Despite improvements being made over the last several years, government still does not properly plan or budget its major capital projects, which could mean that the costs of those developments could be underestimated by a “significant” amount, according to a report released last week by the Office of the Auditor General.
In her report, Auditor General Sue Winspear commended government for establishing a Major Projects Office and improving its governance framework for capital projects, but stated that multiple deficiencies that have yet to be addressed from previous major capital project reports from 2012 and 2015.
Those deficiencies include the fact that government routinely does not account for the long-term costs of maintaining its assets once they are constructed, does not spell out in its budgeting documents how much each project will cost, and does not conduct proper analyses on developments before beginning them.
The report’s analysis spanned seven ongoing or planned capital projects: The John Gray High School, the Owen Roberts International Airport terminal redevelopment, the cruise pier facility, the integrated solid waste management system, the long-term residential mental health facility, the new George Town police station, and the new court facility.
Ms. Winspear estimated that the projects will cost around $500 million over the next five years, and hundreds of millions of dollars more in the long term.
Along with maintenance costs, the report explained that government is considering entering into a public-private partnership for two projects – the waste management system and the cruise pier facility – which will cost between $280 million and $310 million in payments to the private sector partner over the next 20-25 years.
“These costs need to be factored into future budgets,” the report states. “We found some examples of short-term and incomplete budgets being allocated to ministries after Cabinet had approved that the projects should go ahead.”
The report also criticized government for not specifying what projects will cost in its budget documents.
“Even where key project documents had been approved by Cabinet and expenditure could be incurred, it was difficult to identify whether estimated costs had been factored into budget documents,” the report stated.
Moreover, various budget documents provide different estimates for capital expenditures.
For example, the Ministry of Health and Culture was allocated $10.6 million for capital expenditures, according to government’s 2016-17 strategic policy statement; $15 million, according to government’s 2016-17 annual plan and estimates; and $11.1 million, according to the Appropriation Law 2016-17.
“It is not clear why these figures are different or what is expected to be funded for each,” Ms. Winspear stated. “The Plan and Estimates does not provide sufficient information on major capital projects – e.g., on their status and whether they have been approved by Cabinet – and the information is not presented consistently.”
To address these shortcomings, the report recommended that government form a long-term capital investment plan that includes relevant information such as estimated costs and timescales, the public policy needs being addressed by projects, and assessments of the financial and economic impact of simultaneous projects.
“This would enable capital investment decisions to be made with full information on all major capital projects, including their affordability and the capacity of the government and industry to deliver them,” the report states. “It would also provide clear links to medium and long-term financial plans.”
Along with the budgeting and planning deficiencies, the report also criticized how government conducts its business cases – studies that analyze various aspects of a proposed project.
Ms. Winspear stated that several business cases are conducted before and during the procurement stage of a given project, and that a final business case should be completed and made public before any contract is signed.
However, few final business cases have been completed for the territory’s projects, according to the report. No final business case for the airport terminal project has been conducted, and the final business case for the John Gray High School gymnasium project was not submitted until the project was mostly complete, the report states.
With a final business case being required in the new major capital projects governance framework, Ms. Winspear did state that she expects such studies to be completed before contracts are signed in the future.
Ms. Winspear also recommended that the Major Projects Office conduct post-project evaluations so government can learn lessons in order to improve future projects.