Mark Bishop (WA, Australian Labor Party, Shadow Minister for Defence Industry, Procurement and Personnel) Share this | Link to this | Hansard source

My question is to Senator Minchin, the Minister for Finance and Administration. Is the minister aware of comments by the member for Eden-Monaro, Mr Nairn, on ABC Radio on 23 August that the lease on the joint headquarters at Bungendore would ultimately cost taxpayers more than $1.2 billion? Isn’t this new estimate of cost six times the project’s original budget of $200 million when it was first announced in the 2001 federal election campaign? Is it also the case that construction work on the headquarters, which was meant to be finished next year, still has not started, five years after it was first announced by the government? Is the minister able to clarify precisely when construction work will finally get under way? Can the minister also guarantee that taxpayers will not have to pay for further cost blow-outs on this project, considering the government has only released costings for the first year of the lease?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

I commend Senator Bishop on his assiduous pursuit of this issue—it is the proper role of oppositions. But I do think he has confused two different concepts—and he is not the only one to have done so. I think there is a misunderstanding of the difference between the capital costs of this project and the whole-of-life project costs. The successful consortium that has won this contract was selected as the preferred tenderer after a very detailed, rigorous, value-for-money evaluation process conducted by the defence department. The Minister for Defence announced on 18 August that financial closure has been reached for this $300 million project—and that figure is in 2003-04 dollars. That 2003-04 figure, which was the one used, translates to $339 million in 2006-07 dollars, allowing for inflation. That is the capital cost of the project. The figure of more than $1 billion that you properly said Mr Gary Nairn, the member for Eden-Monaro, had mentioned—and I think the Sun Herald also had a figure in excess of $1 billion—refers to the nominal whole-of-life service payments over the 30-year term of the contract that has been signed. The whole-of-life cost includes the forecast impact of inflation and covers a much broader range of costs than simply the capital cost. It includes the services, maintenance and mid-life refurbishment costs for the 30-year period of this contract.

The winning consortium will be paid an annual service payment, which will commence after the facility is commissioned in late 2008. I am sorry that I do not have the exact commencement date but I am advised that we expect the facility to be commissioned in late 2008. The first full-year payment will be $39.9 million commencing in 2009-10. That is consistent with the nature of what is a public-private partnership contract. We think we can do these things a little bit better than perhaps the New South Wales Labor government can in its experience. We think we can at least do better than that.

Under such arrangements the private sector partner does not receive service payments until the completion due date when the facility must be complete and operational. The annual service payment represents the cost to the defence department of the buildings and infrastructure and the cost of the range of services provided such as access control, cleaning, administrative and clerical support, waste removal and maintenance services. So I think that there are two different concepts. Both the $300-odd million is right when it refers to the capital cost, but so is the figure in excess of $1 billion, because it refers to be 30-year life of contracts.

Mark Bishop (WA, Australian Labor Party, Shadow Minister for Defence Industry, Procurement and Personnel) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question arising out of that response from the minister, which was essentially accurate. If private financing of essential Defence projects such as this, and outlined by the minister, represents value for money, as the defence minister claims, shouldn’t the government show its own benchmarks to justify how this is so as opposed to merely asserting such? In that context, how is it possible for a building pegged at a cost of $339 million in this year’s budget papers to end up costing taxpayers more than $1.2 billion?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

Again, I think that Senator Bishop is guilty of almost deliberately confusing the minds of those listening and this chamber about the difference between the initial capital cost and the 30-year whole-of-life maintenance cost. That is the difference. That is one of the great things I think about going into these private financing arrangements. That is why state Labor governments are actively, properly and sensibly pursuing these sorts of arrangements with a whole range of facilities like schools, prisons, hospitals and various other things. We have a very diligent approach to public-private partnerships. The policy is administered by my department, but it is a matter for Defence itself. I am happy to see if Defence can release any further information to you about the criteria to ensure that a proper value-for-money judgement was made, but I am satisfied that that was the case in relation to this very important project.