What this report is about

WestInvest is a $5 billion funding program announced in September 2021 to provide ‘local infrastructure to help communities hit hard by COVID-19’ in 15 local government areas (LGAs) selected by the government. It was divided into three parts: $3 billion for NSW government agency projects; $1.6 billion for competitive grants to councils and community groups; and $400 million for non-competitive grants to councils.

Following the change of government at the 2023 election, the program was renamed the Western Sydney Infrastructure Grants Program. Funding decisions made for the community and local government grants were retained, but multiple funding decisions for the NSW government projects were changed.

The audit objective was to assess the integrity of the design and implementation of the program and the award of program funding.

Findings

The design of the program lacked integrity because it was not informed by robust research or analysis to justify the commitment of public money to a program of this scale.

The then government did not have sufficient regard to the implications for the state's credit rating. A risk to the credit rating arose because the government may have been perceived to be using proceeds from major asset sales to fund new expenditure, rather than pay down its debt.

Decisions about program design were made by the then Treasurer's office without consultation with affected communities. The rationale for these decisions was not documented or made public.

For the NSW government projects, funding allocations did not follow advice from departments. Many funded projects did not meet the objectives of the program.

The two other rounds of the program were administered effectively, except for some gaps in documentation and quality assurance. The program guidelines did not require an equitable or needs-based distribution of funding across LGAs and there was a significant imbalance in funding between the 15 LGAs.

Recommendations

Our recommendations for the administration of future funding programs included:

• considering whether competitive grants are the best way to achieve the program's purpose
• completing program design and guidelines before announcements
• ensuring adequate quality assurance.

We also recommended that when providing advice for submissions by Ministers to Cabinet, agencies should ensure that departmental advice is clearly identified and is distinct from other advice or political considerations.

Read the PDF report

Parliamentary reference - Report number #391 - released 28 February 2024

What the report is about

Effective radio communications are crucial to NSW's emergency services organisations.

The Critical Communications Enhancement Program (CCEP) aims to deliver an enhanced public safety radio network to serve the five emergency services organisations (ESOs), as well as a range of other users.

This report assesses whether the NSW Telco Authority is effectively managing the CCEP.

What we found

Where it has already been delivered (about 50% of the state), the enhanced network meets most of the requirements of ESOs.

The CCEP will provide additional infrastructure for public safety radio coverage in existing buildings agreed to with ESOs. However, radio coverage inside buildings constructed after the CCEP concludes will be at risk because building and fire regulations do not address the need for in-building public safety radio coverage.

Around 98% of radios connected to the network can be authenticated to protect against cloning, though only 42% are.

The NSW Telco Authority has not settled with ESOs on how call encryption will be used across the network. This creates the risk that radio interoperability between ESOs will not be maximised.

When completed, the public safety radio network will be the only mission critical radio network for ESOs. It is unclear whether governance for the ongoing running of the network will allow ESOs to participate in future network operational decisions.

The current estimated capital cost for the NSW Telco Authority to complete the CCEP is $1.293 billion. This is up from an estimated cost of $400 million in 2016. The estimated capital cost was not publicly disclosed until $1.325 billion was shown in the 2021–22 NSW Budget Papers.

We estimate that the full cost to government, including costs to the ESOs, of implementing the enhanced network is likely to exceed $2 billion.

We made recommendations about

• The governance of the enhanced Public Safety Network (PSN) to support agency relationships.
• The need to finalise a Traffic Mitigation Plan for when the network is congested.
• The need to provide advice to the NSW Government about the regulatory gap for ensuring adequate network reach in future buildings.
• The need to clarify how encryption and interoperability will work on the enhanced network.
• The need for the NSW Telco Authority to comply with its policy on Infrastructure Capacity Reservation.
• Expediting measures to protect against the risk of cloning by unauthenticated radios.

Public safety radio networks are critical for operational communications among Emergency Services Organisations (ESOs), which in New South Wales include:

• NSW Ambulance
• Fire and Rescue NSW
• NSW Police Force
• NSW Rural Fire Service
• NSW State Emergency Service.¹

Since 1993, these five ESOs have had access to a NSW Government owned and operated radio communications network, the Public Safety Network (PSN), to support their operational communications. Around 60 to 70 other entities also have access to this network, including other NSW government entities, Commonwealth government entities, local councils, community organisations, and utility companies.

Pursuant to the Government Telecommunications Act 2018 ('the Act'), the New South Wales Government Telecommunications Authority ('NSW Telco Authority') is responsible for the establishment, control, management, maintenance and operation of the PSN.²

Separate to the PSN, all ESOs and other government entities have historically maintained their own radio communication capabilities and networks. Accordingly, the PSN has been a supplementary source of operational radio communications for these entities.

These other radio networks maintained by ESOs and other entities are of varying size and capability, with many ageing and nearing their end-of-life. There was generally little or no interoperability between networks, infrastructure was often co-located and duplicative, and there were large gaps in geographic coverage.

In 2016, the NSW Telco Authority received dedicated NSW Government funding to commence the Critical Communications Enhancement Program (CCEP).

According to NSW Telco Authority's 2021–22 annual report, the CCEP is a transformation program for operational communications for NSW government agencies. The CCEP '…aims to deliver greater access to public safety standard radio communications for the State’s first responders and essential service agencies'. The objective of CCEP is to consolidate the large number of separate radio networks that are owned and operated by various NSW government entities and to enhance the state’s existing shared PSN. The program also aims to deliver increased PSN coverage throughout New South Wales.

The former NSW Government intended that as the enhanced PSN was progressively rolled-out across NSW, ESOs would migrate their radio communications to the enhanced network, before closing and decommissioning their own networks.

About this Audit

This audit assessed whether the CCEP is being effectively managed by the NSW Telco Authority to deliver an enhanced PSN that meets ESOs' requirements for operational communications.

We addressed the audit objective by answering the following two questions:

1. Have agreed ESO user requirements for the enhanced PSN been met under day-to-day and emergency operational conditions?
2. Has there been adequate transparency to the NSW Government and other stakeholders regarding whole-of-government costs related to the CCEP?

In answering the first question, we also considered how the agreed user requirements were determined. This included whether they were supported by evidence, whether they were sufficient to meet the intent of the CCEP (including in considering any role for new or alternative technologies), and whether they met any relevant technical standards and compliance obligations (including for cyber security resilience).

While other NSW government agencies and entities use the PSN, we focused on the experience of the five primary ESOs because these will be the largest users of the enhanced PSN.

Both the cost and time required to complete the CCEP roll-out have increased since 2016. While it was originally intended to be completed in 2020, this is now forecast to be 2027. Infrastructure NSW has previously assessed the reasons for the increases in time and cost. A summary of the findings made by Infrastructure NSW is presented in Chapter 1 of this report. Accordingly, as these matters had already been assessed, we did not re-examine them in this performance audit.

The auditee for this performance audit is the NSW Telco Authority, which is a statutory authority within the Department of Customer Service portfolio.

In addition to being responsible for the operation of the PSN, section 5 of the Act also prescribes that the NSW Telco Authority is:

• to identify, develop and deliver upgrades and enhancements to the government telecommunications network to improve operational communications for government sector agencies
• to develop policies, standards and guidelines for operational communications using telecommunications networks.

The NSW Telco Authority Advisory Board is established under section 10 of the Act. The role of the board is to advise the NSW Telco Authority and the minister on any matter relating to the telecommunications requirements of government sector agencies and on any other matter relating to the functions of the Authority. As of 2 June 2023, the responsible minister is the Minister for Customer Service and Digital Government.

The five identified ESOs are critical stakeholders of the CCEP and therefore they were consulted during this audit. However, the ESOs were not auditees for this performance audit.

The NSW Telco Authority established and tracked its own costs for the CCEP

Over the course of the program from 2016, the NSW Telco Authority prepared a series of business cases and program reviews that estimated its cost of implementing the program in full, including those shown in Exhibit 6 below.

In response to the 2016 CCEP business case, the then NSW Government approved the NSW Telco Authority implementing the CCEP in full, with funding provided in stages. The NSW Telco Authority tracked its costs against approved funding, with monthly reports provided to the multi-agency Program Steering Committee

Throughout the program, the NSW Government was informed of increasing costs being incurred by the NSW Telco Authority for the CCEP

The various business cases, program updates, and program reviews prepared by the NSW Telco Authority were provided to the NSW Government through the required Cabinet process when seeking approval for the program proceeding and requests for both capital and operational funding. These provided clear indication of the changing overall cost of the CCEP to the NSW Telco Authority, as well as the delays that were being experienced.

There was no transparency to the Parliament and community about changes in the capital cost of the CCEP until the 2021–22 NSW Budget

As the business cases for the CCEP were not publicly available, the only sources of information about capital cost were NSW Budget papers and media releases. The information provided in the annual Budget papers prior to the 2021–22 NSW Budget provided no visibility of the estimated full capital cost to complete all stages of the CCEP. As shown in Exhibit 7 below, this information was fragmented and complex.

Media releases about the progress of the CCEP did not provide the estimated total cost to the NSW Telco Authority of $1.325 billion to complete all stages of the CCEP until June 2021. Prior to this date, media releases only provided funding for the initial stages of the program or for the stages subject to a funding announcement.

Even during the September 2019 and March 2020 Parliamentary Estimate Committee hearings where the costings and delays to the CCEP were raised, the estimated full cost of the CCEP was not revealed.

The original business case for the CCEP included estimated ESO costs, though these costs were not tracked throughout the program

Estimates for ESO costs for operating and maintaining their own radio networks over the four years from 2016–17 were included in the original March 2016 business case. They included $75.2 million for capital expenditure and $95 million for one-off operating costs. These costs, as well as costs incurred by ESOs due to the delay in the program, were not subsequently tracked by the NSW Telco Authority.

In January 2017, Infrastructure NSW reviewed the CCEP business case of March 2016. In this review, Infrastructure NSW recommended that the NSW Telco Authority identify combined and apportioned costs and cashflow for all ESOs over the CCEP funding period reflecting all associated costs to deliver the CCEP. These to include additional incidental capital costs accruing to ESOs, transition and migration to the new network and the cost (capital and operational) of maintaining existing networks. This recommendation was implemented in the November 2017 program review, with ESO capital costs estimated as $183 million.

In 2019, Infrastructure NSW conducted a Deep Dive Review on the progress of the CCEP. In this review, Infrastructure NSW made what it described as a 'critical recommendation' that the NSW Telco Authority:

It should be noted that the delay to CCEP completion now is seven years and that further ‘operational bridging solutions’ have been needed by the ESOs.

'Stay Safe and Keep Operational' costs incurred by ESOs will be significantly higher than originally estimated

Stay Safe and Keep Operational (SSKO) funding was established to provide funding to ESOs to maintain their legacy networks while the CCEP was refreshing and enhancing the PSN. This recognised that much of the network infrastructure relied on by ESOs had reached – or was reaching – obsolescence and would either require extensive maintenance or replacement before the PSN was available for ESOs to migrate to it. ESOs may apply to NSW Treasury for SSKO funding, with their specific proposals being reviewed (and endorsed, where appropriate) by the NSW Telco Authority. Accordingly, SSKO expenditure does not fall within the CCEP budget allocation.

As shown in the table below, extracted from the March 2016 CCEP business case, the total expected cost for SSKO purposes over the course of the CCEP was originally $40 million, assuming the enhanced PSN would be fully available by 2020.

In October 2022, the expected completion date for the CCEP was re-baselined to August 2027. Accordingly, ESOs will be required to continue to maintain their radio networks using legacy equipment for seven years longer than the original 2020 forecast. This will likely become progressively more expensive and require additional SSKO funding. For example, NSW Telco Authority endorsed SSKO bids for 2022–23 exceeded $35 million for that year alone.

Compared to the original forecast made in the March 2016 CCEP business case of $40 million, we found ESOs had estimated SSKO spending to 2027 will be $292.5 million.

A refresh of paging network used by ESOs and the decommissioning of redundant sites were both removed from the original 2016 scope of the CCEP

Paging

A paging network is considered an important user requirement by the Fire and Rescue NSW, NSW Rural Fire Service, and NSW State Emergency Service. The 2016 CCEP business case included a paging network refresh within the program scope of works. This was reiterated in the November 2017 internal review of the program. These documents did not estimate a cost for this refresh. The March 2020 and October 2020 business cases excluded paging from the program scope. The audit is unable to identify when, why or by whom the decision was made to remove paging from the program scope, something that was also not well communicated to the affected ESOs.

In 2021, after representations from the affected ESOs, the NSW Telco Authority prepared a separate business case for a refresh of the paging network at an estimated capital cost of $60.31 million. This program was subsequently approved by the NSW Government and included in the 2022–23 NSW Budget.

In determining an estimated full whole-of-government cost of delivering the enhanced PSN, we have included the budgeted cost of the paging network refresh on the basis that:

• it was expressly included in the original approved March 2016 business case
• the capability is deemed essential to the needs of three ESOs.

Decommissioning costs

The 2016 CCEP business case included cost estimates for decommissioning surplus sites (whether ‘old’ GRN sites or sites belonging to ESOs’ own networks). These estimates were provided for both the NSW Telco Authority ($38 million) and for the ESOs ($55 million). However, while these estimates were described, they were not included as part of the NSW Telco Authority's estimated capital cost ($400 million) or (more relevantly) operating cost ($37.3 million) for the CCEP. This is despite decommissioning being included as one of eight planned activities for the rollout of the program.

In the October 2020 business case, an estimate of $201 million was included for decommissioning agency networks based on a model whereby:

• funding would be coordinated by the NSW Telco Authority
• scheduling and reporting through an inter-agency working group and
• where appropriate, agencies would be appointed as the most appropriate decommissioning party.

This estimated cost is not included in the CCEP budget.

In determining an estimated full whole-of-government cost of the enhanced PSN, we have included the estimated cost of decommissioning on the basis that:

• decommissioning was included in the 2016 CCEP business case as one of eight 'planned activities for the rollout of the program'
• effective decommissioning of surplus sites and equipment (including as described in the business case as incorporating asset decommissioning, asset re-use, and site make-good) is an inherent part of the program management for an enhanced PSN
• costs incurred in decommissioning are entirely a consequence of the CCEP program.

The estimated minimum cost of building an enhanced PSN consistent with the original proposal is over $2 billion

We have derived two estimated minimum whole-of-government costs for delivering an enhanced PSN. These are:

• $2.04 billion when calculated from NSW Telco Authority data – shown as estimate A in Exhibit 9 below.
• $2.26 billion when calculated from ESO supplied data – shown as estimate B in Exhibit 9.

Both totals include:

• budgeted amounts for both CCEP capital expenditure ($1,292.8 million) and operating expenditure ($139 million)
• the NSW Telco Authority's 2020 estimated cost for decommissioning ($201 million)
• the NSW Telco Authority's approved funding for paging refresh ($60.3 million).

The two estimated totals primarily vary around the capital expenditure of ESOs (particularly SSKO funding). To determine these costs, we used ESO provided actual SSKO costs to date, as well as their estimates for maintaining their legacy radio networks through to 2027.

The equivalent cost estimates from the NSW Telco Authority were sourced from the November 2017 internal review and the October 2020 business case for CCEP. It should be noted that the amounts for both estimates are not audited, or verified, but do provide an indication of how whole-of-government costs have grown over the course of the program.

The increase in and reasons for the increase in total CCEP costs (capital and one-off operating) incurred or forecast by the NSW Telco Authority (from $437.3 million in 2016 to $1,431.8 million in 2022) have been provided to the NSW Government through various business cases and reviews prepared by the NSW Telco Authority, as well as by reviews conducted by Infrastructure NSW as part of its project assurance responsibilities.

However, the growth in ESO costs and other consequential costs, such as paging and decommissioning, from around $263 million in the 2016 CCEP business case to between $600 million and $800 million, has to a large degree remained invisible and unexplained to the NSW Government and other stakeholders

Appendix one – Response from agency

Appendix two – Trunked public safety radio networks

Appendix three – About the audit

Appendix four – Performance auditing

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #383 - released 23 June 2023

What the report is about

Sydney Metro is Australia’s largest public transport project. It requires the acquisition of many private properties, including residential and business properties.

This audit assessed the effectiveness of the acquisition of private properties for the Sydney Metro project. The audited agencies were Sydney Metro, the Department of Planning and Environment (Valuer General NSW) and Transport for NSW (the Centre for Property Acquisition).

The audit assessed agencies against the framework for property acquisitions in New South Wales. It did not re-perform the valuations done for individual properties that were acquired by Sydney Metro.

What we found

Acquisitions of private property for the Sydney Metro project were mostly effective in the sample of acquisitions we assessed. We found Sydney Metro:

• complied with legislative and policy requirements for compensation and communication with people subject to property acquisitions
• kept accurate records of its acquisitions and applied probity controls consistently
• did not complete detailed plans or negotiation strategies for the high-risk and high-value acquisitions we reviewed
• did not comply with legislative timelines for most compulsory acquisitions because of delays in receiving the required information from the Valuer General in these cases.

The Centre for Property Acquisition has overseen the implementation of reforms to residential acquisition processes, but its assessment of the effectiveness of these reforms has not been comprehensive.

What we recommended

The audit made four recommendations to the audited agencies to improve:

• plans and strategies for the acquisition of high-risk and high-value properties
• timeliness of issuing compensation determinations for compulsory acquisitions
• data quality on the experience of people subject to property acquisitions.

The NSW Government has the power to acquire land that is owned or leased by individuals or businesses, if it is needed for a public purpose. The power arises from the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act). Government agencies that have the power to compulsorily acquire private property are referred to as ‘acquiring authorities’. People who are subject to acquisitions are referred to as ‘affected parties’ and include property owners (business or residential), businesses with a commercial lease on a property, or individuals with residential tenancy leases. In recent years, the vast majority of acquisitions by the NSW Government have been for public transport or road projects.

Sydney Metro is a NSW Government agency with responsibility for building the Sydney Metro railway project. Sydney Metro is Australia’s largest public transport project. The project requires the acquisition of a large number of private properties. Sydney Metro has been one of the largest acquirers of private property in recent years, completing over 500 acquisitions between 2020 and mid-2022, with a total acquisition value of over $2 billion. Other agencies and statutory officers involved in the acquisition of property for the Sydney Metro project include:

• the Department of Planning and Environment (DPE), which supports the minister responsible for the Just Terms Act. DPE also provides staff to the Valuer General of NSW
• the Valuer General of NSW, an independent statutory officer that determines compensation in cases where the acquiring authority and the affected party cannot agree on compensation for property that has been acquired
• Transport for NSW, which includes the Centre for Property Acquisition (CPA). The CPA does not have a direct role in acquiring properties, but its responsibilities include developing guidance for acquiring agencies and monitoring and reporting on their activities.

About this audit

The objective of this audit was to assess the effectiveness of acquisitions of private properties for Sydney Metro projects. The audit assessed agencies against the legislative and policy requirements in place for government acquisitions of private property in New South Wales. In line with the Audit Office's legislative mandate, the audit does not comment on the merits of the policy objectives reflected in the Just Terms Act.

The audit examined a sample of 20 property acquisitions. This was not a statistically representative sample. While our report provides comments on Sydney Metro’s overall acquisition processes, it does not provide assurance regarding the acquisitions that were not examined for this audit.

The audit did not re-perform the valuations done for individual properties that were acquired by Sydney Metro. Affected parties who disagree with the valuation of their property have the right to seek independent assessment of this via the Valuer General and the Land and Environment Court.

This chapter presents our findings on Sydney Metro's acquisition of industrial and commercial properties. Industrial properties include construction businesses and manufacturing facilities. Commercial properties were mostly properties such as shopping centres and office towers. Many of these acquisitions involve businesses and properties that are relatively complex and have high values. This means the valuation process can require multiple experts and can be lengthy and contested. Adherence to governance and probity requirements is important for these acquisitions in order to demonstrate that the acquiring authority has achieved value for money.

This chapter presents our findings on Sydney Metro's acquisition of residential properties, which include apartments and houses, and small business leases, which mostly affected businesses in small shopping centres or arcades. Most of these acquisitions were lower value compared to industrial and commercial property acquisitions and did not require as much expert advice on complex technical issues. However, residential property acquisitions can be personally distressing for the affected parties and require staff from the acquiring authority to provide support and show empathy while ensuring legislative compliance and value for money.

Appendix one – Responses from agencies

Appendix two – About the audit 

Appendix three – Performance auditing 

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #375 - released 9 February 2023

What the report is about

The Transport Asset Holding Entity (TAHE) is the State's custodian of rail assets. It is a state owned corporation and commenced operating on 1 July 2020.

This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. We audited TAHE, Transport for NSW (TfNSW) and NSW Treasury.

Separate and related audits on TAHE are reported in 'State Finances 2022', 'State Finances 2021' and 'Transport and Infrastructure 2022' reports.

What we found

The design and implementation of TAHE, which spanned seven years, was not effective.

The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to support an accounting treatment to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments.

The benefits of TAHE were claimed in the 2015–16 NSW Budget before the enabling legislation was passed by Parliament in 2017. This committed the agencies to implement a solution that justified the 2015–16 Budget impacts, regardless of any challenges that arose.

Rail safety arrangements were a priority throughout TAHE's design and implementation, and risks were raised and addressed.

Agencies relied heavily on consultants on matters related to the creation of TAHE, but failed to effectively manage these engagements. Agencies failed to ensure that consultancies delivered independent advice as an input to decision-making. A small number of firms were used repeatedly to provide advice on the same topic. The final cost of TAHE-related consultancies was $22.6 million compared to the initial estimated cost of $12.9 million.

What we recommended

We recommended that the audited agencies should:

• improve accountability and transparency for major new fiscal transformation initiatives
• ensure entities do not reflect the financial impact of significant initiatives in the Budget when there is uncertainty, or it creates perverse incentives
• review record keeping practices, systems and policies to ensure compliance with the State Records Act 1998, and the NSW Government Information Classification, Labelling and Handling Guidelines
• review procurement policies to ensure that consultant use complies with all NSW Government policy requirements.

The NSW Government established the Transport Asset Holding Entity (TAHE), a statutory State Owned Corporation (SOC), on 1 July 2020 to replace the former rail infrastructure owner – RailCorp. It is the State's custodian of rail network assets, including rail tracks and other infrastructure, rolling stock, land, train stations and facilities, retail space, and signal and power systems, within metropolitan and regional New South Wales. It is responsible for $2.8 billion of major capital projects in 2022–23.

TAHE was established under Part 2 of the Transport Administration Act 1988 and is governed by a decision-making board. The Treasurer and the Minister for Finance and Employee Relations are the Shareholding Ministers of TAHE, and they annually agree performance expectations articulated in a Statement of Corporate Intent.

Whereas TAHE is the custodian of rail assets, Sydney Trains and NSW Trains operate public rail services. TAHE does not have responsibility for the operation of the heavy rail network or train services, nor does it have network control functions. TAHE, Sydney Trains and NSW Trains are in the Transport and Infrastructure cluster in the public sector (formerly the Transport cluster and renamed in April 2022), which also includes Sydney Metro and Transport for NSW (TfNSW).

TfNSW leads the Transport and Infrastructure cluster. Its role is to set the strategic direction for transport across the State. This involves the shaping of planning, policy, strategy, regulation, resource allocation and other service and non-service delivery functions for all modes of transport.

TAHE's Operating Licence is granted by the Portfolio Minister and authorises the entity to perform the functions required to acquire, develop, finance, divest and hold assets, pursuant to the Transport Administration Act 1988. The Portfolio Minister also issues a Statement of Expectations which outlines the government’s expectation for the business for the next three to five years.

TAHE's original Portfolio Minister was the Minister for Transport who approved, on 30 June 2020, the issuing of an interim 12-month Operating Licence to enable TAHE to commence operating on 1 July 2020. The Portfolio Minister then granted TAHE's current Operating Licence in 2021. After TAHE requested a 12-month extension to its current Operating Licence, its next Operating Licence is due on 1 July 2024. The current Portfolio Minister is the Minister for Infrastructure, Cities and Active Transport.

About this audit

This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. In making this assessment, we considered whether: 

• the process of designing and implementing TAHE was cohesive and transparent, and delivered an effective outcome
• agencies' roles and responsibilities were clear in the planning of TAHE
• agencies effectively identified and managed certain risks.

Appendix one – Responses from audited agencies, and Audit Office clarification of matters raised in the TAHE formal response 

Appendix two – Classification of government entities 

Appendix three – About the audit 

Appendix four – Performance auditing

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #372 - released 24 January 2023

What the report is about

The report focuses on how effectively the Department of Customer Service (DCS) and Department of Planning and Environment (DPE) led reforms addressing the unsafe use of combustible external cladding on existing residential and public buildings.

Nine local councils were included in the audit because they have responsibilities and powers needed to implement the NSW Government’s reforms.

What we found

After the June 2017 Grenfell Tower fire in London, the NSW Government committed to a ten-point action plan, which included establishing the NSW Cladding Taskforce, chaired by DCS, and with DPE as a key member. The Taskforce co-ordinates and oversees the implementation of the plan.

Depending on the original source of development approval, either individual local councils or DPE are responsible for ensuring that buildings are identified, assessed, and remediated. NSW Government-owned buildings are the responsibility of each department.

Identifying buildings potentially at risk was complex and resource intensive. However, on balance, it is likely that most affected buildings have now been identified.

By October 2021, around 40 per cent of assessed high-risk buildings that are the responsibility of local councils had either been remediated or found not to pose an unacceptable fire risk.

By February 2022, almost 50 per cent of affected NSW Government-owned buildings, and 90 per cent of buildings that are the responsibility of DPE, have either been cleared or are in the process of being remediated.

Earlier guidance on some key issues could have been provided by DCS and DPE in the two years after the Grenfell Tower fire. This may have reduced confusion and inconsistency across local councils we audited, and in some NSW Government departments. This especially relates to the application of the Fair Trading Commissioner's product use ban.

Given the inherent risks posed by combustible external cladding, buildings initially assessed as low-risk may also still warrant further action.

While most high-risk buildings have likely been identified, poor information handling makes it difficult to keep track of all buildings from identification, through to risk assessment and remediation.

What we recommended

DCS and DPE should:

1. address the confusion surrounding the application of the Commissioner for Fair Trading's product use ban for aluminium composite panels with polyethylene content greater than 30 per cent
2. develop an action plan to address buildings assessed as low-risk
3. improve information systems to track all buildings from identification through to remediation.

NSW Government's response to the risks posed by combustible external cladding

The NSW Government first became aware of the potential heightened risks posed by combustible external cladding on building exteriors after the 2014 Lacrosse Tower fire in Melbourne. However, it was the tragic loss of life from the Grenfell Tower fire in London, in June 2017, that gave added urgency to the need to address these risks.

Within six weeks of the London fire, the NSW Government committed to a ten-point plan of action for NSW to:

• identify and remediate any buildings with combustible external cladding
• ensure that regulation prevented the unsafe use of such cladding
• ensure that experts involved in providing advice and certifying fire safety measures had the necessary skills and experience.

One of the actions in the ten-point plan was the creation of the NSW Government's Fire Safety and External Wall Cladding Taskforce (the Cladding Taskforce) chaired by the Department of Customer Service (DCS) and with the Department of Planning and Environment (DPE) as a key member.

The ten-point plan also specified that NSW Government departments would be responsible, in regard to buildings they owned to '…audit their buildings and determine if they have aluminium cladding'.

Local councils play a key role in implementing the Government's reforms, given their responsibilities and powers under the Environmental Planning and Assessment Act 1979 (EPA Act) and Local Government Act 1993 (Local Government Act) to approve building works (as 'consent authorities'), as well as to ensure fire safety standards are met. DPE plays an equivalent role for a smaller number of 'State Significant Developments' for which it is the consent authority under delegation from the Minister for Planning.

Commissioner for Fair Trading's building product use ban

On 18 December 2017, the Building Products (Safety) Act 2017 (BPS Act) came into effect in NSW, introducing new laws to prevent the use of unsafe building products. Notably, the BPS Act gave the Secretary of DCS and the Commissioner for Fair Trading the power to ban unsafe uses of building products.

After an extensive consultative process, the Commissioner for Fair Trading used these powers to issue a product use ban on 15 August 2018. This banned the use of external wall cladding of aluminium composite panels with a core comprised of more than 30 per cent polyethylene by mass on new buildings, unless the proposed use was subject to independent fire propagation testing of the specific product and method of application to a building in accordance with relevant Australian Standards.

Buildings occupied before the product use ban came into force are not automatically required to have the banned product removed. Under the BPS Act, consent authorities may determine necessary actions to eliminate or minimise the risk posed by the banned material on existing buildings.

Project Remediate

Project Remediate is a three-year NSW Government program announced in November 2020. The program was designed by the NSW Government to assist building owners of multi-storey apartments (two storeys or more) with high-risk combustible cladding to remediate their building to a high standard and for a fair price.

The scheme is voluntary and includes government paying for the interest on ten-year loans, as well as incorporating assurance and project management services to provide technical and practical support to owners’ corporations and strata managing agents. Building remediations under the program are expected to commence in 2022.

About this audit

This audit assessed whether DCS and DPE effectively led reforms to manage the fire safety risk of combustible external cladding on existing residential and public buildings.

In making this assessment, we considered whether the expressed policy intent of the NSW Government's ten-point plan for fire safety reform had been achieved by asking:

• are the fire safety risks of combustible external cladding on existing buildings identified and remediated?
• is there a comprehensive building product safety scheme that prevents the dangerous use of combustible external cladding products on existing buildings?
• is fire safety certification for combustible external cladding on existing buildings carried out impartially, ethically and in the public interest by qualified experts?

Consistent with the focus of the Cladding Taskforce on multi-storey residential buildings and public buildings, the scope of our audit is limited to buildings categorised under the Building Code of Australia (BCA) as class 2, 3 and 9. These classes are defined in detail in section 1.2, but include: multi-unit residential apartments, hotels, motels, hostels, back-packers, and buildings of a public nature, including health care buildings, schools, and aged care buildings. The scope was also limited to existing buildings, which is defined as buildings occupied by 22 October 2018.

Auditees

The Department of Customer Service chairs the NSW Government's Cladding Taskforce, which is responsible for coordinating the combustible external cladding reforms. The Commissioner of Fair Trading sits within DCS and DCS regulates the industry accreditation scheme for fire safety practitioners, as well as administering the BPS Act.

The Department of Planning and Environment administers the EPA Act and the Environmental Planning and Assessment Regulation 2000 (EPA Regulation), which regulate the building development process. As well as being the delegated consent authority for State Significant Developments, DPE is also responsible for maintaining the mandatory cladding register requiring building owners of multi-storey (BCA class 2, 3 or 9) buildings to register buildings with combustible external cladding on an online portal.

Functions and responsibilities between DCS and DPE varied over time. For example, in October 2019, the DPE building policy team responsible for co-ordinating the DPE response to the combustible cladding issue was transferred to DCS, following changes to agency responsibilities resulting from machinery of government changes. DPE advised this resulted in a lessening of DPE's subsequent policy work on combustible cladding and its involvement in the Cladding Taskforce.

While the focus of the audit was on the oversight and coordination provided by DCS and DPE, nine councils were also auditees for this performance audit. Councils play an essential part as consent authorities for building development approvals in NSW, as well as having responsibilities and powers to ensure fire safety standards. To fully understand how well their activities were overseen and coordinated, a sample of councils was included as auditees.

Nine councils were selected to represent both metropolitan and regional areas, noting that there are very few in-scope buildings in rural areas. The audited councils were:

• Bayside Council
• City of Canterbury Bankstown Council
• Cumberland City Council
• Liverpool City Council
• City of Newcastle Council
• City of Parramatta Council
• City of Ryde Council
• City of Sydney Council
• Wollongong City Council.

Terminology

The two NSW Government department auditees have, over time, been subject to machinery of government changes, which have changed some of their functions and what the departments are called.

Relevant to this audit, the effect of these changes has been:

• the Department of Finance, Services, and Innovation (DFSI) became the Department of Customer Services (DCS) on 1 July 2019
• on 1 July 2019, the Department of Planning and Environment became the Department of Planning, Industry, and Environment (DPIE)
• on 21 December 2021, DPIE became the Department of Planning and Environment (DPE).

To avoid confusion, we use the titles by which these departments are known at the date of this report: the Department of Customer Service and the Department of Planning and Environment.

This chapter considers the part played by DCS and DPE as key members of the Cladding Taskforce in ensuring that buildings with combustible external cladding were effectively identified and remediated through processes implemented by:

• local councils or DPE, where those bodies were consent authorities under the EPA Act for the relevant buildings
• in the case of NSW Government buildings, the departments that owned those buildings.

This chapter considers what has been done to deliver a comprehensive building product safety scheme that prevents the dangerous use of combustible external cladding products.

This chapter considers whether reforms have ensured that only people with the necessary skills and experience are certifying buildings and signing off on fire-safety.

Inspections of existing buildings and development of any subsequent action plans to address combustible external cladding are not activities covered by accreditation or registration schemes for building certifiers

Almost all the risk assessment and remediation work done on buildings in the scope of this audit have been undertaken under fire safety orders issued by consent authorities using their powers under the EPA Act. This has been the recommended approach by DPE and DCS since at least 2016 (that is, before the Grenfell Tower fire in London).

While there have been reforms to certifier registrations scheme, these were not intended to ensure that combustible cladding-remediation on existing buildings is supported by people with the necessary skills and experience in fire safety under the fire safety order process. Instead, they are focused on offering better assurance for work done in respect to new building projects where accredited experts certify that building work is carried out in accordance with BCA under the DCS managed certifier registration schemes.

No steps have been taken to ensure the quality of the work done by experts inspecting, assessing the fire risk and developing action plans to address combustible external cladding on existing buildings, other than where consent authorities have chosen to exercise their discretion. This includes requiring fire safety experts to be appropriately qualified and requiring peer review of some cladding risk assessments and remediation plans.

Consent authorities determine whether individuals with accreditation are required for combustible cladding inspection, risk assessments and remediation on existing buildings

Whether an individual with certifier accreditation participates in a cladding inspection, risk assessment, or remediation for an existing building will be determined by what councils as consent authorities specify in their fire safety orders unless building owners opt to use such experts without being directed to do so by the consent authority.

As discussed earlier, councils acting as consent authorities vary in whether they require building owners to engage individuals with certifier accreditation. In most of the councils we audited, A1 or C10 accredited experts were either required, or recommended, to perform functions such as auditing suspected combustible cladding, or conducting fire safety risk assessments and developing plans to rectify combustible cladding.

However, these types of work are not functions covered by the accreditation or registration schemes that apply to building and development certifiers.

Certifier accreditation schemes do not cover cladding remediation work done under fire safety orders

While councils may require or recommend that independent accredited A1 or C10 certifiers be engaged by building owners for cladding risk assessment and remediation, they are not performing those functions as certifiers — they are, in effect, more akin to expert consultants. Accordingly, how they perform their functions and duties is not covered by the legislation supporting the accreditation scheme for certifiers that was operated until July 2020 by the Building Professional Board.

Instead, their use in this process is a convenient and practical way for consent authorities to ensure that building owners use appropriate experts who have the qualifications, skills and experience needed to investigate and identify combustible cladding, and then to formulate appropriate action to deal with such cladding. However, these individuals are not performing regulated or accredited work, are not subject to regulatory oversight, and are not accountable to any accreditation body for the quality of the work they perform.

While councils could (and sometimes do) choose to decline poor quality or incomplete cladding-related work prepared by A1 or C10 certifiers, the burden of resolving poor quality would fall on the building owner, who would have to seek amended or additional risk assessments or rectification plans.

In the absence of regulatory oversight, disincentives for poor quality cladding-related work, may include litigation being commenced by the property owner, harm to the expert's reputation in a small and competitive market, and the potential impact on whether the individual could retain their professional indemnity insurance at a reasonable cost (especially in an environment when many insurance providers withdrew coverage for cladding related work).

Reforms impact on regulated experts doing work on new buildings

The reforms that commenced on 1 July 2020, replaced categories of accreditation with classes of registration, and varied the classes such that:

• accredited building surveyor category A1 became registered building surveyor-unrestricted
• accredited certifier—fire safety engineer category C10 became registered certifiers-fire safety.

The legislation that introduced these reforms, the Building and Development Certifiers Act 2018, also repealed the pre-existing Building Professionals Act 2005 and abolished the Building Professionals Board. The new Act was accompanied by the Building and Development Certifiers Regulation 2020.

While the scope of this audit is limited to existing buildings, we note that there are buildings with combustible external cladding that are yet to be remediated. Just as these processes previously drew on the expertise of A1 and C10 category certifiers, it seems inevitable that the remediation of existing buildings will continue to draw on the expertise of the equivalent new classes of registered building surveyor-unrestricted and registered certifier-fire safety.

Appendix one – Response from agencies

Appendix two – About the audit

Appendix three – Performance auditing

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #364 - released 13 April 2022.

What the report is about

The movement of freight contributes $66 billion annually to the NSW economy. Two thirds of all freight in NSW moves through Greater Sydney, and the volume of freight moving through Greater Sydney is expected to increase by 48 per cent by 2036.

This audit assessed the effectiveness of transport agencies in improving the use of rail freight capacity in Greater Sydney, and to meet current and future freight demand.

What we found

Transport agencies do not have strategies or targets in place to improve the efficiency or capacity of the metropolitan shared rail network for freight.

The transport agencies acknowledge that they do not have sufficient information to achieve the most efficient freight outcomes and they do not know how to use the shared rail network to maximise freight capacity without compromising passenger rail services.

The Freight and Ports Plan 2018-2023 contains one target for rail freight - to increase the use of rail at Port Botany to 28 per cent by 2021. However, Transport for NSW (TfNSW)'s data indicates this target will not be met.

Sydney Trains records data on train movements and collects some data on delays and incidents. TfNSW collects data for the construction of the Standard Working Timetable and third-party contracts.

However, a lack of clarity around what data is gathered and who has ownership of the data makes data sharing difficult and limits its analysis and reporting.

The Freight and Ports Plan 2018-2023 includes the goal of 'Reducing avoidable rail freight delays', but the transport agencies do not have any definition for an avoidable delay and, as a result, do not measure or report them.

TfNSW and Sydney Trains are appointed to manage and deliver the Transport Asset Holding Entity of New South Wales (TAHE)'s obligations to allow rail freight operators to use the shared rail network. There are no performance measures in rail freight operator contracts or inter-agency agreements. This limits transport agencies' ability to improve performance.

TfNSW’s Freight Branch is working on four freight-specific strategies; a review of the Plan, a freight rail strategy, a port efficiency strategy and a freight data strategy.

TfNSW has not yet determined the timeframes or intended outcomes of these strategies.

What we recommended

Transport agencies should:

• commit, as part of the review of Future Transport 2056, to delivering the freight-specific strategies currently in development and develop whole-of-cluster accountability for this work including timeframes, specific targets and clear roles and responsibilities 
• improve the collection and sharing of freight data
• develop a plan to reduce avoidable freight delays
• systematically collect data on the management of all delays involving and/or impacting rail-freight
• develop and implement key performance indicators for the agreements between the transport agencies.

The movement of freight contributes $66.0 billion annually to the New South Wales economy — or 13 per cent of the Gross State Product. Two thirds of all freight in New South Wales moves through Greater Sydney, and the volume of freight moving through Greater Sydney is expected to increase by 48 per cent by 2036. This increasing demand is driven by increasing population and economic growth.

The sequence of activities required to move goods from their point of origin to the eventual consumer (the supply chain) is what matters most to shippers and consumers. Road can provide a single-mode door-to-door service, whereas conveying goods by rail typically involves moving freight onto road at some point. In Greater Sydney, 80 per cent of all freight is moved on road. Freight often passes through intermodal terminals (IMTs) as it transitions from one mode of transport to the next.

In 2016, Transport for NSW (TfNSW) released Future Transport 2056 - the NSW Government's 40-year vision for transport in New South Wales, which is intended to guide investment over the longer term. In Future Transport 2056, TfNSW noted that New South Wales will struggle to meet increasing demand for freight movements unless rail plays a larger role in the movement of freight.

Sydney Trains manages the metropolitan shared rail network, which is made up of rail lines that are used by both passenger and freight trains. The Transport Administration Act 1988 requires that, for the purposes of network control and timetabling, NSW Government transport agencies give ‘reasonable priority’ to passenger trains on shared lines. As the Greater Sydney population and rail patronage continue to grow, so too will competition for access to the shared rail network. See Appendix two for details of the area encompassed by Greater Sydney.

Freight operators can also use dedicated rail freight lines operated by the Australian Rail Track Corporation (ARTC - an Australian Government statutory-owned corporation). As the metropolitan shared rail network connects with dedicated freight lines, freight operators often use both to complete a journey.

TfNSW, Sydney Trains and the Transport Asset Holding Entity (TAHE) work in conjunction with other rail infrastructure owners and private sector entities, including port operators, privately operated IMTs and freight-shipping companies. TfNSW and Sydney Trains are responsible for managing the movement of freight across the metropolitan shared rail network. TAHE is the owner of the rail infrastructure that makes up the metropolitan shared rail network. The NSW Government established TAHE, a NSW Government state-owned corporation, on 1 July 2020 to replace the former rail infrastructure owner - RailCorp. The Auditor-General for New South Wales has commenced a performance audit on TAHE which is expected to table in 2022.

On 1 July 2021, TAHE entered into new agreements with TfNSW and Sydney Trains to operate, manage and maintain the metropolitan shared rail network. Until 30 June 2021, and in accordance with TAHE's Implementation Deed, TAHE operated under the terms of RailCorp's existing arrangements and agreements.

This audit assessed the effectiveness of TfNSW, Sydney Trains and TAHE in improving the use of rail freight capacity in Greater Sydney, and to meet current and future freight demand.

The audit focused on:

• the monitoring of access to shared rail lines
• the management of avoidable delays of rail freight movements
• steps to increase the use of rail freight capacity in Greater Sydney.

Appendix one - Response from agencies

Appendix two - The Greater Sydney region

Appendix three - TfNSW strategic projects 

Appendix four - Sydney Trains path priority principles 

Appendix five - Sydney Trains delay management

Appendix six - About the audit 

Appendix seven - Performance auditing
 

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #357 - released (19 October 2021).

What the report is about

The report examined whether Transport for NSW (TfNSW) and Infrastructure NSW (INSW) effectively assessed and justified major scope changes to the WestConnex project since 2014.

What we found

NSW Government decisions to fund WestConnex-related projects outside WestConnex's $16.812 billion budget have reduced transparency and understate the full cost of WestConnex.

The NSW Government's decision to separate Sydney Gateway from WestConnex has reduced transparency over the cost of the road component of Sydney Gateway. $1.76 billion of the cost to complete Sydney Gateway is funded outside the WestConnex budget.

Network integration costs, currently estimated at $2.3 billion, are also funded outside the WestConnex budget. Many of these costs are directly attributable to WestConnex and ought to be included in the reported budget.

The Parramatta Road Urban Amenity Improvement Program, costing $198 million, should also be included as part of the WestConnex reported budget.

Decisions to exclude or remove these elements from WestConnex without justification have seen $4.26 billion of projects funded outside the $16.8 billion budget.

Positively, robust analysis was used to develop and incorporate design improvements into the 2015 WestConnex Updated Strategic Business Case.

The separate components of WestConnex underwent all required assurance reviews. However, the NSW Government's assurance framework does not require ongoing ‘whole-of-program’ assurance for large and complex projects like WestConnex. The absence of a holistic review of WestConnex allows for some costs and benefits to avoid scrutiny.

What we recommended

TfNSW should:

• review the impact of scope changes on project objectives, costs and benefits for complex infrastructure projects
• ensure that estimated costs and benefits of works which are reasonably required to meet consent conditions are included in business cases for complex large infrastructure projects
• establish centralised and project specific record keeping for major infrastructure projects.

Infrastructure NSW should provide transparent whole of program assurance on total costs and benefits when complex projects are split into sub-projects.

Government should consider enhancing public transparency of existing infrastructure assurance processes by requiring that large complex infrastructure programs undergo periodic review at a whole-of-program level.

WestConnex

WestConnex is a 33 km motorway network that will link the western and south‑western suburbs with the Sydney CBD and the Airport and Port Botany precinct. It will also connect with proposed future motorway links to the north shore, northern beaches, and southern Sydney. The project is being delivered in three stages, with completion scheduled for 2023.

When first conceived by Infrastructure NSW (INSW) in 2012, WestConnex was described as a single integrated concept. In August 2013, government approved a business case for an integrated concept of WestConnex, with an estimated cost of $14.881 billion (in nominal outturn costs). Transport for NSW (TfNSW) is the government agency (sponsor agency) accountable for the delivery of WestConnex in accordance with the business case. In August 2014, the NSW Government established the Sydney Motorway Corporation to fund, deliver and operate WestConnex.

In November 2015, the NSW Government publicly released an updated WestConnex business case with greater detail and design enhancements, which increased the estimated cost to $16.812 billion.

Subsequent to this update, further changes were made to the design, including realignment of the M4 to M5 Link connection to the Western Harbour Tunnel project, an expanded interchange at Rozelle, the deletion of the Camperdown Intersection, and the addition of the Iron Cove Link. The reported budget for WestConnex was not changed as a result of these design updates.

To fund WestConnex, Sydney Motorway Corporation consolidated a concessional loan of $2 billion from the Australian Government, private sector debt and equity funding from the State. The Australian Government also provided a $1.5 billion contribution to the State to partially fund construction of WestConnex.

In August 2018, the NSW Government sold 51 per cent of its stake in Sydney Motorway Corporation for $9.26 billion. At the time of writing, the NSW Government is in the process of selling its remaining 49 per cent stake of Sydney Motorway Corporation.

About this audit

In the course of delivering a complex major infrastructure project, it is reasonable to expect changes to the original design and scope. Changes may occur as the design moves from a high‑level concept to a detailed design for project delivery, as new risks or issues are identified, as demands change, or as other interdependent projects are approved. Changes can also occur in response to potential cost or delivery overruns which arise as a result of planning deficiencies. Where design and scope changes significantly change the project costs and/or expected benefits, the justification for these changes should be robust and transparent.

Following our 2014 performance audit, 'WestConnex: Assurance to the government', the NSW Government established the Infrastructure Investor Assurance Framework (IIAF) to improve accountability and transparency over major projects that are developed, procured, or delivered by government agencies. Under the framework, TfNSW, as project sponsor, is responsible for ensuring the WestConnex project meets all IIAF requirements. These include ensuring the project remains strategically aligned and viable, and benefits are on track. INSW is responsible for coordinating the assurance review process and reporting directly to NSW Cabinet on project delivery against time, budget and risks to project delivery.

The objective of this performance audit is to assess whether TfNSW and INSW effectively assessed and justified major scope changes to the WestConnex project since 2014.

1. Key findings

Government decisions to fund WestConnex related projects outside of WestConnex's $16.812 billion reported budget have reduced transparency over costs and understate the full cost of WestConnex

In 2015, the work required to integrate WestConnex with existing roads ('network integration') was funded as a separate project with an estimated cost of $1.534 billion outside the 2015 WestConnex budget of $16.812 billion. TfNSW then created the Network Integration Program to respond to the conditions of planning approval for WestConnex. The current estimated cost to deliver all network integration works is $2.3 billion.

Since the 2015 WestConnex Business Case, the NSW Government has removed several elements from the scope of WestConnex and funded them as separate projects, while keeping the published WestConnex budget at an estimated $16.812 billion. Projects removed include:

• Sydney Gateway, currently costed at $2.56 billion (with an $800 million contribution from WestConnex)
• Parramatta Road Urban Amenity Improvement Program, costed at $198 million in late 2018 and funded though new funding to the Greater Sydney Commission.

Together, these projects represent costs of $4.26 billion that are not included in the WestConnex budget, but are required for WestConnex to achieve the objectives of the 2013 and 2015 WestConnex Business Cases. The costs of these elements in supporting the objectives of WestConnex is not tracked centrally, and there is no single point of oversight over them. Exhibit 1 compares total WestConnex forecast costs (including related projects) between November 2015 and April 2021.

Many network integration costs are directly attributable to WestConnex and ought to be included in the reported budget for WestConnex

Prior to 2015, the scope of WestConnex included enabling works needed before or during construction, as well as funding for future works to address any adverse traffic outcomes created by WestConnex which become apparent after its opening. These works are also known as network integration works.

When government approved the 2015 WestConnex Business Case, it noted that the project would require $1.534 billion for network integration works to address the impacts of WestConnex on the road network. However, the WestConnex project budget of $16.812 billion did not include funding for network integration works. Instead, Roads and Maritime Services (RMS, now TfNSW) was to fund network integration through its normal budget allocation.

It is important to recognise these costs as part of the total WestConnex project cost because:

• TfNSW created the Network Integration Program to respond to network traffic and transport elements of the planning conditions of approval for WestConnex granted by the then NSW Department of Planning and Environment under the Environment, Planning and Assessment Act 1979.
• NSW Treasury guidelines for business cases note that accurate cost estimates include assessment of the financial impact of meeting the conditions of planning approval.
• Travel time and vehicle operating cost benefits attributed to the WestConnex project in the 2015 WestConnex Business Case assume that some network integration works, then costed at $373 million, were in place.

Refer to Appendix two for more detail on network integration works.

Some of the projects in the WestConnex Network Integration Program provide community and place benefits, such as parklands and cycleways. These benefits have not been attributed to WestConnex. Additionally, some network integration works are likely to deliver additional traffic related benefits to WestConnex. As the Network Integration Program’s primary purpose is to meet the conditions of planning approval for WestConnex, TfNSW should attribute all the costs and benefits of the program to WestConnex.

To September 2021, the total funded cost of the Network Integration Program is approximately $2.077 billion. TfNSW estimates that it will need a further $222 million to complete all expected network integration works.

The NSW Government's decision to separate Sydney Gateway from WestConnex has reduced transparency and accountability for TfNSW's underestimation of the cost of the road component of Sydney Gateway

Sydney Gateway is a high‑capacity connection between the new St Peters Interchange and the Sydney Airport and Port Botany precinct. It includes a road and rail components. The road component was included in the scope of WestConnex in the 2015 WestConnex Business Case. The November 2015 design, which TfNSW costed at $800 million, involved separate roadways from the St Peters Interchange to the International terminal, and to the domestic terminals and Mascot airport precinct.

By October 2016, TfNSW was aware that the $800 million budget for Sydney Gateway was insufficient and revised the forecast cost for the road component to $1.8 billion. The original cost estimate did not sufficiently consider the cost of:

• constructing a complex design adjacent to the airport precinct
• obtaining access to land required for the project
• managing environmental contamination.

On 9 August 2017, the then Minister for WestConnex announced that the Sydney Gateway project was not part of WestConnex.

The 2015 WestConnex Business Case notes that material changes to the WestConnex budget, funding, scope, or timeframe are subject to Cabinet approval processes. It states that, when seeking approval for material changes, the portfolio Minister will make a submission to the relevant Cabinet Committee. Changes in project scope required the approval of the then Cabinet Committee on Infrastructure and should have been endorsed by the WestConnex Interdepartmental Steering Committee.

TfNSW and the NSW Department of Premier and Cabinet (DPC) assert that there is no documentation to support the government’s decision to separate Sydney Gateway from the WestConnex Program, or the WestConnex Interdepartmental Steering Committee's endorsement of a submission to Cabinet seeking approval for the separation.

The established governance processes for major scope changes were not followed in this instance. The lack of transparency regarding government's decision to separate Sydney Gateway from WestConnex also reduces visibility of TfNSW's underestimation of the cost of delivering the road component of Sydney Gateway.

The November 2018 Final Business Case for Sydney Gateway, which was approved by the government, included an estimate of $2.45 billion (nominal outturn cost) for the road component. This estimate included an $800 million contribution from WestConnex. A more recent estimate (late 2020) for this project is $2.56 billion (nominal outturn cost).

The Parramatta Road Urban Amenity Improvement Program should be included as part of the WestConnex budget

A specific objective of the 2015 WestConnex Business Case was the creation of opportunities for urban renewal along and around Parramatta Road. The business case included an allocation of $198 million in the $16.812 billion WestConnex budget for the Parramatta Road Urban Amenity Improvement program, designed to implement aspects of the objective. In November 2018, the NSW Government removed the Parramatta Road Urban Amenity Improvement Program from the WestConnex program of works and reallocated the $198 million (inside the $16.812 billion WestConnex budget) for urban renewal works around the Rozelle Interchange. As part of this decision, government approved new funding of $198 million to the Greater Sydney Commission for the urban amenity program, outside the $16.812 billion WestConnex budget. This understates the cost of WestConnex meeting its objectives by $198 million.

There is no requirement for ongoing ‘whole‑of‑program’ assurance of the WestConnex program of works, including related projects

In August 2015, INSW conducted its first Gateway Review of WestConnex as a program consisting of composite projects. Following that review, TfNSW registered each of the components of WestConnex with INSW as individual projects, rather than keeping WestConnex registered as a program or mega‑project. This is not inconsistent with the IIAF and all WestConnex related projects, including Sydney Gateway and the Network Integration Program, have undergone independent assurance reviews as individual projects under the IIAF.

Once a program like WestConnex is broken down into its composite parts, there is no requirement for the sponsor agency (TfNSW) or INSW to provide independent assurance on the program as a whole until it is completed. This is then done as part of the Gateway review for benefits realisation, which examines whether project benefits are being measured and meet expectations. These individual projects are, in themselves, significant in scale and complexity. While addressing them as discrete components for the purposes of the assurance review process can be justified, the absence of strategic, holistic reviews of WestConnex allows for total costs and benefits to become opaque and avoid scrutiny. Programs of this scale require greater ongoing transparency on total costs and benefits in order to ensure confidence they will meet intended objectives within budget.

There is a lack of public transparency on the total costs and benefits of the WestConnex project

Prior to 2018, the Audit Office provided assurance on costs borne and levied by Sydney Motorway Corporation and its controlled entities. Since the NSW Government sold 51 per cent of its stake in WestConnex in August 2018, the Auditor‑General no longer has the mandate to provide this assurance. The Audit Office is also unable to provide any assurance regarding the performance of tolling concessions.

This means that the total costs of WestConnex, including those levied on road users through tolling, are not reported alongside the full cost of delivering the project. This information, and independent assurance over that information, would provide transparency and context to the outcome of government's sale of its interest in WestConnex.

To enhance the transparency of existing infrastructure assurance processes, government could consider requiring large and complex infrastructure programs to undergo periodic review at a whole‑of‑program level. This could take the form of annual reports to Parliament on the total costs and benefits of selected large and complex projects by the responsible agency. The reports could include an assessment of the cost to government and cost to the community of funding and financing. Independent assurance of the agency report would provide Parliament with greater confidence that infrastructure is delivered economically and providing value for money for the people of NSW.

The Australian National Audit Office provides similar assurance on selected Department of Defence acquisition projects as part of its annual Major Projects Report.

Design enhancements included in the 2015 WestConnex Updated Strategic Business Case were supported by robust analysis

The 2015 WestConnex Business Case contained more detail than the 2013 WestConnex business case. Design enhancements were made as a result of modelling analysis conducted over the two years since the 2013 business case. Enhancements included a full underground link between Kingsgrove and St Peters as part of the New M5 and re‑alignment of the M4‑M5 link tunnel (Stage 3) to include the Rozelle Interchange. The Rozelle Interchange will provide a direct connection to the Anzac Bridge and Victoria Road, and will enable a connection to the proposed Western Harbour Tunnel and Beaches Link. A map and description of these elements can be found at Exhibits 2 and 3 of this report.

In 2016, TfNSW revised the design of the M4‑M5 Link and Rozelle to address traffic and integration issues

As part of preparing the 2015 WestConnex Business Case, TfNSW prepared a Project Definition and Delivery Report (PDDR) for the M4‑M5 Link. This report describes the scope of the project, including a high‑level concept design. TfNSW identified limitations with the proposed design of the M4‑M5 in the PDDR, which it would need to address as the project moved to a detailed design stage. In particular, these limitations included:

• poor integration with the Bays Precinct masterplan
• traffic capacity constraints on Victoria Road and Anzac Bridge
• construction complexity.

Following a comprehensive review in mid‑2016, TfNSW changed the design of the M4‑M5 Link and Rozelle Interchange to address these limitations. These changes included:

• deletion of the Camperdown intersection to improve traffic conditions on Parramatta Road
• a fully underground and larger Rozelle Interchange with 10‑hectare dedicated parklands
• a toll‑free tunnel link from Iron Cove Bridge to Anzac Bridge
• increasing the lanes in the dual tunnels from three to four each way.

TfNSW documented, but did not publish, the rationale for the design changes, including how the changes addressed the limitations of the previous design while providing increased community benefit through the creation of open space. TfNSW undertook cost comparison studies which estimated that these changes would have a neutral impact on the estimated project cost while achieving the same or improved benefits.

TfNSW's record‑keeping systems for large infrastructure investments negatively impact accountability and transparency

In response to our formal requests for relevant information, made during the conduct of this audit, TfNSW advised that complete and valid records of key decision‑making processes, analysis and advice were unavailable. Additionally, TfNSW often provided information that was incomplete or unverifiable (for instance, unsigned briefing notes). This is not consistent with accepted governance practices and does not comply with the requirements of the State Records Act 1998.

We also requested that TfNSW provide a list of relevant documents held by the Sydney Motorway Corporation (SMC). While TfNSW acknowledged that SMC may hold material relevant to the audit, TfNSW did not have a list or description of these documents. As SMC is now a majority privately held entity, both the Audit Office and TfNSW have limited power to require SMC to provide documentation.

The delivery timeframe for large and complex infrastructure projects such as WestConnex frequently exceeds five years, and some projects can take over a decade to deliver. These projects represent a significant investment of public resources and government agencies should expect independent review and assurance activities such as performance audits. The establishment of dedicated record keeping facilities for major infrastructure projects, such as data rooms, would improve transparency and accountability. This would ensure that the use of public resources is fully auditable in line with public expectations and the requirements of the Government Sector Finance Act 2018, the State Records Act 1998 and the Public Finance and Audit Act 1983.

2. Recommendations

By December 2021, TfNSW should:

1. review the impact of scope changes on project objectives, costs and benefits for complex infrastructure projects

2. when preparing business cases for complex large infrastructure projects, ensure that the estimated costs and benefits of works which are reasonably expected to meet consent conditions are included in the overall project cost and its benefits (as per Treasury guidelines)

3. establish and maintain centralised and project‑specific record keeping, including through dedicated project data rooms, to ensure major infrastructure projects can readily be subject to external oversight and assurance.

By June 2022, INSW should:

4. provide transparent whole‑of‑program assurance on total costs and benefits throughout the project life‑cycle when complex projects are split into sub‑projects.

By June 2022, NSW Government should:

5. consider enhancing the public transparency of existing infrastructure assurance processes by requiring that large complex infrastructure programs undergo periodic review at a whole‑of‑program level. This could take the form of reports to Parliament on the total costs and benefits on selected large and complex projects by the responsible agency, including cost to government and cost to community of funding and financing, as well as an accompanying independent assessment of the agency report.

Following our 2014 performance audit report 'WestConnex: Assurance to the government', the NSW Government established the Infrastructure Investor Assurance Framework (IIAF). INSW is responsible for the development, implementation and administration of the IIAF. The assurance framework involves gateway reviews, health checks, deep dive reviews, and project monitoring and reporting at various stages in the lifecycle of a project. The main aims of the IIAF are to help ensure major infrastructure projects are delivered on time and on budget, and to ensure that reports are regularly monitored by the Cabinet of the NSW Government. The IIAF gateway review process is compulsory for all significant investments and expenditure under the NSW Treasury Gateway Policy.

In accordance with the IIAF, INSW is responsible for the following:

• providing a dedicated Assurance Team including Gateway Review Managers to coordinate Reviews
• determining appropriate expert reviewers, and manages scheduling, commissioning and administration of Assurance Review reports. Infrastructure NSW is independent of the Expert Review Team
• monitoring Tier 1 – High Profile/High Risk projects, Tier 2 and Tier 3 (if required) project performance through independent Assurance Reviews
• providing independent analysis and advice on key risks and any corrective actions recommended for Tier 1 – High Profile/High Risk, Tier 2 and Tier 3 projects
• escalating projects to Infrastructure Investor Assurance Committee (IIAC) and Cabinet where projects present ‘red flag issues’ and where corrective action is needed
• working with delivery agencies to register all capital projects with an estimated cost greater than $10.0 million and ensures they are risk profiled and assigned a risk‑based project tier with an endorsed IIAF Project Registration report
• preparing forward looking annual Cluster Assurance Plans
• maintaining and continuously improves the IIAF process
• reporting to the IIAC, Cabinet and Infrastructure NSW Board
• regularly report to NSW Treasury on the performance of the IIAF.

In relation to WestConnex, TfNSW is the sponsor agency responsible for meeting relevant IIAF requirements, including:

• registering and risk profiling projects
• IIAF gateway, health check, and deep dive assurance reviews
• regular reporting.

Under the IIAF, it is mandatory for all capital projects valued over $10.0 million to be registered with INSW. Capital projects can be registered either as a program (comprising of a group of related projects or activities) or as a project (which may or may not be part of a program).

According to the IIAF, programs tend to have a lifespan of several years and aim to deliver outcomes and benefits related to an organisation's strategic objectives. Projects tend to have a shorter lifespan, and deal with outputs. Projects can, however, be grouped under a single program if they are similar in nature or if they are aimed at collectively achieving a strategic objective. Complex projects can be delivered in multiple stages, under different contracts, and across different time periods.

The last assurance review of the entire WestConnex program of works as a whole was in 2015

INSW conducted the first IIAF gateway review of WestConnex in August 2015. TfNSW developed a draft WestConnex Updated Strategic Business Case to consolidate the latest analysis on WestConnex, and to confirm that the project remained fit for purpose, economically viable, and financially deliverable. The review followed a recommendation in our 2014 performance audit report that business cases be thoroughly revisited.

During September 2015, INSW conducted additional informal reviews to identify strategic risks associated with public release of the WestConnex business case. Subsequently, INSW gave the Premier of NSW its views on the draft business case, including the following points:

• The $398 million budget for Sydney Gateway was insufficient to meet the benefits claimed in the business case for a ‘functional’ connection to Sydney Airport and Port Botany. INSW studies indicate a future‑proof solution would require a minimum spend of $755 million.
• Enabling works for WestConnex estimated at $1.534 billion were excluded from the cost of WestConnex. Significant work remained for RMS to identify mitigation measures to address planning approvals and network performance issues.
• Enabling works (a Southern Connector), an access ramp and surface road improvements within St Peters were excluded from the draft 2015 business case despite their inclusion in the WestConnex scope in the 2014–15 State Budget.
• The overall cost of works not funded within the WestConnex budget ranged from $2.011 billion to $2.196 billion. This included the enabling works, access ramp and surface road improvements and the shortfall for Sydney Gateway.

All WestConnex related projects, including Sydney Gateway have undergone independent assurance reviews under the IIAF

Since INSW submitted the first WestConnex progress update report to Cabinet in June 2015, INSW has been reporting monthly on the different stages of the WestConnex Program, including Sydney Gateway, as the projects were registered with INSW as High‑Profile, High‑Risk projects. Separate reporting enabled INSW to report and review each stage with more detailed scrutiny, compared to the reporting and reviewing at a program level.

WestConnex Stage 2 (New M5) underwent both mandatory and non‑mandatory reviews at key points in the project lifecycle. Three mandatory gateway reviews – at Gate 2 (Final business case), Gate 3 (Readiness for market), and Gate 4 (Tender evaluation) – were conducted by TfNSW before the introduction of IIAF. Four non‑mandatory health check reviews and one non‑mandatory deep dive review were conducted after the introduction of the IIAF managed by INSW.

Similarly, WestConnex Stage 3 projects – M4‑M5 link, M4‑M5 Tunnels, and Rozelle Interchange – also underwent mandatory and non‑mandatory reviews at key points in their lifecycle under IIAF.

The M4‑M5 Link had two mandatory gateway reviews and one non‑mandatory health check review under IIAF. These reviews were conducted before Stage 3 was split into two stages, due to major design changes to the Rozelle Interchange and the M4‑M5 tunnels.

The M4‑M5 tunnels had two mandatory gateway reviews (at Gates 3 and 4), one non‑mandatory health check review, and one non‑mandatory deep dive review under IIAF.

Rozelle Interchange also underwent three mandatory gateway reviews at Gate 3 (part 1), Gate 3 (part 2), and Gate 4, two non‑mandatory health check reviews, and one non‑mandatory deep dive review under IIAF.

Since mid‑2017, the Sydney Gateway project has undergone required independent assurance reviews, as well as a number of optional assurance reviews

In November 2016, INSW conducted a mandatory Gate 1 gateway review on a strategic business case for the Sydney Gateway Project. TfNSW did not proceed with this business case. Following the separation of Sydney Gateway from WestConnex in mid‑2017, TfNSW developed a new business case for Sydney Gateway. It has undergone the required Gate 1, Gate 2, and Gate 3 gateway reviews, as well as two non‑mandatory health check reviews, and three non‑mandatory deep dive reviews under IIAF.

Network integration works have undergone all IIAF required assurance reviews

TfNSW completed a strategic business case for the Network Integration Program in August 2020, and INSW completed a gateway review in November 2020. This is despite network integration projects starting as early as 2015, with $645 million having been spent by June 2020. The strategic business case included a prioritisation process for completing remaining works in the program. Prior to November 2020, TfNSW registered individual network integration projects with INSW, and these projects have undergone gateway reviews where required.

The Network Integration Program strategic business case does not include Rozelle interchange network integration works ($353 million) and additional network integration works to settle a contractor claim adjacent to St Peters Interchange ($190 million). These were excluded from the business case on the basis they had already been approved by government, and as such were not subject to the prioritisation elements of the business case. TfNSW has not developed separate business cases for these works, although the scope of the St Peters Interchange works was developed through a negotiated process.

TfNSW did not prepare business cases for some network integration works which have commenced, including the $323 million Campbell Road/Euston Road works

Prior to its development of the August 2020 strategic business case, TfNSW did not prepare business cases for many network integration works that have commenced, and in some instances were completed, before 2019. Significantly, TfNSW did not prepare a business case for the Campbell Road/Euston Road works, which cost $323 million and have been completed.

In 2016, TfNSW’s Business Case Policy requires the creation of business cases for capital projects costing over $1.0 million. At the time of writing this report, TfNSW’s draft policy requires full business cases for capital projects costing $10.0 million or more.

There is no requirement for ongoing ‘whole‑of‑program’ assurance of the WestConnex program of works, including related projects

INSW conducted its first gateway review of WestConnex (as a program, which consisted of composite projects) in August 2015. Following that review, TfNSW registered each of the components of WestConnex with INSW as individual projects, rather than keeping WestConnex registered as a program or complex project. The IIAF allows this to occur.

Separate registration enabled INSW to report and review each stage with more scrutiny compared to whole‑of‑program level review.

Such an approach has merit, considering the individual stages (and components of these stages) are multi‑million dollar works in their own right. Each project has its own timing for gateway reviews at stages such as 'Readiness for Market' and 'Tender Evaluation'.

Once a program such as WestConnex is broken down into its composite parts, there is no requirement for the sponsor agency (TfNSW) or INSW to conduct independent assurance on the program of works as a whole until the whole program is completed as part of the Benefits Realisation (Gate 6) gateway review. The absence of strategic, holistic reviews of projects of the scale and complexity such as WestConnex during their delivery allows for total costs and benefits to become opaque and avoid scrutiny. Projects of this scale require greater ongoing transparency on total costs and benefits in order to ensure confidence they will meet intended objectives within budget.

INSW has advised us that it has prepared a proposal to expand its assurance function to include whole‑of‑program review of inter‑related infrastructure projects.

Appendix one – Responses from agencies

Appendix two – Network integration works

Appendix three – About the audit

Appendix four – Performance auditing

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #351 - released (17 June 2021).

The Auditor-General for New South Wales, Margaret Crawford, has today released a report on Transport for NSW’s (TfNSW) acquisition of 4–6 Grand Avenue in Camellia.

This audit, which was requested on 17 November 2020 by the Hon. Andrew Constance MP, the Minister for Transport and Roads, examined:

• whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
• whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.

The audit found that TfNSW conducted an ineffective process when it purchased 4–6 Grand Avenue, Camellia. The audit also found that TfNSW’s internal policies and procedures to guide the transaction were, and continue to be, insufficient.

The Auditor-General has made seven recommendations to address the issues identified in the report.

On 17 November 2020, the Hon. Andrew Constance MP, the Minister for Transport and Roads, requested this audit under section 27B(3)(c) of the Public Finance and Audit Act 1983.

On 15 June 2016, Transport for New South Wales (TfNSW) acquired 6.3 hectares of land at 4–6 Grand Avenue, Camellia, by agreement from Grand 4 Investments Pty Ltd. Grand 4 Investments was a business entity established by the owners of Billbergia Pty Ltd, a property development and investment company.

TfNSW paid Grand 4 Investments $53.5 million and assumed liability for addressing environmental issues and contamination associated with the site. This took place seven months after the vendor acquired the land as part of a competitive Expression of Interest process, in which TfNSW also participated, for $38.15 million.

TfNSW is the NSW Government agency responsible for most major transport infrastructure projects in New South Wales. TfNSW acquired the Camellia site for use as a stabling and maintenance depot to support the Parramatta Light Rail (PLR) project.

Consistent with the minister’s request, this audit assessed:

• whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
• whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.

In considering the effectiveness of the processes for this purchase, the audit considered:

• the requirements of the Land Acquisition (Just Terms Compensation) Act 1991 (the Act)
• the application of sound processes to manage risk to the NSW Government and to achieve value for money
• the application of disciplines associated with complex procurement, such as probity, in a NSW Government context.

In 2015, TfNSW identified that it would require a stabling and maintenance depot in the Camellia area for the Parramatta Light Rail

In 2014, TfNSW commissioned an external engineering consultancy to undertake a feasibility design study for the Parramatta Light Rail - the Parramatta Transport Corridor Strategy Feasibility Design study (herein referred to as ‘the feasibility study’). In early 2015, TfNSW received the feasibility study, which was one of several key sources that informed the development of business cases for the PLR.

The feasibility study recommended that TfNSW should consolidate the maintenance and cleaning operations with overnight stabling facilities on one site. The study noted that the optimal location for any such site would be in close proximity to the proposed network, and noted that the site must have access to road connections to accommodate access for cars and trucks.

The study found that a centrally located stabling and maintenance facility would be required for all routes serving the Parramatta CBD, and that the Camellia industrial area was a preferred location for such a facility. The study noted that the Camellia area was contaminated.

The feasibility study notes that its conclusions were based on assumptions about the light rail system adopted and decisions made by the future operator of the system, who had not yet been selected or appointed.

TfNSW's decision to progress a potential acquisition in 2015 considered the risk that the site may not be required

TfNSW's FIC was responsible for making decisions on funding allocations at a whole of program level within TfNSW. FIC was also responsible for approving ‘high-risk/high-value’ variations to program budgets. Members of the FIC included:

• Secretary of Transport for NSW
• Deputy Secretary, Infrastructure and Services
• Deputy Secretary, Freight, Strategy and Planning
• Deputy Secretary, Customer Services
• Deputy Secretary Finance and Investment
• Deputy Secretary People and Corporate Services.

An April 2015 submission, from the then Deputy Director-General to the agency’s FIC, sought authorisation and funding approval to participate in an Expression of Interest sale process. It noted the risk that the project may not go ahead. The submission advised that:

By acquiring a strategic site now, it reduces the risk of having to pay an improved value or a value that may be subject to rapidly improving land values due to changes in land use and rezoning.

The property can be acquired for the project, held strategically and income generated by leasing the site as hardstand ¹ space until the project requires the land for the Parramatta Light Rail project.

If the project does not proceed in the medium to longer term, the property can be sold at a premium to what has been paid today as property fundamentals improve.

This submission acknowledged the risks associated with environmental contamination and proposed that these risks would be managed by negotiating a contract where the remediation and associated expenses would be at the landowner’s cost. 

TfNSW assessed the 4–6 Grand Avenue site as one of several sites in Camellia that was a feasible location for a stabling and maintenance facility

The Departmental feasibility study assessed six potential sites for a stabling and maintenance facility, including 4–6 Grand Avenue, noting strengths and weaknesses of each site. A different site on Grand Avenue was assessed as the ‘base case’ option (1 Grand Avenue). The study’s comments on the 4–6 Grand Avenue site included the following:

With an area of approximately 63,000m², this site has sufficient space for a depot with the required stabling yard and maintenance facilities. The location allows for good road access and LRT [light rail transit] access would be from Grand Avenue, which may require a road crossing or signalised intersection. The site has been used for general industrial uses; however the land has been cleared and is currently undergoing remediation ². The site is not affected by flooding based on one in 100-year flood data.

In early 2015, once the opportunity to acquire 4–6 Grand Avenue emerged, TfNSW commissioned a specific feasibility study of the 4–6 Grand Avenue site. The feasibility studies clearly documented the existence of environmental contamination. In April 2015, the report concluded:

Given the limitations of this report and within the parameters that have been set it is concluded that from a spatial and geographic perspective the site at 6 Grand Avenue would be suitable as a stabling and maintenance depot for the Parramatta light rail project. There are few engineering and environmental constraints that would affect the feasibility level analysis of this site and all issues identified, within this desk study, are considered to be resolvable. However this being said there is a significant amount of work necessary to reach the final layout and definition of the stabling and maintenance depot. There are numerous items which require further consideration and conformation; planning approvals could impose restrictions on building heights, noise mitigation measures, light and visual impact requirements all of which can have significant impacts on the spatial requirements of any stabling and maintenance depot. 

The acquisition of 4–6 Grand Avenue was not informed by a Property Acquisition Strategy

For major projects, TfNSW typically requires the project team to complete a Property Acquisition Strategy, which is intended to guide both process as well as specific acquisition issues expected to be faced during the project. The Property Acquisition Strategy is not a mandated document but is a recommended tool to support property acquisition as part of major projects.

TfNSW did not have a Property Acquisition Strategy in place to guide the 2015 Expression of Interest process. On 6 November 2015, the then Project Director for the PLR project emailed the property team, noting a need to develop a Property Acquisition Strategy to close off the scoping design and preliminary business case.

In January 2016, TfNSW developed a draft Property Acquisition Strategy for the Parramatta Light Rail Project, although it was silent on the potential sites for the stabling and maintenance facility.

TfNSW focussed on 4–6 Grand Avenue because it was available and aligned to TfNSW's strategic interests

In early 2015, officials commenced monitoring the market for industrial real estate in the Camellia area and surrounds for possible sites for a stabling and maintenance facility.

In March 2015, then owner of the site, Akzo Nobel Pty Limited released the 4–6 Grand Avenue site through an Expression of Interest process managed by CBRE.

TfNSW’s then Deputy Director-General, Planning, sought approval from FIC to lodge an Expression of Interest up to $30.0 million. Approval was sought on the basis that it would ‘provide certainty for the Parramatta Light Rail project by allowing for a depot site in a suitable location and potentially avoid higher costs or longer timeframes associated with compulsory acquisition following completion of the project’s business case’. FIC approved the request at its meeting on 9 April 2015.

At this time, TfNSW had not conducted any analysis of financial or operational benefits and costs of the potential sites identified in earlier feasibility studies. TfNSW staff advised us that the decision to participate in the Expression of Interest process for 4–6 Grand Avenue was because it was available. There is no documentation substantiating this statement, which TfNSW staff provided verbally as part of this audit.

In November 2015, TfNSW was advised that it was unsuccessful in the Expression of Interest process and that Grand 4 Investments (a related entity of Billbergia) had purchased 4–6 Grand Avenue. TfNSW did not conduct any further analysis of alternative potential sites in Camellia between this date and commencing discussions with Grand 4 Investments in April 2016. In that time there had been some movement on other properties that were included in the feasibility study, including 37–39a Grand Avenue being under offer in September 2015.

In March 2016, TfNSW approached CBRE to organise a meeting with Grand 4 Investments. On 1 April 2016, TfNSW met with Grand 4 Investments.

TfNSW advises that a perceived benefit of the 4–6 Grand Avenue site was that it was not subject to other uses or leaseholds that would increase the cost of compulsory acquisition. Officers involved in the acquisition advised that other nominated sites in the feasibility study were subject to other uses or leaseholds. 

Appendix one – Response from agency 

Appendix two – About the audit 

Appendix three – Performance auditing

Copyright Notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #349 - released (18 May 2021).

This report examines whether NSW Health effectively planned and delivered major capital works to meet the demand for health services in New South Wales.

The report found that NSW Health has substantially expanded health infrastructure across New South Wales since 2015. However, the program was driven by Local Health District priorities without assessment of the State’s broader and future‑focussed health requirements.

The report found that unclear decision making roles and responsibilities between Health Infrastructure and the Ministry of Health limited the ability of NSW Health to effectively test and analyse investment options.

Project delays and budget overruns on some major projects indicate that Health Infrastructure's project governance, risk assessment and management systems could be improved.

The Auditor‑General recommends that NSW Health ensure its capital projects offer the greatest value to New South Wales by establishing effective policy guidance and enhancing project governance and management systems.

Read full report (PDF)

Since 2011–12, NSW Health has aimed to improve its facilities and build 'future focused' infrastructure. The NSW Government’s 2015–16 election commitments established a four-year $5.0 billion capital program for NSW Health to build and upgrade more than 60 hospitals and health services. The 2019–20 State Budget committed a further $10.1 billion over four years for another 29 projects. This is the largest investment to date on health capital works in New South Wales.

Recent reviews of infrastructure have recognised that population and demographic growth will require a change in the delivery and composition of health infrastructure, including considering greater use of non-traditional, non-capital health service options and assets.

To ensure that expenditure on capital works represents the best value for money, NSW Health's business cases need to be robust and supported by evidence that demonstrates they are worthy investments. The NSW Process of Facility Planning has been the main framework guiding the detailed planning and development of NSW Health's capital works proposals. This framework was developed by the then NSW Department of Health in 2010. Its aim is to ensure investment proposals are supported by rigorous planning processes that address health service needs and provide value for money.

Infrastructure projects of the complexity and scale being delivered by NSW Health carry inherent risks. For example, unplanned cost escalations can potentially impact on the State’s finances. Unforeseen delays can also reduce the intended benefits. The growth in the State’s health capital spend and project profile, means its exposure to such risks has increased over time.

The objective of this audit was to assess the effectiveness of planning and delivery of major capital works to meet demand for health services in New South Wales. To address this objective, the audit examined whether:

• the Ministry of Health has effective procedures for planning and prioritising investments in major health capital works
• Health Infrastructure develops robust business cases for initiated major capital works that reliably inform government decision making
• Health Infrastructure has effective project governance and management systems that support delivering projects on-time, within budget and achievement of intended benefits.

The audit focused on the Ministry of Health and Health Infrastructure – being the lead agencies within NSW Health responsible for prioritising, planning and delivering major health capital works across the State. The audit examined 13 business cases for eight discrete projects over a ten-year period.

Over the period of review, NSW Government policies for business case development and submission have emphasised that effective governance arrangements are critical to a proposal's successful implementation.

NSW Health's Process of Facility Planning similarly highlights the importance of effective governance and project management for achieving good outcomes. It prescribes a general governance structure managed by Health Infrastructure that can be tailored to the planning and delivery of health infrastructure projects greater than $10.0 million.

The three major hospital redevelopments examined in metropolitan, regional and rural areas had a combined Estimated Total Cost of more than $1.2 billion and comprised eight discrete projects and 13 separate business cases.

Almost all these projects experienced delivery challenges which impacted achievement of their original objectives and intended benefits. This is expected in complex and large-scale health infrastructure programs. However, in some projects the impacts were significant and resulted in substantial delays, unforeseen costs, and diversion of resources from other priority areas.

Our review of the selected case studies highlighted opportunities for enhancing governance and project management. Specifically, it indicates a need for improving transparency in the management of contingencies, risk management and assessments particularly relating to adverse site conditions and the selection of contractors. There is also a need to strengthen forward planning for options to address unfunded priorities within business cases that risk complicating the delivery of future project stages resulting in unforeseen costs and potentially avoidable budget overruns.

In February 2017, the Ministry's Capital Strategy Group approved the use of surplus funds of $13.76 million from Stage 1 of the Hornsby Ku-ring-gai Hospital Redevelopment for new works deemed needed to support Stage 2. Following this decision, Health Infrastructure finalised and submitted a business case addendum for Stage 1 to the Ministry in March 2017, addressing the new works comprising a two-storey building for medical imaging and paediatric floors. The business case addendum also addressed options to fit out and procure major medical imaging equipment. The Ministry approved the Stage 1 business case in July 2017, noting the Ministry's Capital Strategy Group had already approved the use of remaining Stage 1 funds to deliver the new works.

Stage 1 was completed in 2015, almost two years before the Stage 1 business case addendum was prepared in February 2017.

The Ministry's decision to approve the new works using $13.76 million of surplus Stage 1 funds did not comply with the NSW Treasury Circular TC 12/20. This policy establishes the Treasurer's approval must be sought and received before a new capital project with an Estimated Total Cost of $5.0 million or more can be approved by NSW Health. The Ministry therefore exceeded its delegated authority in making this decision, as it was not evident it had sought and received the Treasurer's approval prior to doing so.

Consequently, the surplus Stage 1 funds should not have been used by the Ministry to deliver new works in the circumstances. Instead, they should have been released from the Stage 1 project in accordance with established NSW Health procedures, and the Stage 1 Estimated Total Cost revised down accordingly. This did not occur, and NSW Health ultimately directed $11.0 million in surplus Stage 1 funds to the new works.

These circumstances indicate a need to strengthen transparency and accountability within NSW Health for the approval of new projects, and how contingency funds are used in the management of major health capital works. They also demonstrate the impact of weaknesses with options appraisal as the initial Stage 1 business case did not consider alternative options for addressing the initially unfunded works later covered by the Stage 1 business case addendum and ultimately funded from the Stage 1 contingency provision.

In addition to proposing the above-noted new works, the 2017 Stage 1 Business Case Addendum for the Hornsby-Ku-ring-gai development sought to retrospectively address the estimated funding gap of around $14.0 million for the internal fit out, supply of major medical imaging equipment, and cost to operate the medical imaging service at Hornsby Ku-ring-gai Hospital also not addressed in the originally Stage 1 business case.

The Stage 1 business case addendum considered various procurement options to purchase and run the medical imaging services ranging from State operation purchase options to private operation purchase options.

It recommended outsourcing the operation and provision of equipment to the private sector based on estimated savings to the public sector initially of around $650,000 per annum reducing over time to $270,000. The Ministry endorsed this option in June 2017, but it did not ultimately proceed.

A July 2018 report to the Executive Steering Committee on the project shows NSW Health later decided to deliver operation of the medical imaging unit 'traditionally' with an updated estimate of the cost at approximately $16.4 million. The report also shows the Ministry supported the costs now being met by the Northern Sydney Local Health District.

This means the funding gap previously identified in the Stage 1 business case addendum for fitting out the medical imaging building and supply of major medical equipment would need to be met fully by the State, representing a $16.4 million cost overrun for the project.

Examined reports to the Executive Steering Committee show this was largely funded by the Northern Sydney Local Health District via the disposal of land realising approximately $15.0 million in proceeds.

This initially unforeseen cost, along with the additional $11.0 million for the new works approved under the Stage 1 business case addendum, were ultimately merged with the Stage 2 project initially approved in 2017–18 with an Estimated Total Cost of $200 million.

The 2019–20 State Budget provided an additional $65.0 million for a further Stage 2A to deliver additional built capacity to support outpatient services, enhanced allied health services, re-housed community health services and the delivery of prioritised clinical services unfunded as part of Stage 2. The funds were approved based on an Investment Decision Template (IDT) that examined two options in addition to the base case representing scoping alternatives to the preferred master planned capital solution.

However, we found the IDT showed around 23 per cent of the $65.0 million sought (i.e. $15.0 million) was to be allocated to fund the deficit in Stage 2, which had arisen as a result of project delays due to adverse site conditions. This was not discussed in the IDT.

The February 2020 report to the Executive Steering Committee shows a combined Stage 2 and 2A final forecast cost of $292.6 million against a potential budget of $290.7 million representing an overall deficit for the project of around 0.6 per cent.

However, this favourable final budget position does not transparently show the funding challenges experienced over the project's implementation to-date. The three major budget issues include:

• inappropriate use of around $11.0 million in Stage 1 contingency for originally unfunded works contrary to Treasury policy
• the additional $16.4 million cost unforeseen in the Stage 1 business case for delivering medical imaging services mostly funded through the sale of land
• an additional $15.0 million from Stage 2A to cover the budget overrun in Stage 2 due to adverse site conditions.

The cumulative impact of these events is that Stages 1 and 2 of the Hornsby project cost approximately $42.4 million than it should have in the circumstances around 14 per cent more than what the revised combined Estimated Total Cost for both stages should have been after releasing the $11.0 million in surplus Stage 1 funds, with Stage 2 delayed by around 14 months.

Major construction projects often experience adverse site conditions which can be difficult to fully detect in advance. However, we found this was a common occurrence in the projects we examined sometimes with significant time and/or budget impacts indicating scope to enhance related risk and cost assessments. Specifically:

• Hornsby Ku-ring-gai Hospital Redevelopment Stage 2: adverse site conditions during demolition works resulted in an 11-month delay for delivering the medical imaging unit and 14-month delay completing Stage 2 main works including need for additional $15.0 million in funds to cover the resultant budget deficit for the project.
• Blacktown Mt Druitt Hospital Redevelopment Stage 2: adverse site conditions combined with project complexity delayed completion of the early works by approximately five months. This contributed to the delay in completing the main construction works which occurred around nine months later than planned in the business case.
• Dubbo Health Service Redevelopment Stages 3 and 4: Health Infrastructure advised adverse site conditions including asbestos containing materials and ground conditions delayed works for the main building with completion forecast for March 2021, around 21 months later than planned in the final business case. This resulted in the need for additional $13.5 million to cover increased construction costs and risks, increasing the Stage 3 and 4 forecast final cost from $150 million to $163.5 million as at February 2020.

These examples indicate a risk the cumulative impact of adverse site conditions may be substantial when measured across both time and Health Infrastructure's full delivery program. They also point to potential for Health Infrastructure to achieve efficiencies and improved outcomes from strengthening its approach to assessing and mitigating the risks from adverse site conditions.

Main construction works on Stage 1 of the Dubbo Health Service Redevelopment were completed in October 2015, approximately 13 months later than planned in the final business case. Delays were mainly due to insolvency of the early works contractor resulting in their departure from the project. The ensuing 11-month delay in completing the early works significantly impacted the overall schedule and delivery of main construction works.

The insolvency event was significant as it affected nine separate Health Infrastructure projects – three of which had yet to reach practical completion. It also affected state-funded projects in other sectors. It resulted in the need for additional funding of $11.5 million that was provided in the 2014–15 State Budget increasing the total Stage 1 and 2 budget from $79.8 million to $91.3 million.

Health Infrastructure’s analysis of lessons learned shows it worked actively to mitigate the impacts of the insolvency event across all affected projects. However, it also indicates a risk the lessons were mainly focused on mitigating the impacts after an insolvency event occurred rather than on prevention.

Although Health Infrastructure initially commissioned a financial assessment of the now insolvent early works contractor before engagement, it did not detect any risks of the impending insolvency and instead concluded the contractor was in a strong financial position. However, the contractor became insolvent shortly after commencement approximately seven months later. This indicates a risk of weaknesses in the assessment performed that was not explicitly addressed by the lessons learned.

Delivery of the main construction works were further impacted by disputes with the main works contractor over the scope of works for the renal unit resulting in Health Infrastructure terminating the contract in November 2016 following lengthy negotiations over several months.

The scope of works relating to the renal unit were ultimately transferred to Stages 3 and 4 and were delivered in December 2019, around five years later than originally planned in the business case.

Health Infrastructure advised the delay was ultimately beneficial to the project because the refurbishment works for the renal unit, initially scheduled for Stages 1 and 2, would have been demolished to accommodate the new Western Cancer Centre proposed after Stages 1 and 2 and currently being delivered in parallel with Stages 3 and 4.

Health Infrastructure advised the actual cost of Stages 1 and 2 was $84.7 million against the budget of $91.3 million. The residual $6.6 million relates to the renal works not delivered during Stage 1 and 2 and transferred to Stage 3 and 4.

Health Infrastructure advised the contractual provisions for mitigating insolvency events 'in-flight' are limited highlighting the importance of proactive and effective due diligence prior to engaging contractors for significant construction projects.

Health Infrastructure's 2017-20 Corporate Plan identifies the development of a quality framework to support delivery of future-focused outcomes as a key organisational priority. Related initiatives within the Corporate Plan describe a framework underpinned by a Quality Committee providing advice on:

• records management, to meet the requirements of the State Records Act 1998
• project assurance, to ensure future focused outcomes and enhance Health Infrastructure's Standards, Policies, Procedures and Guidelines, Templates and Design Guidance Notes
• knowledge management and library services, to promote and leverage from project learnings.

Although Health Infrastructure has some elements of a quality framework it is not yet fully in place. Health Infrastructure advised it had yet to establish the quality framework and related committee described in its Corporate Plan due in part to its focus on responding to the growth of its capital program.

Health Infrastructure's Development and Innovation team has been active in supporting continuous improvement in knowledge and project management including development of business cases. Although useful, these initiatives have relied heavily on leveraging and disseminating insights from Gateway reviews and have not formed part of a systematic quality and continuous improvement framework.

The limited focus on the quality of business cases is reflected in internal performance monitoring and reporting which focuses mainly on tracking the delivery of projects against internal benchmarks, often revised from the baselines in the business case, and expenditure against cashflow targets. There is no evident internal monitoring and/or reporting to the Chief Executive and Board on defined quality metrics linked to business case development and staff capability.

Performance reporting on balanced scorecard metrics has similarly focused mainly on process rather than quality and has been inconsistent in recent years.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

Appendix four – Ministry of Health planning tools and guidelines

Appendix five – Streamlined investment decision process for Health Capital Projects

Appendix six – Timeline of business cases and relevant policy guidelines

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #338 - released 12 August 2020

This is a follow-up to the Auditor-General's November 2016 report on the CBD South East Sydney Light Rail project. This follow-up report assessed whether Transport for NSW has updated and consolidated information about project costs and benefits.

The audit found that Transport for NSW has not consistently and accurately updated project costs, limiting the transparency of reporting to the public.

The Auditor-General reports that the total cost of the project will exceed $3.1 billion, which is above the revised cost of $2.9 billion published in November 2019. $153.84 million of additional costs are due to omitted costs for early enabling works, the small business assistance package and financing costs attributable to project delays.

The report makes four recommendations to Transport for NSW to publicly report on the final project cost, the updated expected project benefits, the benefits achieved in the first year of operations and the average weekly journey times.

Read full report (PDF)

The CBD and South East Light Rail is a 12 km light rail network for Sydney. It extends from Circular Quay along George Street to Central Station, through Surry Hills to Moore Park, then to Kensington and Kingsford via Anzac Parade and Randwick via Alison Road and High Street.

Transport for NSW (TfNSW) is responsible for planning, procuring and delivering the Central Business District and South East Light Rail (CSELR) project. In December 2014, TfNSW entered into a public private partnership with ALTRAC Light Rail as the operating company (OpCo) responsible for delivering, operating and maintaining the CSELR. OpCo engaged Alstom and Acciona, who together form its Design and Construct Contractor (D&C).

On 14 December 2019, passenger services started on the line between Circular Quay and Randwick. Passenger services on the line between Circular Quay and Kingsford commenced on 3 April 2020.

In November 2016, the Auditor-General published a performance audit report on the CSELR project. The audit found that TfNSW would deliver the CSELR at a higher cost with lower benefits than in the approved business case, and recommended that TfNSW update and consolidate information about project costs and benefits and ensure the information is readily accessible to the public.

In November 2018, the Public Accounts Committee (PAC) examined TfNSW's actions taken in response to our 2016 performance audit report on the CSELR project. The PAC recommended that the Auditor-General consider undertaking a follow-up audit on the CSELR project. The purpose of this follow-up performance audit is to assess whether TfNSW has effectively updated and consolidated information about project costs and benefits for the CSELR project.

Appendix one – Response from agency

Appendix two – Governance and reporting arrangements for the CSELR

Appendix three – 2018 CSELR governance changes

Appendix four – About the audit

Appendix five – Performance auditing

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #335 - released 11 June 2020