ADDITIONAL COMMENTS BY SOME COMMITTEE MEMBERS
All members of the Committee indicated support for the final report, however the following additional comments are endorsed by the undersigned members of the Committee in accordance with evidence received.
INLAND RAIL PROGRAM
Governance arrangements
With regard to governance arrangements, it is noted that the ARTC declined, due to legal professional privilege, to directly address the issue of advice sought as to the ‘need to seek or require a government guarantee, letter of comfort or other agreement, arrangement or support with the Commonwealth to allow ARTC to procure the project without breaching the Corporations Act’.
The Committee’s role in supporting greater transparency and parliamentary oversight may be subverted in situations where a claim of legal professional privilege is unjustified. The Committee could have usefully recommended either that legal professional privilege be waived, or the legal advice received by the ARTC be provided to the Committee on a confidential basis so the Committee can consider the governance issues raised in a fully informed manner.
As outlined in Odgers’ Australian Senate Practice:
it has never been accepted in the Senate, nor in any comparable representative assembly, that legal professional privilege provides grounds for a refusal of information in a parliamentary forum.
The first question in response to any such claim is: to whom does the legal advice belong, to the Commonwealth or some other party? Usually it belongs to the Commonwealth. Legal advice to the federal government, however, is often disclosed by the government itself. Therefore, the mere fact that information is legal advice to the government does not establish a basis for this ground. It must be established that there is some particular harm to be apprehended by the disclosure of the information, such as prejudice to pending legal proceedings or to the Commonwealth’s position in those proceedings.
If the advice in question belongs to some other party, possible harm to that party in pending proceedings must be established, and in any event the approval of the party concerned for the disclosure of the advice may be sought. The Senate has rejected government claims that there is a long-standing practice of not disclosing privileged legal advice to conserve the Commonwealth’s legal and constitutional interest.
Additional recommendation (not adopted)
That legal advice received by the Australian Rail Track Corporation on the Inland Rail project’s governance documents be provided to the Committee on a confidential basis.
Rate of return, equity funding, valuation and business case
The Committee Report at paragraph 3.21 has deferred consideration of the rate of return, equity funding, valuation and business case with regard to the Inland Rail Program to future inquiries, including its inquiry into the Commonwealth Financial Statements based on ANAO Report No. 24 (2017-18).
Given the seriousness of evidence heard by the Committee in relation to these matters, it would have been preferable to include discussion of this evidence, and a recommendation requiring the ARTC to report back to the Committee to further discuss the expected rate of return, notwithstanding the future inquiry.
At the public hearing, Finance advised that ‘the government needs to get a real rate of return on the project over the life of the project’, however the Committee was not provided with specific detail as to the expected rate of return beyond a general, vague assurance that there would be a ‘real return to the government’.
Finance did not advise the Committee whether the ‘real rate of return’ would be a positive or commercial rate of return on the investment in the Inland Rail project. Finance advised that ‘the actual rate of return for equity investments’ referred to ‘is the investment in the company. So the company, following the investment, has to make a rate of return’.
The conclusion of the Inland Rail Implementation Group that ‘the expected operating revenue over 50 years will not cover the initial capital investment required to build a railway’ was raised at the public hearing. The ARTC CEO advised that ‘from a purely commercial point ARTC, for example, wouldn’t invest the full cost of the project because a lot of the benefits don’t flow to us’ and that ‘from a strict ARTC point of view, no, the revenues that flow to us wouldn’t cover the full capital cost and provide a return’.
This raises a number of issues worthy of further consideration. Reasons provided by Finance for not publicising the project’s rate of return – given commercial sensitivities and the fact that many transactions around the project are yet to be negotiated – are acknowledged. However, the Committee was not able to be assured of, or given access to information, even in confidence, that provides an understanding of the expected returns on such a significant investment of $8.4 billion+.
Given the scale of the project and seriousness of the evidence, some members consider it preferable that the Committee continue to monitor the project’s estimates in the relevant corporate plans and budget documents, as well as monitoring the general issues of budget transparency across projects and ANAO audits. A recommendation could have been usefully included that the ARTC, Infrastructure and Finance report back to the Committee in six months at a private briefing to further explore the issue of the expected rate of return once more of the transactions around the project are negotiated and known, including the very significant section anticipated to be delivered by a public private partnership.
Finance advised that the Inland Rail investment meets the applicable budget and accounting rules. We do, however, have concerns that this method of funding rail projects will not make a real return in their own right and pay back the cost of their capital and provide a return in a reasonable time-frame. If such investments in rail projects outside the General Government Sector were used on a much wider scale by future governments, then this risks decreasing an entity’s profitability and payments / dividends to government, repayment of its capital and net value.
If equity funded items don’t repay the cost of their capital and borrowings, or generate projected revenues, or are hit by events that affect their value, then this may impact budget aggregates. It is critical that taxpayers, through the Parliament, and the Committee, have absolute confidence in how equity funding outside the General Government Sector is used.
Evidence was considered by the Committee regarding the impact of large cost overruns for a project of this size and scope. While ARTC may build significant contingency into the project, caution will still need to be exercised in this area. We consider it preferable that the ARTC report back to the Committee every six months for the duration of the project on progress, including updated cost estimates.
In response to questions regarding the approach to be taken to the infrastructure / asset valuation going forward, the ARTC advised that these matters are not settled and are currently under review by specialist advisors. Further, detailed advice could have usefully been requested in a further report back in six months on the approach adopted and why.
Additional recommendations (not adopted)
That the Australian Rail Track Corporation, the Department of Infrastructure, Regional Development and Cities and the Department of Finance report back to the Committee in six months at a private briefing to explore the issue of the expected rate of return further once more of the transactions around the project are negotiated.
That the Australian Rail Track Corporation report back every six months to the Committee for the duration of the project on progress including updated cost estimates and advice on asset valuations.
NATIONAL CANCER SCREENING REGISTER
Broad agreement was reached by the Committee in regard to section 4 of the report relating to the National Cancer Screening Register. However, there were three key issues that warranted clearer and stronger findings given the seriousness of the flaws in the tender evaluation process and the critical nature of the register itself in saving lives.
1)Tender evaluation
In paragraph 4.13 the Committee’s report records Health’s assertion that the outcome it got with the untreated risks was the ‘same as the outcome that you would get with the treated risks. So all of the risks were treatable’. Yet no credible or documented basis for that claim was provided to the Committee and the report records the Auditor-General’s comment that ‘we didn’t see evidence of that analysis’.
It was manifestly clear from the two public hearings that if the tender evaluation plan had been followed by Health (and the treated risks assessed) then there may have been a different outcome of the tender process.
In the hearing of 28 March 2018, Health was asked directly if a different outcome may have been achieved if the tender evaluation plan had been followed (i.e. Telstra Health may not have been awarded the $220 million contract at all). In response, the witness from the Department of Health nodded repeatedly, avoiding a direct answer while stating ‘I understand the position you are taking’.
The fact that a different outcome may have been achieved from the entire tender is an absolutely critical finding, and this should usefully have been included in the Committee’s report in unambiguous terms. It is disappointing to the undersigned members that this did not occur.
2)
The impact on mortality rates of the delay in implementing the new screening programs
The screening programs for cervical cancer and bowel cancer are intended to save lives as well as improve administrative efficiency.
In particular, when fully operational, the new cervical cancer register’s significantly improved functionality, combined with the new cervical cancer test are anticipated to ‘prevent an additional 140 cervical cancers each year’ and decrease mortality and morbidity rates by at least 15 per cent per annum (paragraph 4.20 of the Committee’s Report).
The new HPV test is a better test to detect cancers earlier and more reliably and its rollout was delayed. The new register has improved functionality and is expected to contribute to improved participation rates.
Yet in response to questions about the impact on mortality rates over time of the seven month delay of the new test and new register, Health in effect claimed there would actually be no impact on mortality rates and stated that there are ‘no cervical screening participants whose cervical cancers would have gone undetected.’
We are not assured by the evidence provided as it is simply illogical to claim that there would be no impact on mortality rates over time due to a seven month delay in implementing the new program which is clearly intended to save lives and prevent cancers.
For the sake of clarity, and given the importance of this issue, the report would have benefited from a clear statement of our concerns regarding the impact on Australian women of the unacceptable delay by Health and Telstra Health in delivering the new program.
3)Conflict of interest
Several concerns were raised during the course of the hearings regarding probity management with respect to procurement. In particular, given the conflict of interest matters discussed in paragraphs 4.32-4.38, it is noted that when asked what action had occurred in response to the ANAO’s finding that a senior officer, on the NCSR Project Board, voted for Telstra while owning undeclared Telstra shares, Health advised the Committee: ‘we are using that particular case study as an example for all of our senior executive about the pitfalls of not being conscious and aware of all of the conflicts that you might have’.
All members supported the recommendation that Health seek advice from the Australian Public Service Commission regarding the adequacy of the department’s response to this matter. It appears from the answers provided at the public hearing that although there was clearly a reasonable perception of a conflict of interest, Health’s response and the leadership signal to the organisation are inadequate.
This is important as organisational culture is primarily set by leadership behaviour. Health provided no evidence that any sanction was even proposed or considered and it is entirely unclear from Health’s weak responses what the supposed ‘pitfalls’ from this ‘case study’ are when there is no evidence of real action.
Conflict of interest is a primary consideration of the APS Code of Conduct, with agency heads and Senior Executive Service (SES) subject to specific reporting requirements. It is apparent that the department’s integrity framework is insufficiently mature given the environment allowed SES officers to make decisions regarding a significant procurement despite a number of those decision-makers having failed to declare conflicts of interest in relation to the project, and/or standard annual conflict of interest and personal interest disclosures.
It is acknowledged that recommendations 4.39-4.41 go some way to reinforcing the importance of addressing conflict of interest appropriately in the public service environment. Given the serious nature of the case study in question however, we would have preferred that the Committee’s report include clearer statements with regards to Health’s apparently weak response to a serious probity issue.
Julian Hill MP
Ross Hart MP
Deputy Chair
Committee Member
Madeleine King MP
Gai Brodtmann MP
Committee Member
Committee Member
Senator Chris Ketter
Senator Jenny McAllister
Committee Member
Committee Member
Senator Rex Patrick
Committee Member