities we examined that have not completed climate risk assessments.

Low capability to do climate risk assessment has been found across state agencies. The total value of NSW Government physical assets is $365 billion, as at 30 June 2020.

x3

NSW Treasury’s estimates of the annual fiscal and economic costs associated with natural disasters will triple by 2060–61.

Conclusion

The Department of Planning, Industry and Environment (the department) has made climate projections available to agencies since 2014, but provided limited guidance to assist agencies to identify and manage climate risks. NSW Treasury first noted climate change as a contextual factor in its 2012 guidance on risk management. NSW Treasury only clarified requirements for agencies to integrate climate considerations into their risk management processes in December 2020.

The department has not delivered on a NSW Government commitment for a state-wide climate change adaptation action plan, which was meant to be completed in 2017. Currently many state agencies that own or manage assets and provide services do not have climate risk management in place.

Since 2019, the department and NSW Treasury have worked in partnership to develop a coordinated approach to supporting agencies to manage these risks. This includes guidance to agencies on climate risk assessment and adaptation planning published in 2021.

More work is needed to embed, sustain and lead effective climate risk management across the NSW public sector, especially for the state's critical infrastructure and essential services that may be exposed to climate change impacts.

The NSW Government set directions in the 2016 NSW Climate Change Policy Framework to 'manage the impact of climate change on its assets and services by embedding climate change considerations into asset and risk management’ and more broadly into 'government decision-making'.

The department released climate projections and has made information on projected climate change impacts available since 2014, but this has not been effectively communicated to agencies. The absence of a state-wide climate change adaptation action plan has limited the department's implementation of a coordinated, well-communicated program of support to agencies for their climate risk management.

NSW Treasury is responsible for managing the state's finances and providing stewardship to the public sector on financial and risk management, but it did not consistently apply dedicated resourcing to support agencies' climate risk management until late 2019. NSW Treasury estimates the financial costs of climate-related physical risks are significant and will continue to grow.

The partnership between the department and NSW Treasury has produced the 2021 Climate Risk Ready NSW Guide and Course, which aim to help agencies understand their exposure to climate risks and develop adaptation responses. The Guide maps out a process for climate risk assessment and adaptation planning and is referenced in NSW Treasury policy on internal audit and risk management. It is also referenced in NSW Treasury guidance to agencies on how to reflect the effects of climate-related matters in financial statements.

There is more work to be done by the department on maintaining robust, accessible climate information and educating agencies in its use. NSW Treasury will need to continue to update its policies, guidance and economic analyses with relevant climate considerations to support an informed, coordinated approach to managing physical climate risks to agencies' assets and services, and to the state's finances more broadly.

The effectiveness of the department and NSW Treasury's support involves the proactive and sustained take-up of climate risk management by state agencies. There is a key role for the department and NSW Treasury in monitoring this progress and its results.

Prior to 2021, support provided by the Department of Planning, Industry and Environment (the department) to agencies for managing physical climate risks to their assets and services has been limited. NSW Treasury has a stewardship role in public sector performance, including risk management, but has not had a defined role in working with the department on climate risk matters until mid-2019. The low capacity of agencies to undertake this work has been known to NSW Government through agency surveys by the department in 2015 and by the department and NSW Treasury in 2018.

The support delivered to agencies around climate risk management, including risk assessment and adaptation planning, has been slow to start and of limited impact. The department's capacity to implement a coordinated approach to supporting agencies has also been limited by the absence of a state-wide adaptation strategy and related action plan.

In 2021, products were released by the department and NSW Treasury with potential to improve support to agencies on climate risk assessment and adaption planning (that this, Climate Risk Ready NSW Guide and Course, which provides links to key NSW Treasury polices). The department and NSW Treasury are now leading work to develop a more coordinated approach to climate risk management for agencies' assets and services, and building the resilience of the state to climate risk more broadly.

Climate projections are a key means of understanding the potential impacts of climate change, which is an important step in the climate risk assessment process. The Department of Planning, Industry and Environment (the department) used a robust approach to develop its climate projections (NARCliM). The full version of NARCliM (v1.0) is based on 2007 models¹¹ and while still relevant, this has limited its perceived usefulness and uptake. The process of updating these projections requires significant resourcing. The department has made recent updates to enhance the currency and usefulness of its climate projections. NARCliM (v2.0) should be available in 2022.

While climate projections have been available to agencies and the community more broadly since 2013–14, the department has not been effective in educating the relevant data users within agencies in how to use the information for climate risk assessments and adaptation planning.

The absence of a strategy focused on this is significant and has contributed to the current low levels of climate risk assessment uptake across agencies (see section 2). Agencies are required to use the climate projections developed by the department when developing long term plans and strategies as part of the NSW Government Common Planning Assumptions.

It is too soon to determine the impact of the 2021 Climate Risk Ready NSW (CRR) Guide and Course, produced by the Department of Planning, Industry and Environment (the department) and NSW Treasury. But there are opportunities for these agencies to progress these developments in partnership: especially with the establishment of senior executive steering and oversight committees related to climate risk.

For the department, key opportunities to embed climate risk management include leveraging land use planning policies and guidance to drive adaptation, which has potential to better protect the state's assets and services. NSW Treasury has a role in continuing to update its policies, guidance and economic analyses with relevant climate change considerations to support an informed, coordinated approach to addressing physical climate risks to agencies' assets and services, and to the state's finances more broadly.

There is currently no plan on how the department and NSW Treasury intend to routinely monitor the progress of agencies with implementing the CRR Guide or developing climate risk 'maturity' more broadly. As agencies are responsible for implementing risk management systems that meet NSW Treasury standards, which now clearly includes consideration of climate risk (TPP20-08), establishing effective monitoring, reporting and accountability around this progress should be a priority for the department and NSW Treasury.

Fast facts

Construction industry support 

• The program aimed at providing immediate support to the construction industry during the COVID-19 crisis

59 fast-tracked projects 

• 59 projects and 42 planning proposals projects were assessed in six tranches

89% of all fast-tracked assessments in tranches three to six progressed to the next stage of the planning process within six months of determination

Conclusion

Through tranches three to six of the Fast-tracked Assessment Program, DPIE successfully accelerated the final stages of 53 assessments. DPIE’s internal monitoring indicates that 31 DAs and 16 planning proposals selected in these tranches proceeded to the next stage of development within six months of determination. DPIE achieved this while also successfully managing the risk of non-compliance with planning controls arising from the accelerated process. While DPIE has incorporated components of the Fast-tracked Assessment Program into other longer-term reforms, it has not evaluated the program and is not able to demonstrate the extent to which the program provided support to the construction industry during COVID-19.

Between April and October 2020, DPIE adopted a case management approach to accelerate the final stages of assessment for 42 planning proposals and 59 DAs in six tranches. Tranches three to six were the focus of this audit and included 22 planning proposals and 31 DAs. Applicants involved in the program were expected to progress their projects to the next stage of development within six months of determination. While DPIE had no way of compelling applicants to do this and relied on non-binding commitments obtained from applicants, DPIE’s internal monitoring indicates that 47 of the 53 applicants selected in tranches three to six honoured this commitment.

Fast-tracked assessment only applied to the final stages of assessment and required DPIE staff and other stakeholders to work towards a determination deadline. DPIE effectively used a case management approach to manage the risk that the accelerated timeframe could result in planning controls not being fully compliant with legislation. There is some room for improvement in the process, as four of 28 staff assessing planning proposals and DAs had not lodged current conflict of interest declarations.

Based on the results of and learnings from the Fast-tracked Assessment Program, DPIE has incorporated some elements of the program into other longer-term reforms. There is now increased transparency about when applicants can expect to receive a planning determination and DPIE has also introduced a case management approach for strategic and high priority planning applications. Applicants benefiting from case-managed assessment are now required to commit to a formal service charter that specifies the obligations of both DPIE and the applicant.

DPIE has not evaluated the Fast-tracked Assessment Program to understand the costs and benefits of the program, nor which aspects of the program were most effective as a basis for future reform.

Conclusion
1. The urban renewal projects on the former railway land are well targeted to support the objectives of the Program. However, there is insufficient evidence that the cost of the light rail will be justified by its contribution to Program objectives.

The planned uses of the former railway land achieve a balance between the economic and social objectives of the Program at a reasonable cost to the Government. HCCDC, and previously UrbanGrowth NSW, identified and considered options for land use that would best meet Program objectives. Required probity processes were followed for developments that involved financial transactions. Our audit did not assess the achievement of these objectives because none of the projects have been completed yet.

Analysis presented in the Program business case and other planning documents showed that the light rail would have small transport benefits and was expected to make a modest contribution to broader Program objectives. Analysis in the Program business case argued that despite this, the light rail was justified because it would attract investment and promote economic development around the route. The Program business case referred to several international examples to support this argument, but did not make a convincing case that these examples were comparable to the proposed light rail in Newcastle.

The audited agencies argue that the contribution of light rail cannot be assessed separately because it is a part of a broader Program. The cost of the light rail makes up around 53 per cent of the total Program funding. Given the cost of the light rail, agencies need to be able to demonstrate that this investment provides value for money by making a measurable contribution to the Program objectives.

2. Consultation and oversight were mostly effective during the implementation stages of the Program. There were weaknesses in both areas in the planning stages.

Consultations about the urban renewal activities from around 2015 onward followed good practice standards. These consultations were based on an internationally accepted framework and met their stated objectives. Community consultations on the decision to close the train line were held in 2006 and 2009. However, the final decision in 2012 was made without a specific community consultation. There was no community consultation on the decision to build a light rail.

The governance arrangements that were in place during the planning stages of the Program did not provide effective oversight. This meant there was not a single agreed set of Program objectives until 2016 and roles and responsibilities for the Program were not clear. Leadership and oversight improved during the implementation phase of the Program. Roles and responsibilities were clarified and a multi-agency steering committee was established to resolve issues that needed multi-agency coordination.

Analysis presented in Program business cases and other planning documents showed that the light rail would have small transport benefits and was expected to make a modest contribution to broader Program objectives. Analysis in the Program business case argued that despite this, the light rail was justified because it would attract investment and promote economic development around the route. The Program business case referred to several international examples to support this argument, but did not make a convincing case that these examples were comparable to the proposed light rail in Newcastle.

The business case analysis of the benefits and costs of light rail was prepared after the decision to build light rail had been made and announced. Our previous reports, and recent reports by others, have emphasised the importance of completing thorough analysis before announcing infrastructure projects. Some advice provided after the initial light rail decision was announced was overly optimistic. It included benefits that cannot reasonably be attributed to light rail and underestimated the scope and cost of the project.

The audited agencies argue that the contribution of light rail cannot be assessed separately because it is part of a broader Program. The cost of the light rail makes up around 53 per cent of the total Program funding. Given the high cost of the light rail, we believe agencies need to be able to demonstrate that this investment provides value for money by making a measurable contribution to the Program objectives.

Recommendations
For future infrastructure programs, NSW Government agencies should support economical decision-making on infrastructure projects by:

• providing balanced advice to decision makers on the benefits and risks of large infrastructure investments at all stages of the decision-making process
• providing scope and cost estimates that are as accurate and complete as possible when initial funding decisions are being made
• making business cases available to the public.​​​​​​

The planned uses of the former railway land achieve a balance between the economic and social objectives of the Program at a reasonable cost to the government.

The planned uses of the former railway land align with the objectives of encouraging people to visit and live in the city centre, creating attractive public spaces, and supporting growth in employment in the city. The transport benefits of the activities are less clear, because the light rail is the major transport project and this will not make significant improvements to transport in Newcastle.

The processes used for selling and leasing parts of the former railway land followed industry standards. Options for the former railway land were identified and assessed systematically. Competitive processes were used for most transactions and the required assessment and approval processes were followed. The sale of land to the University of Newcastle did not use a competitive process, but required processes for direct negotiations were followed.

Recommendation
By March 2019, the Hunter and Central Coast Development Corporation should:

• work with relevant stakeholders to explore options for increasing the focus on the heritage objective of the Program in projects on the former railway land. This could include projects that recognise the cultural and industrial heritage of Newcastle.

Consultations about the urban renewal activities followed good practice standards, but consultation on transport decisions for the Program did not.

Consultations focusing on urban renewal options for the Program included a range of stakeholders and provided opportunities for input into decisions about the use of the former railway land. These consultations received mostly positive feedback from participants. Changes and additions were made to the objectives of the Program and specific projects in response to feedback received. 

There had been several decades of debate about the potential closure of the train line, including community consultations in 2006 and 2009. However, the final decision to close the train line was made and announced in 2012 without a specific community consultation. HCCDC states that consultation with industry and business representatives constitutes community consultation because industry representatives are also members of the community. This does not meet good practice standards because it is not a representative sample of the community.

There was no community consultation on the decision to build a light rail. There were subsequent opportunities for members of the community to comment on the implementation options, but the decision to build it had already been made. A community and industry consultation was held on which route the light rail should use, but the results of this were not made public. 

Recommendation
For future infrastructure programs, NSW Government agencies should consult with a wide range of stakeholders before major decisions are made and announced, and report publicly on the results and outcomes of consultations. 

The governance arrangements that were in place during the planning stages of the Program did not provide effective oversight. Project leadership and oversight improved during the implementation phase of the Program.

Multi-agency coordination and oversight were ineffective during the planning stages of the Program. Examples include: multiple versions of Program objectives being in circulation; unclear reporting lines for project management groups; and poor role definition for the initial advisory board. Program ownership was clarified in mid-2016 with the appointment of a new Program Director with clear accountability for the delivery of the Program. This was supported by the creation of a multi-agency steering committee that was more effective than previous oversight bodies.

The limitations that existed in multi-agency coordination and oversight had some negative consequences in important aspects of project management for the Program. This included whole-of-government benefits management and the coordination of work to mitigate impacts of the Program on small businesses.

Recommendations
For future infrastructure programs, NSW Government agencies should: 

• develop and implement a benefits management approach from the beginning of a program to ensure responsibility for defining benefits and measuring their achievement is clear
• establish whole-of-government oversight early in the program to guide major decisions. This should include:
  • agreeing on objectives and ensuring all agencies understand these
  • clearly defining roles and responsibilities for all agencies
  • establishing whole-of-government coordination for the assessment and mitigation of the impact of major construction projects on businesses and the community.

By March 2019, the Hunter and Central Coast Development Corporation should update and implement the Program Benefits Realisation Plan. This should include:

• setting measurable targets for the desired benefits
• clearly allocating ownership for achieving the desired benefits
• monitoring progress toward achieving the desired benefits and reporting publicly on the results.

While Infrastructure NSW and Transport for NSW managed the assessment processes effectively overall, they have not fully maintained all required documentation, such as conflict of interest registers. Keeping accurate records is important to support transparency and accountability to the public about funding allocation. The relevant agencies have taken steps to address this in the current funding rounds for both programs.

For both programs assessed, the relevant agencies have developed good strategies over time to support councils through the application process. These strategies include workshops, briefings and feedback for unsuccessful applicants. Transport for NSW and the Department of Premier and Cabinet have implemented effective tools to assist applicants in demonstrating the economic impact of their projects.

Infrastructure NSW is effective in identifying projects that are 'at‑risk' and assists in bringing them back on track. Infrastructure NSW has a risk‑based methodology to verify payment claims, which includes elements of good practice in grants administration. For example, it requires grant recipients to provide photos and engages Public Works Advisory to review progress claims and visit project sites.

Infrastructure NSW collects project completion reports for all Resources for Regions and Fixing Country Roads funded projects. Infrastructure NSW intends to assess benefits for both programs once each project in a funding round is completed. To date, no funding round has been completed. As a result, no benefits assessment has been done for any completed project funded in either program.

 

The project selection criteria are consistent with the program objectives set by the NSW Government, and the RIAP applied the criteria consistently. Probity and record keeping practices did not fully comply with the probity plans.

The assessment methodology designed by Infrastructure NSW is consistent with2 the program objectives and criteria. In the rounds that we reviewed, all funded projects met the assessment criteria.

Infrastructure NSW developed probity plans for both programs which provided guidance on the record keeping required to maintain an audit trail, including the use of conflict of interest registers. Infrastructure NSW and Transport for NSW did not fully comply with these requirements. The relevant agencies have taken steps to address this in the current funding rounds for both programs.

NSW Procurement Board Directions require agencies to ensure that they do not engage a probity advisor that is engaged elsewhere in the agency. Infrastructure NSW has not fully complied with this requirement. A conflict of interest arose when Infrastructure NSW engaged the same consultancy to act as its internal auditor and probity advisor.

While these infringements of probity arrangements are unlikely to have had a major impact on the assessment process, they weaken the transparency and accountability of the process.

Some councils have identified resourcing and capability issues which impact on their ability to participate in the application process. For both programs, the relevant agencies conducted briefings and webinars with applicants to provide advice on the objectives of the programs and how to improve the quality of their applications. Additionally, Transport for NSW and the Department of Premier and Cabinet have developed tools to assist councils to demonstrate the economic impact of their applications.

The relevant agencies provided feedback on unsuccessful applications to councils. Councils reported that the quality of this feedback has improved over time.

Recommendations

1. By June 2018, Infrastructure NSW should:
   • ensure probity reports address whether all elements of the probity plan have been effectively implemented.

2. By June 2018, Infrastructure NSW and Transport for NSW should:
   • maintain and store all documentation regarding assessment and probity matters according to the State Records Act 1998, the NSW Standard on Records Management and the relevant probity plans

Infrastructure NSW is responsible for overseeing and monitoring projects funded under Resources for Regions and Fixing Country Roads. Infrastructure NSW effectively manages projects to keep them on track, however it could do more to assure itself that all recipients have complied with funding deeds. Benefits and outcomes should also start to be measured and reported as soon as practicable after projects are completed to inform assessment of future projects.

Infrastructure NSW identifies projects experiencing unreasonable delays or higher than expected expenses as 'at‑risk'. After Infrastructure NSW identifies a project as 'at‑risk', it puts in place processes to resolve issues to bring them back on track. Infrastructure NSW, working with Public Works Advisory regional offices, employs a risk‑based approach to validate payment claims, however this process should be strengthened. Infrastructure NSW would get better assurance by also conducting annual audits of compliance with the funding deed for a random sample of projects.

Infrastructure NSW collects project completion reports for all Resources for Regions and Fixing Country Roads funded projects. It applies the Infrastructure Investor Assurance Framework to Resources for Regions and Fixing Country Roads at a program level. This means that each round of funding (under both programs) is treated as a distinct program for the purposes of benefits realisation. It plans to assess whether benefits have been realised once each project in a funding round is completed. As a result, no benefits realisation assessment has been done for any project funded under either Resources for Regions or Fixing Country Roads. Without project‑level benefits realisation, future decisions are not informed by the lessons from previous investments.

Recommendations

3. By December 2018, Infrastructure NSW should:
   • conduct annual audits of compliance with the funding deed for a random sample of projects funded under Resources for Regions and Fixing Country Roads
   • publish the circumstances under which unspent funds can be allocated to changes in project scope
   • measure benefits delivered by projects that were completed before December 2017
   • implement an annual process to measure benefits for projects completed after December 2017

4. By December 2018, Transport for NSW and Infrastructure NSW should:
   • incorporate a benefits realisation framework as part of the detailed application.