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Victoria's prison system: |
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Victoria's prison system: |
4.2 It is pleasing for audit to report that the bidding and selection process was undertaken in a manner consistent with the Government's Infrastructure Investment Policy for Victoria and that significant attention was directed to probity issues during the process.
4.3 A sound documentary trail was available to audit to support decisions reached at each major stage of the bidding and selection process.
4.5 In October 1993, the Government established a New Prisons Project to operate as an organisational unit within the Department of Justice. The purpose of this Project was to manage the replacement of 3 public prisons, namely, the Coburg Complex (incorporating Pentridge Prison and the Metropolitan Reception Prison) and Fairlea Women's Prison, with 3 new prisons financed, designed, constructed and operated by the private sector. The 3 new prisons were the:
4.6 Over the period 1994 to 1997, the New Prisons Project managed a bidding and selection process for these 3 new prisons. This process culminated in approval by the Government for 3 separate consortia to each construct, finance and operate one new prison facility. Table 4A provides relevant details.
Prison Successful private sector consortium
Metropolitan Women's Excor Investments Pty Ltd, Corrections Correctional Centre Corporation of Australia Pty Ltd in association with John Holland Construction and Engineering Pty Ltd with financier Societe Generale Australia Limited. Fulham Correctional Australasian Correctional Investment Ltd Centre comprising Australasian Correctional Management Pty Ltd with Thiess Contractors Pty Ltd with financier AMP Investments Australia Ltd. Port Phillip Prison Australian Correctional Facilities Pty Ltd comprising Fletcher Construction Australia Ltd and Group 4 Correction Services Pty Ltd with financier Dresdner Australia Ltd.
4.7 In February 1998, following completion of tasks associated with the commissioning of the 3 new prisons, the New Prisons Project became the Major Projects Unit within the Department.
4.8 The Auditor-General's Reports on the Government's Annual Financial Statement for 1994-95 and 1995-96, tabled in October 1995 and October 1996, respectively, summarised the financial and operating arrangements relating to each of the 3 private prisons as set out in the underlying contractual agreements entered into between the State, the companies established by each private sector consortia and the projects' financiers.
4.9 This Part of the Report focuses on the bidding and selection process established and managed by the New Prisons Project for the 3 new private prisons.
4.11 Under this policy, the bidding and selection process involves 4 main phases, namely:
4.12 Chart 4B summarises the bidding and selection process established by the New Prisons Project for the 3 new private prisons.
4.13 The Infrastructure Investment Policy requires the setting up of a "management panel", comprising a representative from the relevant department (Department of Justice), the Department of Treasury and Finance, and at least one other party with relevant expertise to assist with the development of the project and oversee the evaluation of submissions and negotiations with the preferred providers. This key role was, as identified in Chart 4B, carried out by the "New Prisons Project Steering Committee" which was established in late 1993 and included external representation.
4.14 The Steering Committee was chaired by the Department's Deputy Secretary (Justice Operations). It met regularly and endorsed all stages of the project, including site selection, project briefs, evaluation criteria, methodology and processes, and recommendations with respect to preferred bidders and contract administration.
4.15 A number of other panels operated under the overview of the Steering Committee to facilitate management tasks at various stages of the bidding and selection process. Table 4C sets out details of these panels and their respective functions:
Panel title Function
Evaluation Panel To evaluate information provided by each technical panel and produce a consolidated evaluation summary together with recommendations to the Steering Committee. Technical Panels - To assess the submissions with reference Finance to evaluation criteria established by Construction/Design each panel based on information set out Prison Management in the briefs. Legal Health (Port Phillip Prison only) Probity Investigation Team To investigate the integrity, character and honesty of consortia.
4.16 In addition to the matters addressed by the probity investigation team, the New Prisons Project engaged a Process Probity Auditor to focus specifically on the bidding and evaluation process, and verification of compliance with the established quality control procedures.
Bidding process
Registration of capability
4.17 As mentioned in an earlier paragraph, the first step in the bidding process involved the issue of a publicly-advertised invitation for registrations of capability. The New Prisons Project commenced this step in January 1994, with the placement of a public advertisement in local and national newspapers in respect of the proposed 3 new prisons.
4.18 Ten registrations of capability were received, of which 2 were later withdrawn. The Evaluation Panel, evaluated the remaining 8 submissions against the following criteria:
4.19 These criteria were generally consistent with the requirements of the Government's infrastructure investment policy.
4.20 Following evaluation, a short list of 3 bidders, who would receive a project brief (i.e. move to the next stage) for the women's prison, and a short list of 4 bidders for both the rural and metropolitan men's prisons, were determined by the Panel and approved by the Steering Committee. Subsequently, one of the bidders for the metropolitan men's prison (Port Phillip Prison) opted to withdraw from the process and not receive a project brief.
Project brief stage
4.21 The Infrastructure Investment Policy emphasises the importance of the project brief stage of the bidding and selection process. Under the policy, the issue of a project brief represents a commitment to external parties by the Government that a project will proceed to implementation, subject to the achievement of the requirements, including financial arrangements, specified in the brief. The policy requires formal Government (Cabinet) approval of detailed project briefs before they can be issued to the private sector. Government approval is also required if it is proposed to subsequently vary or depart from the project brief in any significant manner.
4.22 Following the receipt of Cabinet approval, project briefs for each of the proposed new prisons were issued by the New Prisons Project to the shortlisted bidders on the following dates:
4.23 The key objectives for the overall project, as advised to the shortlisted bidders in the briefs, were to:
4.24 Other information set out in the project briefs covered such matters as:
4.25 The summary evaluative criteria were identified in the project briefs as:
Evaluation of submissions in response to project brief
4.26 This stage of the bidding process involved the evaluation of submissions received from the shortlisted bidders to the project brief for each prison. Principal roles at this stage were carried out by the previously-described technical panels under the overview of the Evaluation Panel.
4.27 The membership of the technical panels comprised either a mix of internal and external parties, or solely internal representatives. The panels remained substantially unchanged over the period covering the evaluation of bids for the 3 individual prisons.
4.28 Each of the technical panels formulated specific evaluative criteria and scoring systems to guide the evaluations in their respective subject areas.
4.29 Through examination of technical panel minutes, audit confirmed that individual members of the panels undertook separate and independent assessments of bids and reported the results of such assessments to a meeting of all panel members. Following this process, each panel made a presentation to the evaluation panel and provided a written report on its overall ranking of bids.
Government requirement for consideration of financial criteria when evaluating bids
4.30 As mentioned in an earlier paragraph, one of the objectives for the prisons project was to "reduce the costs to Government to below established benchmark recurrent costs of service delivery".
4.31 This particular objective reflected the Government's overall policy requirement for projects of this nature that financial criteria be determined by the Treasurer in consultation with the Minister and that such criteria constitute critical eligibility requirements in the evaluation of bids. The essential purpose of this policy provision is to ensure that demonstrable cost savings result from the involvement of the private sector in the delivery of infrastructure services.
4.32 Financial criteria for each prison were initially determined by the Treasurer in May 1994 and received Cabinet approval in June 1994. These criteria were presented as a cost benchmark based on the recurrent costs incurred in 1992-93 at Pentridge Prison, the Metropolitan Reception Prison and Fairlea Women's Prison. The benchmark also included program costs, costs of periodic refurbishments of established prisons and a proportion of overheads.
4.33 Following advice provided by the Department of Treasury and Finance, the criteria were subsequently reviewed to correct an identified error in the earlier calculations and a revised determination was issued by the Treasurer in November 1994. This revised criteria involved the raising of cost benchmarks for all 3 prisons. It was the intention of audit to set out in Table 4D the individual cost benchmarks approved in November 1994 for each prison. The relevant figures have been deleted from the table following legal advice recently obtained by the Department of Justice from the Victorian Government Solicitor.
Metropolitan Rural Metropolitan
women's prison men's prison men's prison
$XX.X $XXX.X $XXX.X
4.34 Specific consideration of the Government's cost benchmarks during the evaluation of bids formed a major part of the work of the finance technical panel which included a representative of the Department of Treasury and Finance as well as an external financial adviser.
Selection and approval of preferred provider
4.35 The Evaluation Panel was responsible for consolidating the reports received from the technical panels and formulating recommendations for preferred providers based on these reports and after taking into account advice from:
4.36 At the time of preparation of this Report, audit was waiting on the Department to provide documentary evidence that all probity investigations were completed prior to the selection of the preferred providers.
4.37 Separate written reports outlining the Panel's recommendation in respect of each prison were then presented for the consideration of the Steering Committee. Following the Steering Committee's endorsement and agreement of the Minister and the Treasurer, Cabinet was informed of the preferred provider and contract negotiations commenced with that party.
New women's prison (Metropolitan Women's Correctional Centre)
4.38 As mentioned in an earlier paragraph, 3 bidders were identified as having the capabilities to finance, construct and operate this prison, and were shortlisted to receive the project brief.
Selection and approval decision
4.39 Following its assessment of the 3 responses to the project brief, the Evaluation Panel recommended that 1 of the bidders be excluded from any further consideration as the bid exceeded the cost per prisoner component of the Government's financial benchmark. The Panel also recommended that the 2 remaining bidders be subject to further evaluation over a 3 week period.
4.40 After this further evaluation process, the Evaluation Panel recommended to the Steering Committee that the Excor Investments Pty Ltd consortium comprising Corrections Corporation of Australia Pty Ltd, John Holland Construction and Engineering Pty Ltd and Societe Generale Australia Limited be selected as the preferred provider. The Panel concluded that this consortium could achieve all of the objectives set for the New Prisons Project and had clearly confirmed its capability to:
4.41 The NPP Evaluation Panel considered that the unsuccessful bidder had demonstrated the capability to:
4.42 However, the Panel determined that this bidder was unable to demonstrate:
4.43 The Steering Committee endorsed the Panel's recommendation and the Treasurer and the Minister approved the selection of the recommended consortium as the preferred provider for the new metropolitan women's prison in December 1994.
Particulars relating to the Government's cost benchmark
4.44 It was the intention of audit to set out in Table 4E a comparison of the cost bid submitted by the successful consortium with the government-approved cost benchmark for this particular prison. The relevant figures have been deleted from the table following legal advice recently obtained by the Department of Justice from the Victorian Government Solicitor. Audit can say that the successful bid was under the Government's benchmark.
Government benchmark $XX XXX per prisoner, per
year
Excor Investments Pty $XX XXX per prisoner, per
Ltd year
4.45 Following a period of approximately 6 months in contract negotiations, the Minister and the selected consortium signed the various contractual agreements in June 1995.
New rural men's prison (Fulham Correctional Centre)
4.46 As indicated in an earlier paragraph, 4 bidders were identified as having the capabilities to finance, construct and operate this particular prison, and were shortlisted to receive the project brief.
Selection and approval decision
4.47 Following its assessment of the 4 responses to the project brief, the Evaluation Panel recommended to the Steering Committee that the Australasian Correctional Services Pty Ltd consortium comprising Australasian Correctional Management Pty Ltd, Thiess Contractors Pty Ltd and AMP Investments Australia Ltd be selected as the preferred provider.
4.48 The Panel concluded in a summary report to the Steering Committee that this consortium's submission "... ranked first of the four submissions".
4.49 The NPP Evaluation Panel also determined that the 3 unsuccessful bidders were unable to demonstrate a capability to meet all of the project's objectives. More specifically:
4.50 The Steering Committee endorsed the Panel's recommendation and, following a submission to the Treasurer and the Minister, approval was given for the selection of the recommended consortium as the preferred provider for the new rural men's prison in May 1995.
Particulars relating to the Government's cost benchmark
4.51 It was the intention of audit to set out in Table 4F a comparison of the cost bid submitted by the successful consortium with the government-approved cost benchmark for this particular prison. The relevant figures have been deleted from the table following legal advice recently obtained by the Department of Justice from the Victorian Government Solicitor. Audit can say that the successful bid was under the Government's benchmark.
Government benchmark $XX XXX per prisoner, per
year
Australasian
Correctional $XX XXX per prisoner, per
Investment Ltd year
4.52 The Minister and the selected consortium signed the various contractual agreements in October 1995, following a period of approximately 6 months in contract negotiations.
New metropolitan men's prison (Port Phillip Prison)
4.53 An earlier paragraph mentioned that 4 bidders were identified as having the capabilities to finance, construct and operate this prison, and were shortlisted to receive the project brief. One of the bidders chose not to submit a proposal.
Selection and approval decision
4.54 Following its assessment of the 3 responses to the project brief, the Evaluation Panel provided the Steering Committee with an interim report, advising that it was unable to recommend a preferred bidder on the basis that "... no one bid met all the criteria required to make this recommendation. Submissions were, in overall terms, difficult to separate on price and other evaluation criteria, to a sufficient degree to enable the clear identification of a single consortium suitable for recommendation as a preferred bidder".
4.55 It was clear to the Evaluation Panel that all the bidders had misunderstood the management requirements for mainstream maximum security prisoners and the management of prisoners in the prison's Management/Security Unit.
4.56 The Evaluation Panel sought and received the Steering Committee's approval to offer the bidders an opportunity to provide further documentation as a pre-condition to the selection of 1 of the bidders as the preferred provider. Bidders were informed that no pricing changes relative to the initial bid would be accepted except for the identifiable and justified cost of qualifying the proposals to government requirements in identified areas.
4.57 All 3 bidders responded to the offer and provided further material. The Evaluation Panel considered the responses and, after this further evaluation process, recommended to the Steering Committee that the Australian Correctional Facilities Pty Ltd consortium comprising Fletcher Constructions Australia Ltd and Group 4 Correction Services Pty Ltd with financier Dresdner Australia Ltd be selected as the preferred provider. The Panel concluded that this consortium "... provided a prison concept clearly integrating prison design and management dimensions into a cohesive approach, which fully met the requirements of the MMP Brief".
4.58 The Evaluation Panel determined that the unsuccessful bidders were unable to demonstrate a capability to meet all of the objectives of the New Prisons Project.
4.59 The NPP Steering Committee endorsed the Panel's recommendation and, following a submission to the Treasurer and the Minister, approval was given for the selection of the recommended consortium as the preferred provider for the new metropolitan men's prison in April 1996.
Particulars relating to the Government's cost benchmark
4.60 It was the intention of audit to set out in Table 4G a comparison of the cost bid submitted by the successful consortium with the government-approved cost benchmark for this particular prison. The relevant figures have been deleted from the Table following legal advice recently obtained by the Department of Justice from the Victorian Government Solicitor. Audit can say that the successful bid was under the Government's benchmark.
Government benchmark $XX XXX per prisoner, per
year
Australian
Correctional $XX XXX per prisoner, per
Facilities Pty Ltd year
4.61 Following a period of approximately 3 months in contract negotiations, the Minister and the selected consortium signed the various contractual agreements in August 1996.
4.62 The importance of adequate attention to probity matters in selection processes has been reinforced by the Department of Treasury and Finance in its March 1997 document entitled, Procedural Integrity and Process Auditing in Privatisation and Contracting Out. This document provides guidance to public sector entities on the role of a probity auditor in ensuring equity in a selection process and that procedural fairness is accorded to all participants.
4.63 The New Prisons Project established a 2-tiered probity regime to support its management of bidding and selection arrangements governing the 3 new private prisons. The 2 elements of the probity regime involved:
4.64 It was very pleasing to find that significant attention had been directed to this critically important aspect of the New Prisons Project.
Important involvement of the Process Probity Auditor
4.65 Extensive documentation was available to indicate that the involvement of the Process Probity Auditor was wide-ranging and encompassed all key stages of the evaluation process.
Input by the Probity Investigation Team
4.66 The abovementioned Probity Investigation Team utilised by the Evaluation Panel comprised 2 members and was led by a representative of the Victoria Police Major Fraud Group who was nominated by the Chief Commissioner of Police. Involvement with this team constituted the means by which the Commissioner met the legislative obligations set out in section 9B of the Corrections Act 1986 which require the Commissioner to report to the Departmental Secretary on the character, honesty and integrity of proposed contractors and any persons associated with or able to influence proposed contractors.
4.67 The work of the Probity Investigation Team encompassed the checking, in respect of all shortlisted bidders, of any criminal history, corporate references and previous performance (nationally or internationally) in the provision of similar services. The Team's investigations in respect of the first stage of the bidding and selection process, i.e. the Metropolitan Women's Prison, were used as the basis for its subsequent work relating to the other 2 prisons. This approach meant that full-scale investigations only had to be carried out for the additional fourth bidder shortlisted for the 2 later prisons and earlier findings only required updating to cover any activities of the original 3 bidders in the period since the first process.
4.68 At the conclusion of each selection process, the Team reported to the Evaluation Panel on the results of its work. The Team concluded in its report(s) that "Following comprehensive investigations, including visits to USA and UK, reports were prepared [by the Team] on each of the four short-listed consortia, which revealed no material probity issues which might impede the implementation of the NPP".
Probity arrangements over the life of the contracts
4.69 Contractual arrangements in place for each of the 3 new private prisons include provisions which are aimed at maintaining ongoing probity assurance during the life of the individual contracts. In this regard, contractors are required to notify the Chief Commissioner of Police (for subsequent investigation) of the emergence of any new circumstances pertaining to the ownership and management of the contractor since the signing of a contract.
4.70 Evidence was available to give assurance that this important aspect of the probity arrangements was occurring.
4.71 The significance of timely notification by contractors prior to any changes in ownership was recently reinforced when the owners of the Metropolitan Women's Correctional Centre advised the Department of proposed changes to its ownership structure. In this instance, however, the Department later became aware that the ownership changes were consummated before the official probity investigation of the changes had been finalised.
- RESPONSE provided by Secretary, Department of Justice
It is pleasing to note that audit recognises the procedural correctness and the integrity of the process with respect to the New Prisons Project bidding process.
