A key reason offered by the Victorian Government for refusing to release the business case for the East West Link motorway is that it would make commercial-in-confidence information available publicly and thereby raise tenders.
The Government’s concern with minimising infrastructure costs is commendable, as the escalation of construction costs over the last 10 years has been stratospheric. For example, Sydney’s Airport rail tunnel opened in 2000 at a cost of $0.9 billion. Today, the Melbourne Metro tunnel of similar length is estimated to cost $9-11 billion – that, literally, is an order of magnitude increase. (1)
Plenty of observers have complained about the Napthine Government’s secrecy over the business plan for the East West Link (me included) but to date I’ve not seen much in the way of critical analysis of its “commercial-in-confidence” defence.
That’s changed now because no less august a body than the Productivity Commission has given its opinion on the general issue in the final report of its Inquiry into Public Infrastructure. And it rejects the Napthine Government’s rationale.
It says it’s not convinced there are “valid commercial-in-confidence reasons to withhold the release of full cost-benefit analyses”. That’s because:
Typically such analyses are done prior to the procurement process commencing and so the data used are unlikely to be commercially sensitive.
The Commission goes on to address specifically the Victorian Government’s claim that “public disclosure could jeopardise a government’s ability to optimise value for money through competitive tender processes”.
The Government is worried that “disclosure might prompt firms to ‘bid-up’ to the cost estimates included in the analysis”. However, the Commission discounts the concern:
If the bidding process is truly competitive this is unlikely to occur because firms will have an incentive to bid based on their true willingness to enter into a contract. Moreover, the costs estimates used in cost–benefit analyses are known to be (and should be expected to be) surpassed by better knowledge as project design work develops, which in sound project development occurs prior to tender.
The Commission argues that public disclosure of cost-benefit analyses is consistent with international initiatives like benchmarking and build-to-cost approaches. It says unequivocally:
In the Commission’s view, the benefits created through transparency are likely to be substantial and significant effects on bids are unlikely, provided there is effective competition in procurement.
A key reason analyses should be made public is so that “projects that, while appealing to particular groups or regions, are poor value for money for the community overall” can be brought to the attention of the public. The Commission says cost-benefit analyses are frequently made public in the US.
The public benefits from transparency mean that private participants should understand that the “normal presumption of transparency should prevail as a condition of involvement in government-backed projects”.
The Commission recommends that:
All governments should commit to subjecting all public infrastructure investment proposals above $50 million to rigorous cost–benefit analyses that are publicly released and made available for due diligence by bidders. In general, analyses should be done prior to projects being announced. If a project is announced before analysis is done, for example, in the lead-up to an election, this should be conditional on the findings of a subsequent analysis.
Of course the East West Link wasn’t announced in an election campaign; so consistent with the Productivity Commision’s recommendation, it could’ve and should’ve been released at least a year ago (see Is there actually a sensible business case for the East West Link?).
With evidence mounting that the business case for the motorway is very shaky, and with little more than three months to go before the caretaker period for the 29 November election starts, the proper course of action for the Premier is to hold off on signing any contract until after the election.
And likewise it’s time for the Opposition to say, consistent with its stated rejection of the East West Link, that it’ll cancel any contract on which the ink is barely dry should it win Government in November (see Should Labor repudiate Melbourne’s East West Link?).
The Victorian Government has replaced the proposed Melbourne Metro with proposed Melbourne Rail Link. The latter follows an alternative alignment with less tunnelling but the cost of the tunnelled section isn’t publicly available. The Opposition says it will proceed with Metro should it win the election in November.