In order to understand the VfM concept, it is necessary to understand the background to funding approvals by the government.
Public projects are funded by an appropriation approved by a parliament (either state or Commonwealth). The government (specifically the Treasurer) of the day introduces the finance bills to Parliament, generally on a yearly basis, leading to the passing of a financial year State Budget or Commonwealth Budget. The Budget process is led by the Treasurer who is supported by Treasury.
In cases where funds for a specific project are sourced outside the jurisdiction's budget base (e.g. Commonwealth funding of a state road or water project), the state will underwrite the risks (financial and non-financial) for the successful delivery of that project. Commonwealth funds are normally transferred to the state Treasury and not directly to the end recipient department or agency.
All government entities or agencies are legally part of the government (and therefore, the 'Owner of the project' (a common term in alliancing) is not a separate legal entity to the government).
More than a banker:It is sometimes said that the role of the government, or more particularly Treasury, in the delivery of alliance projects is that of a banker (or, less frequently, an investor). This description does not assist in establishing a complete understanding of the government/Treasury role. When deciding whether to provide funds for a project, the government does not assess whether the return of the principal amount and payment of interest and charges is secure. Rather, the government is interested to provide a service benefit to the community, for which a Business Case has been made that funding is required. The government implements this 'investment' through one of its agencies or departments. Ultimately, the government still takes the full risk of achieving the service benefit for the community (which is normally outside the ambit of the alliance's risk profile) and delivering capital assets which are fit-for-purpose (which is within the ambit of the alliance's risk profile). Funding decisions are made by the government of the day, with Treasury as the lead advisers In summary, the alliance is accountable to the Owner, the Owner to the government and the government to the voters. |