ACT Auditor general commends Capital Metro Agency delivery of light rail project

The ACT Auditor General today released 'Report No. 5 of 2016 Initiation of the Light Rail Project' after conducting a review of the Light Rail process. It is an endorsement of the ACT Governments approach to the Capital Metro Stage One process and concludes that the project has been handled professionally, competently and legally. It also recommends ways to improve capturing the benefits of the project.

The full report can be downloaded from this link.

ACT Light Rail support the recommendation to create a Benefits Realisation Plan. For Canberra to truly appreciate and manage the benefits of light rail, significant thought needs to be given to :

• land development decisions
• integrating bus services with light rail
• park & ride development and promotion
• parking charges 
• value capture activities 
• traffic light signalling
• locating ACT Government staff in the corridor
• encouraging large scale employers to build new employment centres along the corridor

The Government has already indicated it has started planning for these things, and ACT Light Rail are confident that a formal plan may be announced. Transport and planning need to be administered in the same portfolio.

Ultimately, this report has silenced the critics and conspiracy theorists. The Auditor General confirms what many have suspected about the Capital Metro Stage One project, that it has been well planned, and well administered. Credit must be given to the Capital Metro Agency and the ACT Government.

The following are excerpts from the report:

Overall Conclusion (from page 1)

The Capital Metro Light Rail Project’s governance, administrative and project management framework is sound and generally accords with better practice. Although improvements can be made, it positions the Capital Metro Agency to be able to meet the challenges of implementing light rail in the ACT. The integrity of the framework will need to be retained under revised 1 July 2016 Administrative Arrangements, whereby functions of the Capital Metro Agency and Territory and Municipal Services Directorate are merged.

Benefits management needs to be given priority and a whole‐of‐government Benefits Realisation Plan, and associated documentation, developed and implemented to guide the management and realisation of the project’s benefits. This is important as considering only the project’s transport benefits the benefit‐cost ratio is 0.49, with an estimated 49.3 cents in transport benefits gained for every $1 spent; and considering transport benefits and wider economic benefits (including land use benefits), the benefit‐cost ratio is 1.20, with an estimated $1.20 in benefits for every $1 spent. However, the benefit‐cost ratio of 1.20 needs to be used with caution as there is a lack of an agreed methodology and robust data in Australia for calculating wider economic benefits (including land use benefits). In the 1.20 benefit‐cost ratio approximately 60 percent of the project’s benefits are not transport‐related. This is large compared with other transport infrastructure projects for which information was publicly available.

Although the ACT Government publicly released the Full Business Case, even though there was no requirement to do so, providing a discussion and explanation of the limitations of including wider economic benefits (including land use benefits) in the cost‐benefit analysis would have provided more comprehensive information. Infrastructure Australia’s approach is that wider economic benefits can add ‘texture’ for certain initiatives but need to be considered separately when considering a project.

Realising the project’s benefits will involve a wide range of activities related to ‘land development decisions undertaken by ACT Government; ticketing and fare setting; bus and park & ride integration; parking charges; value capture activities; signalling priorities; the location of ACT Government staff in the corridor; and other undertakings to promote economic activity in the ACT’. Accordingly, a Benefits Realisation Plan that captures such activities will require a concerted and sustained whole‐of‐government approach to be effectively implemented.

While actions may have commenced to realise benefits associated with the Capital Metro Light Rail Project, without a Benefits Realisation Plan there is a lack of transparency and accountability as to what needs to be done, when and by whom. The implementation of the Benefits Realisation Plan needs to be monitored (with benefits and costs clearly articulated and measured) and at key stages evaluated.

The estimated value of the project’s benefits changed between various versions of the Full Business Case, including those considered by decision makers and that presented to the ACT community. While changes over time should be expected, the changes that occurred were made in a relatively short period of time, indicating that assumptions on which the benefits were being calculated were changing rather than circumstances associated with the project.

In order to achieve the benefit‐cost ratio figures presented for the Capital Metro Light Rail Project, in addition to continuously monitoring and evaluating the expected benefits through a Benefits Realisation Plan, it will be important to ensure that project costs are effectively controlled. The ACT Budget will need to accommodate the expected cost of the Capital Metro Light Project of approximately $939 million (present value, January 2016) or $1.78 billion (nominal value) over 20 years. This does not include ACT Government agency costs for managing the implementation of the project. Revenue from fares will partially offset the costs of the Capital Metro Light Rail Project. The Full Business Case identified a total of $81 million in revenue from fares (present value, July 2014) over 20 years.

Key findings on Governance and project Management (from page 6)

• The Capital Metro Light Rail Project’s Governance Framework is comprehensive. The high level governance and management arrangements, including its governance structure and decision‐making roles and responsibilities, accord with better practice. The Under Treasurer is identified as the Project Owner, and can provide the requisite financial and economic direction on behalf of the ACT Government.

• The Capital Metro Project Board’s responsibilities are well‐defined and appropriate.The inclusion of the Directors‐General of relevant ACT Government agencies as members of the Board means that issues can readily be considered in the broader whole‐of‐government context, and decisions made efficiently because the need for members to refer back to their agencies for authority is minimised.

• The Capital Metro Project Board is an important governance mechanism for theCapital Metro Light Rail Project, with a significant workload. Its Charter is comprehensive with Board accountabilities, roles and responsibilities clearly defined. ‘Commercial reports’ provided at each month’s Board meeting are comprehensive and informative.

• The Capital Metro Agency’s Audit Committee is governed by a comprehensive Audit Committee Charter. The Audit Committee has met five times since its establishment, and has completed two internal audits, in relation to the agency’s financial management and procurement. The Capital Metro Agency intended to undertake a greater number of audits in 2016, with four audits scheduled to be conducted in 2016 covering information management, human resource management, fraud and integrity and risk management. It will be important for the intended internal audit activity for Capital Metro Agency to continue when the functions of the Capital Metro Agency are combined with some of those of the Territory and Municipal Services Directorate to form the Transport Canberra and City Services Directorate, as of 1 July 2016.

• The Capital Metro Project Plan is comprehensive. Workstream descriptions have been carefully compiled and are at an appropriate level of detail.Interdependencies between workstreams have been identified and noted.

• In order to supplement its comparatively small workforce, the Capital Metro Agency is heavily reliant on consultants. Many key documents associated with the project, e.g. the Capital Metro Light Rail Project’s Governance Framework and the Full Business Case, were authored by consultants.

• The Capital Metro Agency has a relatively small number of personnel(approximately 25). In order to progress the Capital Metro Light Rail Project, theCapital Metro Agency has supplemented its comparatively small workforce with consultants. A better practice approach to manage workforce and resource risk for a project the size and scope of the Capital Metro Light Rail Project would be to develop a Resource Management Strategy and associated Resource Management Plan; this has not happened. In July 2015 the Capital Metro Agency did, however, engage EY, its commercial advisor, to develop a resourcing transition plan to assist in managing the transition of the project to the delivery phase.

• The Capital Metro Agency’s stakeholder engagement policies and practices are well‐documented. Relevant strategies and plans accord with better practice, and suitable staff are actively engaged in appropriate stakeholder engagement and communications activities.

• The Capital Metro Agency’s risk management policies and procedures are comprehensive and relevant to its activities for the Capital Metro Light Rail Project. The Risk and Change Management Committee is an effective mechanism for the oversight of the management of risks associated with the project.

• There are appropriate change management procedures in place with respect to the Capital Metro Light Rail Project. The Change Management Procedure effectively sets out the protocols to be followed for changes to the project, as well as roles and responsibilities for managing and monitoring changes to the project.

• The Capital Metro Agency has not had a documented Project Controls Procedure, as provided for by the Project Plan. This increases the risk that the project’s objectives might not be fully achieved, or not achieved as efficiently as they could be.

• The Capital Metro Agency’s issues management policies and practices accord with better practice. Suitable arrangements are in place to ensure that issues are identified, captured, managed and closed, and receive adequate Executive attention.

• The Capital Metro Agency’s overarching financial management arrangements are in accordance with whole‐of‐government requirements. The Agency’s Director‐General Financial Instructions are comprehensive, have been updated, and are readily available to all staff. Financial procedures to be followed have been adequately documented. Financial reporting is in accordance with whole‐of‐government requirements, and arrangements are in place for the Executive to have oversight of financial matters.

• An analysis of the Capital Metro Agency’s operating results against budget for 2013‐14 and 2014‐15, and the budget for 2015‐16 shows:

1. for the three financial years 2013‐14 to 2015‐16, the total budgetedGovernment Payment for Outputs for the Capital Metro Agency is $34.4million. That is, the cost of operating the Capital Metro Agency between 2013‐14 and 2015‐16 is expected be $34.4 million; and
2. the significant majority of expenditure relates to supplies and services.Approximately 68.7 percent of all budget expenditure for the three years to 2015‐16 relates to supplies and services, compared to 31.3percent for employee and related expenses.

• As the Capital Metro Agency is a comparatively small agency with respect to number of staff it is heavily reliant on contractors for the delivery of the CapitalMetro Light Rail Project. This is reflected in the large proportion, $23.7 million(68.7 percent of total expenditure), of the Agency’s budget that is attributable to supplies and services expenditure (which includes contractor expenditure).

• The total budgeted amount of Appropriation to the Capital Metro Agency for financial years 2013‐14 to 2015‐16 is $55.6 million, with $34.4 million GovernmentPayments for Outputs and $21.2 million being for Capital Injections.

• In 2014‐15 almost all of the budgeted appropriation for the Capital Metro Agency was for Government Payment for Outputs to deliver the services and objectives outlined in the Agency’s budget papers. In 2015‐16 a significant proportion of appropriation is identified as Capital Injections to be used for the development of the light rail infrastructure. This change is due to the progress of the project being at a stage where in 2015‐16 approximately two thirds of the costs associated with the Agency can be directly attributed to the development of the light rail infrastructure.

• An analysis of the Capital Metro Agency’s Supplies and Services expenditure shows that:

1. there has been a significant increase between 2013‐14 and 2014‐15 for the majority of the Supplies and Services expenditure items, with the total Supplies and Services expenditure increasing by 206 percent; and
2. the Contractors and Consultants expenditure contributes 78 percent of the total Supplies and Services expenditure in 2014‐15 and 82 percent for 2013‐14.

• Following the Contractors and Consultants expenditure, Legal Costs are the second largest Supplies and Services expense for the Capital Metro Agency. In 2014‐15 Legal Costs amounted to approximately 13.0 percent of the Capital Metro Agency’s Supplies and Services expenditure. In 2013‐14 Legal Costs represented 5.1 percent.

• Gateway reviews initially planned for the Capital Metro Light Rail Project, which were designed to ‘provide for rigorous exploration of the project's readiness to market’ did not occur as planned. Three gateway reviews were to be conducted prior to the release of procurement documentation to the market. Instead, two‘peer reviews’ were conducted over this period. The first peer review was not conducted in accordance with better practice gateway review practices, had no identified objective, was very brief and did not consider key attributes of the project including transport modelling, quantified economic analysis, the benefit‐cost ratio, financial analysis or assumptions used in the Public‐Private Partnership assessment, or capital construction costs. The second peer review was conducted with a specific focus by subject matter experts over three days and was well documented. The second review more closely resembles a gateway review than the first, and should be regarded as the minimal level of external scrutiny a major project should receive at a critical control gate.

As well as this website, the facebook group 'Light Rail for Canberra' carries frequent updates on Capital Metro and light rail related news.