Why is the cost of major transport projects such as METRO and Light Rail so much higher in NSW than in other Australia states and overseas?

It is well known that the cost of NSW transport projects is much higher than comparable projects in other Australian states and overseas,

But “Why is it so?”

Do we need a full and frank Auditor General’s report?

Should the NSW Independent Commission Against Corruption (email aticac@...)investigate?

Here is some interesting reading:

*Auditor General’s Report 11 June 2020*

“CBD South East Sydney Light Rail follow-up performance audit”

https://www.audit.nsw.gov.au/our-work/reports/cbd-south-east-sydney-light-rail-follow-up-performance-audit

Conclusion

*“Transport for NSW has not consistently and accurately updated CSLER project costs, limiting the transparency of reporting to the public. In line with the NSW Government Benefits Realisation Management Framework, TfNSW intends to measure benefits after the project is completed and has not updated the expected project benefits since April 2015.*”

Sydney Metro has 42 ‘contracts of concern’. One jumped in value 2811%

https://www.smh.com.au/politics/nsw/sydney-metro-has-42-contracts-of-concern-one-jumped-in-value-2811-percent-20240318-p5fd9d.html

An internal Sydney Metro investigation found widespread risks of “fraud and corruption” within the agency, including deals with private companies that increased by more than 10 times their original value, undisclosed conflicts of interest and multimillion-dollar payments made to third parties with no record of why.

In September, Sydney Metro’s fraud and corruption unit handed the agency the results of an investigation it had carried out into 42 “contracts of concern”. It followed a series of internal Metro probes into its governance that raised concerns about the agency’s use of public funds and prompted a crackdown on the use of private contractors by the Minns government.

An internal Sydney Metro investigation uncovered a litany of issues regarding the use of public money by the multibillion-dollar agency./Credit: /Rhett Wyman

The internal investigation outlines a string of defects in the awarding of tens of millions of dollars in taxpayer funds, including cases in which professional service contractors employed by Metro had failed to declare a financial interest in companies that had won work with the agency.

The document, obtained by /The/ /Sydney Morning Herald/ via a parliamentary order, also details how concern about the use of those professional service contractors had found their way to Sydney Metro chief executive Peter Regan as early as August 2021.

It found the agency failed to follow internal sign-off protocols when approving significant increases in the value of contracts, including one deal analysed by the anti-corruption unit in which a contract originally valued at $3.2 million inflated to $21.3 million without proper authorisation.

It also found that Metro regularly gave “insufficient value for money” justifications when approving “substantial” variations in contracts, and failed to adequately document reasons for approving and extending 18 of the deals it examined.

One example cited by the internal probe noted that a contract with a private company originally worth $276,000 was varied to more than $8 million, an increase of about 2800 per cent, without documentation explaining the change.

The internal probe also uncovered what it described as “inappropriate procurement practices” with some contracts awarded to private firms, including agreements “varied to over 10 times the original contract value”. Four of those contracts were “single sourced”, it said, meaning a competitive tender had not been undertaken. Those contracts each had significant increases over time; one from an initial value of $107,400 to $1.4 million over seven years. Another increased from $2.5 million to $13.2 million.

“Allowing single-sourced contracts to be substantially varied to a higher value provides avenues for corrupt conduct or potential maladministration,” the investigation stated.

It added “less scrutiny is anecdotally afforded” to assessing single-sourced contracts, and raised concerns that a “lower value” might be given to a contract in some cases to circumvent competitive tenders.

“The contract can then be varied, and the competitive process can be more easily avoided,” the investigation stated.

Sydney Metro chief executive Peter Regan and Transport Minister Jo Haylen last year./Credit: /Wolter Peeters

The internal investigation did not make specific findings over the contracts, but was “intended to identify opportunities for system improvements”. While many of the contracts it examined had been “secured some time ago”, it said it would investigate any suspected fraud or corruption separately.

The previously unreported details of Metro’s record-keeping follow separate revelations by this masthead https://www.smh.com.au/link/follow-20170101-p5e1vy into the use of private contractors at the multibillion-dollar agency. In some cases, senior managers were allowed to run private companies that recruited contractors to the agency on salaries well over $500,000.

The /Herald/ has also detailed how a separate internal probe into allegations of “conflicts of interest and … corrupt conduct” https://www.smh.com.au/link/follow-20170101-p5f753 by senior executives at the agency had been referred to the Independent Commission Against Corruption.

The September investigation detailed 10 cases in which employees engaged as professional service contractors at Metro did not disclose they were shareholders or directors of companies engaged by the agency on contracts worth as much as $7 million.

While it did not suggest those individuals were responsible for hiring staff through their own companies, it found that the failure to disclose the conflicts created the “potential for inappropriate benefits to individuals or supplies with mutual personal interests”.

It also found a “potential for unauthorised access” to tender documents by “personnel who will influence decision-making in favour of a supplier of interest”.

The investigation reveals concerns about the use of professional service contractors within Metro date back to at least March 2021, when a previously unreported internal investigation code-named Aoede was commissioned. At the same time, an internal audit also raised “further concerns” over the use of private contractors which were elevated to Regan in August 2021, the document states.

Greens MP Cate Faehrmann, who secured the release of the document through parliament, said it was proof that “senior management at Sydney Metro have known about this rorting for years,including that it was breaching multiple codes and protocols”.

“Who at Sydney Metro decided that the rules which apply to all public servants don’t apply to them? How far back does this culture of non-compliance and making personal gain from public money go?” she said.

“With multiple metro projects underway in Sydney and billions of dollars still to spend, the minister needs to do more to assure herself that measures are now in place that prevent this type of behaviour.”

In a statement, a spokeswoman for Sydney Metro said all recommendations from the September review had been adopted, and noted that since it was released the agency had banned employees from acting as directors of professional services contractor companies.

The spokeswoman noted that decision had followed a review ordered by Transport Minister Jo Haylen in November last year to assess Metro’s use of private contractors. The review also led to changes that lowered the value at which contracts needed the chief executive’s sign-off.

“The independent legal adviser was satisfied that an appropriate level of care is given by Sydney Metro into the scope of investigations regarding Professional Services Contractor allegations and complaints,” the spokeswoman said.

Sydney Metro farms out jobs worth $2000 a day

https://www.smh.com.au/national/nsw/sydney-metro-farms-out-jobs-worth-2000-a-day-20230904-p5e1vy.html

Sydney Metro is allowing senior managers to run private companies that recruit contractors to the agency on salaries well over $500,000 a year as the state government searches for ways to rein in cost blowouts on rail mega-projects.

A /Herald/ investigation has found scores of contracts to hire staff for Sydney Metro on more than $2000 per day. These and many other Metro contracts are conducted under “limited” tender conditions https://info.buy.nsw.gov.au/supplier-guidance/supply-to-government/tenders where the agency approaches a supplier or suppliers directly for services.

Permitting companies whose directors are senior managers at Sydney Metro to provide staff known as “professional services contractors” raises a potential conflict of interest due to their access to commercially sensitive information and fails the “pub test”, experts claim.

The two senior Sydney Metro managers’ companies have won $20 million worth of contracts in total since 2021, tender documents show.

They are among more than half a dozen companies whose directors worked in senior roles at Sydney Metro and have been awarded contracts to provide staff.

A small company founded by Sydney Metro utilities director Paul Rogers in 2014 – a year before he started working on Metro projects – has won $13.3 million worth of work since August 2021 to provide staff with pay rates ranging from about $280 to $390 an hour

Six “professional services contractors” hired through Rogers’ Pro Consultants reported directly to him at Sydney Metro’s interface division, which is overseeing the$25 billion Metro West https://www.smh.com.au/link/follow-20170101-p5dszp and$11 billion Metro Western Sydney Airport https://www.smh.com.au/link/follow-20170101-p579yh rail lines.

Sydney Metro interface management director Barry McGrattan is also the managing director of Bellgrove Advisory, which has won $6.6 million worth of work to provide about 10 staff for the agency.

Rogers and McGrattan had no involvement in Sydney Metro’s decision to award contracts to those companies or setting the salaries for those roles, and they played no part in the project’s cost blowouts. The /Herald/ does not suggest any wrongdoing on the part of Rogers and McGrattan.

One of those hires, James Hayward, is Sydney Metro’s interface management acting director, contracted on more than $600,000 a year, almost as much as the agency’s chief executive. He is the partner of Amanda Hayward, publisher of the bestseller /Fifty Shades of Grey. /The /Herald/ also does not suggest any wrongdoing on the part of Hayward.

The construction site for the Parramatta metro station./Credit: /Wolter Peeters

Quizzed about the arrangements concerning Rogers, McGrattan and Hayward during a NSW upper house inquiry into the government’s use of consultants, Sydney Metro chief finance and commercial officer Fiona Trussell said contractors and professional service providers were not in decision-making roles and did not have any delegated authority.

“They all report ultimately into government employees so their ability to hire and recruit people is not an authority that they have,” she said. “Those decision-making authorities sit with government employees within our delegation.”

The NSW Auditor-General raised concerns in aMarch report https://www.audit.nsw.gov.au/our-work/reports/nsw-government-agencies-use-of-consultants about government agencies hiring consultants, citing concerns about the way spending on contractors is reported publicly and how agencies engage in contracts with them.

The rules that require most agencies to estimate the value of a contract – including any potential extensions and renewals – do not apply to Sydney Metro.

The cost of the Metro City and Southwest rail line between Chatswood and Bankstown via the CBD is almost double the original forecast atabout $21.6 billion. https://www.smh.com.au/link/follow-20170101-p5dsrmNSW Premier Chris Minns has alsocast doubt https://www.smh.com.au/link/follow-20170101-p5dqv9 on the future of theMetro West https://www.smh.com.au/link/follow-20170101-p5drnn line under construction between the CBD and Parramatta.

Rogers and McGrattan did not respond to questions about potential conflicts of interest or how much their companies earn from contracts to provide staff. Hayward also did not respond to questions.

Sources close to Sydney Metro who spoke on the condition of anonymity because they are unauthorised to discuss the project with the media said companies providing staff to the agency can earn between 7.5 per and 12 per cent of the hourly rate of a contract’s value.

Critical accounting academic professor John Dumay said fees to provide contractors of about 10 to 12 per cent of the contract value was “about right”.

Dumay, who ran his own consultancy business and worked as a management consultant before moving to academia, said Sydney Metro allowing managers to bid via private companies to provide contracted staff did not pass the “pub test”.

“When you bring in these labour hire companies and/or consultants, we ultimately lose transparency because there’s no legal obligation for any of these companies to disclose anything publicly,” he said.

Centre for Public Integrity director Geoffrey Watson, SC, said Sydney Metro managers whose private companies were bidding for work from the agency might have access to information other bidders didn’t.

“I’m astonished that this would be allowed,” he said.

“It is just a minefield of ethical concerns in so far as there are obviously potential conflicts of interest. [They] aren’t measured by the outcome – they are measured by the potential.”

Former NSW auditor-general Tony Harris said the private companies of senior managers at Sydney Metro winning contracts with the agency raises potential conflict of interest issues. “It is so obviously not on that it doesn’t require much thought,” he said.

A spokeswoman for Transport Minister Jo Haylen said “procurement and delivery models for Sydney Metro overseen by the previous Liberal government” had caused cost overruns on metro projects.

“The engagement of contractors should be a short-term solution. The government is concerned about the long-term use of contractors, especially if they are being used for longer engagements better suited to public sector roles,” the spokesperson said.

Sydney Metro did not answer specific questions about why it allows senior managers to use their own companies to tender for contracts, how many professional services contractors it uses, their cost, or if it has investigated these arrangements, but said “the procurement of contractors and consultants was wholly managed by government employees”.

“Contractors have no authority (decision-making rights) to approve the engagement of other contractors or variations/extensions to contractors,” it said.

“Due to the size and complexity of our projects, there will always be a need for specialist input and contractors to supplement our workforce, including on a part-time basis.”

The agency said it required all consultants to complete a “statement of interests and associations” declaring professional and personal interests. They manage conflict of interest risk through governance structures and take appropriate action when required.

One contract https://www.tenders.nsw.gov.au/?event=public.cn.view&CNUUID=3C712C23-EE37-B779-12966F0BA8400708 for “project management services for Sydney Metro West” worth $639,540 runs for 12 months from May this year and was evaluated by the “tenderer’s candidate’s availability, capacity and capability”.

Another tender https://www.tenders.nsw.gov.au/?event=public.cn.view&CNUUID=CA879446-F658-4F97-6A887E83C1A2A6AB worth $1,288,320 over two years and three months for “project management services” was judged on the tenderer’s “candidate and price”.

Greens treasury spokeswoman Abigail Boyd said when key management roles were outsourced to consultants, who then benefit from critical information that they could use to win more work, potential conflicts of interest arise.

“Once you allow consultants to be embedded into a government agency, they become extraordinarily difficult to extract. The agency becomes so reliant on the individual that it drives up that individual’s bargaining powers,” Boyd, a former UBS investment banker, said.

Construction of Barangaroo Metro./Credit: /Rhett Wyman

Sydney Metro is charged with delivering the country’s largest public transport project./Credit: /NSW government

Sydney Metro interface management director Barry McGrattan (left) and utilities director Paul Rogers./Credit: /

Paul Rogers with his team from Pro Consultants./Credit: /LinkedIn