3. The Department of Finance and Deregulation (Finance) administers the Act, and is responsible for working with agencies to ensure that any work estimated to cost $15 million or more is referred to the Committee. The Act provides the Committee with powers to examine and report on:
• the purpose and suitability of the work for the purpose;
• the need to carry out the work;
• cost effectiveness;
• the amount of revenue that may be expected4; and
• the present and prospective public value of the work.
4. Submissions to the Committee are prepared by the agency which is carrying out or contracting out the work. The submission includes information on why the work is necessary, other options that were considered, the estimated cost and any plans or drawings that will help the Committee understand the purpose and scope of the work. The Act provides that a public work, for which the estimated cost exceeds the threshold amount requiring referral to the Committee, may not be commenced unless either such a referral has occurred or certain specific conditions are met.5
5. Defence has a large ongoing investment program and so many of its projects are required under the Act to be referred to the Committee. The total value of projects referred to the Committee over the period from mid 2004 to mid 2007 was $5.29 billion. Defence was selected for audit because Defence projects comprised $4.30 billion, or 81 per cent of the total value of projects referred to the Committee over the period.6
6. Defence uses two methods for financing projects. Most commonly, direct procurement is used. This involves a standard set of contracts to pay for the required work at the time of construction. Less common are Public Private Partnerships (PPPs), whereby Defence enters into a long term agreement to pay an annual service payment, which covers the cost of construction work and whole of life maintenance and service provision.
7. The policy and processes Defence has in place to provide guidance to staff managing projects is quite different depending on which of these two financing methods is being used. There is much more support material available to staff managing projects using the direct procurement method, as this is the most common way of managing a public works project. The PPP method is still being developed, and, as a consequence, supporting material is also being developed.7
A public work the estimated cost of which exceeds the threshold amount shall not be commenced unless:
(a) the work has been referred to the Committee in accordance with this section;
(b) the House of Representatives has resolved that, by reason of the urgent nature of the work, it is expedient that it be carried out without having been referred to the Committee;
(c) the Governor-General has, by order, declared that the work is for defence purposes and that the reference of the work to the Committee would be contrary to the public interest; or
(d) the work is a work that has been declared, by a notice under subsection(8A), to be a repetitive work for the purposes of this subsection.
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4 Revenue might be produced from building works like a toll bridge or a building that can be leased out to private companies.
5 Sub-section (8) of section 18 of the Act provides that:
6 Defence manages $11.9 billion of land and building assets and spent $578 million on capital facilities projects in 2006-07.
7 The most comprehensive information available on PPPs at the Commonwealth level are the Department of Finance and Deregulation's Financial Management Guidance No.s 16 to 19, covering an introductory guide, business case development, risk management and contract management.