Scathing audit questions tender process for Sydney’s $2bn container terminal

A government company charged with delivering one of Australia’s biggest infrastructure projects has been heavily criticised for failing to deliver a sufficiently competitive tender process to choose its private-sector partner.

A scathing auditor general’s report into the $2bn container terminal at Moorebank in Sydney’s south-west was released just days before Christmas. On Monday the auditor general announced a second audit into the government-owned Moorebank Intermodal Company’s contracting practices and whether there has been improper use of corporate credit cards by employees.

The first audit said the tender process had been cut short, making it “difficult to conclude that value for money has been achieved”. It also found that MIC staff and the board had used private email accounts to send highly sensitive documents to each other, in breach of public service protocols. This had prevented the auditor general from being certain that his office saw all relevant deliberations of the company, he said.

The highly critical audit covers several years during which MIC selected the logistics firm Qube, run by the waterfront union-busting businessman Chris Corrigan, as its private sector partner. The new investigation will look at whether hospitality and gifts were adequately managed by the company.

MIC told the Guardian it was “firmly of the view that better value for money has clearly been achieved from the arrangements with the Qube consortium than could have been achieved from any of the other parties”.

The first sod for the project was turned in April last year in a ceremony attended by the federal finance minister, Mathias Cormann, who has oversight of the MIC.

The scheme has been mired in controversy since its inception.

In 2004 the federal government announced plans for an intermodal container terminal as a way of taking pressure off Port Botany and reducing trucks on Sydney roads. An intermodal terminal is a hub where containers can be transferred between ship, rail or road.

With pressure on space at Port Botany, the government identified defence lands at Moorebank as a suitable location where containers could be transferred to and from the rail line to the port, and over the next few years developed a business case. This was finally approved by the Labor government in 2012.

Meanwhile, in 2007 a private-sector consortium, which included Qube, Stockland and the rail freight company Aurizon, bought a nearby site and announced plans for a rival terminal. The site was directly across the road from the MIC’s.

But this project did not have a smooth run. Between 2010 and 2012 the consortium asserted on a number of occasions that the Labor government was acting in direct competition to it and was therefore blocking its request for rail access over adjacent government-owned land.

“This is a government that doesn’t want to compete,” Corrigan said after Qube’s annual meeting in Sydney in 2012. “We are happy to run our own operation, we are happy for them to operate next door, but they are scared we will do a far better job than they will.”

With the election of Tony Abbott’s Coalition government, the consortium’s fortunes changed.

According to the auditor general, the consortium began lobbying for a “combined” whole-of-precinct approach, arguing this would lead to a more efficient and valuable intermodal facility.

“The consortium made direct contact between late September and early October 2013 with at least three new ministers’ offices to discuss the abandonment of the MIC’s upcoming tender process,” the auditor general said in his report.

These are understood to have included Cormann and the then infrastructure minister, Jamie Briggs.

MIC insists it told Qube and its partners the only way forward was for the consortium to put in a tender.

But now the auditor general has raised a red flag over that tender.

MIC had designed a competitive two-stage process. Responses to first-stage expressions of interest were to be used to shortlist at least two but no more than three bidders who would then proceed to the “project development request” stage. The idea was to keep the competitive tension in the process for as long as possible and ensure the best proposal won.

But after going through the first stage and identifying three potential parties, a decision was taken to enter into direct negotiations with the Qube consortium only.

The auditor general said that in late April 2014 the MIC chair and chief executive had met Cormann to discuss their proposal to scrap the second stage.

“The procurement process was not sufficiently competitive,” the auditor general said. “Negotiating directly with one respondent rather than the original plan of maintaining competition during the second stage of the procurement process gave rise to a number of risks.

“Those risks were recognised and mitigation strategies identified but those strategies were not implemented. This situation makes it difficult to conclude that value for money has been achieved.”

After signing with Qube, negotiations over the details of the partnership took twice as long as planned, the auditor general said.

The parties agreed on a broad deal within six months but key elements of the transaction “changed significantly”, which the auditor general said had traded away government objectives.

The financial commitment to the project increased; the government agreed to restrict potential buyers of its shares in a future privatisation to prevent competitors to Qube bidding; it received diminished rent; and, the auditor general said, there were changes that undermined the goal of open access for all freight companies to the terminal.

“It is not possible to provide assurance that non-discriminatory open access is likely to be available within all aspects of the intermodal precinct,” the auditor general said.

The auditor general also identified shortcomings in the management of probity. Auditors were appointed too late in the process and were not chosen by open tender, even though the contract was for $405,000 – an amount which under MIC’s own rules should have gone to tender.

The MIC’s chair, Kerry Schott, defended the company’s handling of the tender in a lengthy response to the auditor general.

She said the decision had been taken to enter into direct negotiations with the Qube consortium because its expression of interest was markedly superior to the other two bids. The two others had been kept on standby, she said.

Schott also defended the access arrangements, saying Qube had assumed a bigger risk on traffic volumes and that it had an incentive to do business with competitor companies.

A Qube executive, William Hara, wrote that many of the auditor general’s statements were “incorrect” but he did not elaborate.

But Labor’s spokesman for finance, Jim Chalmers, said the audit report endorsed the former Labor government’s approach to delivering the project.

“Common sense tells you that a competitive, transparent and open process between multiple bidders will deliver the best outcome for taxpayers.”

Guardian Australia has sought comment from Cormann.

Briggs, the other minister who attended the sod-turning ceremony, is now involved with the project in another capacity.

In 2015 he left politics after a public servant accused him of acting inappropriately towards her in a Hong Kong bar.

The minister had survived the change of leadership in the Liberal party and Abbott’s farewell party – where he hurt his leg and a marble coffee table was smashed – but he was unable to ride out the Hong Kong scandal.

A year later, without fanfare, Cormann appointed him an MIC director on a salary of $56,150.

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