Contingency provisions are sums allocated within a cost plan to cover the cost of unplanned activities or risks that are necessary to deliver project outcomes and require additional funds. Improved management of contingency for major projects can enable the NSW Government to better plan and manage risks and reuse surplus contingency for investment in other areas.
All General Government agencies and Public Trading Enterprises (PTEs), except State Owned Corporations (SOCs), are required to identify the amount of contingency provision and the controls/delegations proposed to manage the release of the provision for new major infrastructure projects (estimated total cost (ETC) >$100 million) when seeking project approval through the Cabinet Standing Committee on Expenditure Review (ERC).
The Treasurer (as the Chair of ERC) will explicitly approve:
• the amount of contingency provision allocated with regard to the project risk profile
• the controls and delegations proposed to manage the release of the provision.
Decisions to approve the amount of contingency and controls/delegations for managing contingency expenditure for major new projects will be done on a case-by-case basis reflecting project risk.
A major project that is considered high risk might warrant the Treasurer controlling/holding a proportion of the contingency funds or delegating this responsibility to the Portfolio Minister. Other projects with a lower risk profile could be managed with delegations for the use of contingency funds set at lower levels (including Head of Agency and or Project Director/Manager).
Infrastructure NSW (INSW) will provide advice to the Treasurer as to the adequacy of the contingency funds allocated and the controls proposed. INSW will also report on the use of contingency for major projects to the Cabinet Standing Committee on Infrastructure (CIC) every two months.
To enable Treasury and where requested by the Treasurer, INSW, to assess the proposed amount of contingency and the controls and delegations, project business cases or project identification submissions should:
1. provide details of how the contingency has been determined with reference to the calculation method (e.g. deterministic or probabilistic), risk profile of the project, the investment lifecycle stage, the delivery method, the risk allocation and other key aspects of the business case
2. propose and provide a rationale for the delegations and controls, consistent with the risk profile, the business case and the governance arrangements for the relevant project, delivery entity and owner
3. provide details of arrangements for regular monitoring and reporting contingency requirements and performance throughout the investment lifecycle.