An independent review of the $30m Leppinton Triangle purchase has concluded the federal infrastructure department failed to take “all reasonable steps” to achieve value for money for taxpayers.
The review, conducted by Sententia Consulting and tabled at a Senate estimates hearing on Monday, found it was “curious” the department didn’t seek external expertise on property acquisition and “unusual” that it asked valuers to consider the land’s industrial purposes.
Despite these findings – and that the department failed to properly consider a compulsory acquisition instead of a voluntary sale – the review concluded there was “no evidence to suggest poor integrity, criminal activity or personal benefit for officers involved in the transaction”.
In September the Australian National Audit Office (ANAO) revealed taxpayers paid Leppington Pastoral Company 10 times the fair value for the parcel of dairy farming land to build a second runway at the Western Sydney airport after 2050.
The infrastructure department has defended what the ANAO described as an “unorthodox” valuation, arguing it paid a premium to avoid costly legal disputes. The incident prompted multiple reviews and a police investigation.
The company – operated by billionaire brothers Tony and Ron Perich – had fought a 10-year battle against compulsory acquisition of part of its land from 1989 to 1999. It is also a donor to the Liberal party, contributing $58,800 in donations in 2018-19.
The Sententia report found the department’s acquisition strategy was “heavily” and “disproportionately” focused on maintaining a positive relationship with LPC but it was less clear how risks including overpaying for the land would be managed.
It said that officers “made, or failed to make, a number of decisions which exposed the acquisition to unnecessary risk” and failed to apply “key process controls”.
These included failure to “obtain and present sufficient information” to judge value for money; lack of analysis on the acquisition timing and approach; “absence of a rigorous negotiation plan”; and proceeding with a voluntary sale “without a rigorous analysis of the risks and benefits over a previously approved compulsory acquisition approach, and without consulting with the approver of the strategy”.
Although at the time he had described the department’s proposed $30m price tag as “perfectly sensible”, the former infrastructure minister Paul Fletcher later agreed with the ANAO’s conclusion that it was “unethical” of the department to withhold key information from him.
Despite a lack of experience with land acquisitions and the fact it sought extensive advice on other aspects of the purchase, the department took a “curious” decision not to “buy in specialised expertise” for seeking a valuation, the Sententia review said.
This stemmed from “over-confidence, a belief that the transaction was not complex”, it claimed.
The department then used a limited tender to obtain a joint valuation from Leppington’s chosen valuer, who was “unknown to the department”.
According to the ANAO, the department originally proposed to ask the valuer to base the estimate on the “highest and best use” of the land, but after negotiations with the landowner, added a requirement to consider its “speculative industrial re-zoning potential”.
The Sententia review said that “single-source procurement” was “not consistent” with the department’s procurement manual and the claimed basis – the “urgency exemption” – was “not persuasive”.
The review found the purchase was “unusual compared to Australian public service norms in major transactions” in several respects.
“These included deviating from approved strategies without seeking approval, meeting with transactional counter-parties without appropriate probity controls, and committing significant public expenditure without typical processes and evidence bases.”
Several valuers told the review it was “unusual” the department had instructed valuers that “industrial purposes” should be considered because “more typically it would be expected that a valuer would be at liberty to use their professional judgement as to what the highest and best use of an asset would be”.
The ANAO has previously told Senate estimates that departmental officials had met representatives of the Leppington Pastoral Company at Aussies coffee shop in parliament, and on another occasion met the Perich brothers in a private home.
The Sententia review concluded it was “clear that the department did not undertake all reasonable steps to determine what a suitable cost would be for the government to acquire the property, to demonstrate that the price paid for the property represented an efficient, effective, economical and ethical use of public funds”.
But the review said even a proper process “would not have allowed the commonwealth to acquire the land for $3m”.
“It is possible that the commonwealth could have sought to negotiate a lower price for the Leppington Triangle, but there is no guarantee that LPC would have accepted it.”
The review said there was “no question that the likely future benefit from the acquisition is significant” but warned the purchase had “come at a high reputational cost to the department”.
The shadow infrastructure minister, Catherine King, said the report confirms the purchase was “a failure of governance and a terrible deal for Australian taxpayers”.
“Something went seriously wrong with this purchase, but eight months on, we’re still waiting for the government to get to the bottom of why or to take action to ensure these problems don’t occur again,” she said.
“This purchase was either incompetent or corrupt. The government needs to get serious about making sure it can’t happen again.”
The deputy prime minister, Michael McCormack, has called the purchase “a bargain” and said it would “eventually will be hailed as a good decision”.
But the prime minister, Scott Morrison, has said Australians were right to be disappointed, adding that the sale is not “something that [he] would ever like to see repeated”.
