Watchdog lashes ‘substantial deviation’ in controversial Landgate building sale

The public sector watchdog has put the state government on notice it will investigate other projects progressed through a controversial government bidding process known as market-led proposals after identifying significant issues with the sale of Midland’s Landgate building.

Further questions have been raised about the sale of the building to Perth builder Georgiou after a probe by Auditor-General Caroline Spencer who identified “substantial deviations” of policy throughout the process.

In Spencer’s findings published in her financial audits report last month she suggested decision-makers – the McGowan government cabinet – did not have all the information about the value for money of the sale when they made their final call.

The Landgate building was sold to Georgiou for $17 million in March last year – $22 million less than Landgate itself had valued the building. WA taxpayers have also been signed up to lease back two-thirds – or 13,700 square metres – of office space in a 15-year lease agreement worth $85 million.

The findings will exacerbate concerns about the value of the deal to taxpayers and raise questions about probity in the government’s market-led proposals system, set up in April 2019 to allow unsolicited bids from the private sector to the government and for the government to call on businesses to help solve problems.

The government maintains that modelling suggests taxpayers will be $12 million better off under the deal by avoiding refurbishment, fit-out and maintenance costs, but Spencer found that decision-makers didn’t have all the information about the value of the sale before it was approved.

“Most significantly the net lettable area and rent rates, both of which were critical inputs to the value for money assessment, were still to be negotiated when the deal was conditionally approved,” she said.

“A final binding offer and agreed terms and conditions were not presented to the decision-makers in accordance with the process outlined in the policy at the time.

“The final decision makers were therefore not provided all the information relevant to considering final value for money of the arrangement.”

The Landgate sale, like other market-led proposals at the time, was administered by the Department of Finance and approved by the McGowan cabinet on the advice of the MLP steering committee.

The committee is made up of directors general and chief executive officers of the state’s biggest government departments.

In November, Planning Minister Rita Saffioti said she trusted the process run by bureaucrats who recommended cabinet accept the sale.

Spencer described the omission of this information as a substantial deviation from the published market-led proposals policy.

She found that the Department of Finance had a lack of guidance for staff on how to conduct key aspects of the sales process, which meant parts of the process – such as conflict of interest management, financial modelling, use of expert advice and consistency of information provided to decision-makers – were “either not adequately managed or documented”.

“We found there were some deviations from the policy and guidelines across multiple elements of the [market-led proposal] evaluation process,” she said.

Given the seriousness of its findings during this probe, Spencer said she may now turn her gaze to other market-led proposals.

“Given our observations in relation to this matter, and pre-identified risks to the MLP process, our office may consider further inquiries into other proposals,” she said.

Other controversial market-led proposals include efforts to develop the Swanbourne train station precinct by developer Cedar Woods and the Fremantle film studio.

In November, Saffioti announced significant changes to how the market-led proposals process would be run, including releasing more detailed financial information about major projects.

The changes also reduced the number of stages from three to two and introduced target timeframes for the assessment of proposals.

A spokesman for Saffioti said cabinet endorsement was provided at multiple stages throughout the process.

He said the recent changes would also address the auditor general’s findings but also backed the rigorousness of the Landgate building sale.

“The process and assessment of financial outcomes was run by an independent committee and the outcome was subject to rigorous, independent assessment,” he said.

“The sale and leaseback of the building will result in significant improvements to an ageing asset, the retention of a major government workforce in the Midland area and an avoided cost of around $12 million in net present terms over the 15-year life of the lease relative to the State continuing with the ownership of the building.”