11/03/2016 - 14:02

Value for money on public purse

11/03/2016 - 14:02

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Eliminating waste on major state infrastructure projects is a challenge for government on both sides of politics.

BUDGET: The government managed to avoid a cost blowout for the Joondalup rail line. Photo: Attila Csaszar

Eliminating waste on major state infrastructure projects is a challenge for government on both sides of politics.

Spending is coming under tighter scrutiny than ever as Western Australia’s cash-strapped state government ponders how to make the May budget look half respectable.

We’ve heard it before but this time, with an election just 12 months away, the issue is serious.

Asset sales are being relied on to help give the bottom line a whiff of respectability, even though it will still be heavily in the red.

And of course Treasurer Mike Nahan has told the public sector unions, which like to flex their muscle in pre-election years (to very good effect under this government it must be noted) not to expect pay increases above the Consumer Price Index for Perth.

But there’s another, less publicised, area where big savings can be made – contracts for major government projects.

The ongoing shambles over computer contracts for major departments, where tens of millions of dollars seem to have been poured down the drain with virtually no consequences, is one thing; ensuring value for money on major capital works projects, or infrastructure, is another.

Take the unhappy saga of the Perth Arena in Wellington Street, for example. What is now proving to be a first-class venue and an asset for the city, had a very chequered history during the construction phase. The estimated cost went from $160 million when first floated in 2005 to a final figure of $548.7 million six years later. That was almost three years after the planned opening date and protracted legal battles with the late Len Buckeridge’s BGC.

Then treasurer Christian Porter had some harsh words about the cost blowout, sheeting blame, predictably and probably justifiably, to the previous government.

“The long-standing claims are directly related to an irresponsible and costly decision by the previous Labor government to change the contract with BGC to make the state liable for design changes … including the decision to move the Arena car park to the basement during the middle of the tender process,” Mr Porter said at the time.

Fortunately there were no blowouts for the major railway projects, such as the lines to Joondalup and Mandurah.

Recently retired railway planner Peter Martinovich, who had a major role in both projects, says that was no accident. It’s all to do with the preparation.

“The cost estimate is predicated on what you understand to be the work that has to be produced,” Mr Martinovich told Political Perspective.

“So the certainty should not be so much about the cost estimate, but what the cost estimate is based on. And that is, are you really certain about what you have to produce and how it’s going to be built, and so on.”

Mr Martinovich warned that when you hear a bureaucrat or government minister say ‘the project will cost what it will cost’’, then fear the worst; it could result in a serious blowout.

And it is the risk of a publicly exposed cost blowout on projects that causes terror in the bureaucracy. In fact so scared are some bureaucrats they make sure overruns don’t occur; they simply ‘pad’ the cost estimates.

Mr Martinovich is concerned at the use of contracting cost mechanisms on big projects known as ‘P50’ or ‘P90’. He said some cases where the federal government had been involved in the funding of a project had required 90 per cent certainty (P90) that costs would be contained within the budget.

The former planner isn’t impressed when, using this tendering system, claims are consequently made of 25 per cent savings on projects.

“They’ve saved nothing,” Mr Martinovich said.

“They simply have not used a contingency, but along the way there is a danger they would have spent the 25 per cent anyway.”

Mr Martinovich supports the decision to sink the $2 billion rail extension all the way to Perth Airport and Forrestfield; he believes the line should eventually be extended to Thornlie and through to Jandakot.

And he says planners have been working on a possible underground rail link between Morley and the city for more than three years – hardly a thought bubble, as some critics claim.

Mr Martinovich’s advice for major projects is to budget for the actual projected cost, and work assiduously to eliminate wasteful spending.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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