V I C T O R I A Auditor General Victoria East Gippsland Shire Council: Proposed sale of Lakes Entrance property Ordered to be printed by Authority. Government Printer for the State of Victoria PP No. 143, Session 2003-05 ISBN 1 921060 11 5 The Hon. Monica Gould MP The Hon. Judy Maddigan MP President Speaker Legislative Council Legislative Assembly Parliament House Parliament House MELBOURNE MELBOURNE Dear Presiding Officers Under the provisions of section 16AB of the Audit Act 1994, I transmit my audit report on East Gippsland Shire Council: Proposed sale of Lakes Entrance property. Yours faithfully JW CAMERON Auditor-General 20 July 2005 v Foreword This report contains the results of our review of the East Gippsland Shire Council’s processes and actions in attempting to sell a property at 55 Palmers Road, Lakes Entrance, and in settling an associated legal action. A number of deficiencies in the council’s processes and actions are highlighted in the report, including: x lack of evidence that a comprehensive analysis was undertaken prior to pursuing the sale of the property x inadequate due diligence on prospective purchasers of the property x poorly conducted tender process for the sale of the property which was further compromised by the actions of the then mayor x lack of transparency to the community and inadequate community consultation x deficiencies in advice from council officers to the council. The report draws out a number of important lessons from the events surrounding the sale of the property which should be considered by all local governments when planning the disposal of significant public assets. It also identifies opportunities for further guidance to be provided to local government in Victoria. JW CAMERON Auditor-General 20 July 2005 vii Contents FOREWORD........................................................................................................................v 1. EXECUTIVE SUMMARY............................................................................................1 1.1 Introduction ......................................................................................................... 3 1.2 Overall audit conclusion .................................................................................... 4 2. WAS THE COUNCIL DECISION TO SELL THE PROPERTY SOUNDLY BASED? ...........................................................................................................................9 2.1 Was the council decision to sell the property soundly based?...................11 2.2 Conclusion..........................................................................................................14 3. WERE THE COUNCIL’S PROCESSES FOR NEGOTIATING WITH PROSPECTIVE PURCHASERS ADEQUATE? ..................................................... 15 3.1 Audit criteria...................................................................................................... 17 3.2 Initial tendering of the property in 1998........................................................ 19 3.3 Negotiations with Breakaway Group Pty Ltd between November 1998 and August 1999................................................................... 19 3.4 Negotiations with Wenzhou Success Group between October 1999 and January 2000....................................................................... 30 3.5 Negotiations with Breakaway Group between February 2000 and December 2000................................................................. 31 3.6 Negotiations with the Lakes Village Syndicate between December 2000 and August 2001.................................................................... 35 3.7 Conclusion.......................................................................................................... 53 4. DID THE COUNCIL FOLLOW PROPER TENDERING PROCESSES?.......... 55 4.1 Background and audit criteria ......................................................................... 57 4.2 Events during the period prior to calling tenders......................................... 58 4.3 Decision on tender period and advertisement and marketing of the tender opportunity............................................................................................. 61 4.4 Establishment of tender conditions and distribution of tender documentation to potential tenderers............................................................. 63 4.5 Handling of request for an extension to the tender period ......................... 67 4.6 Non-compliance with tender lodgement requirements............................... 68 4.7 Opening and registration of tender received and was it a conforming tender? ................................................................................................................. 69 4.8 Evaluation of tender received .......................................................................... 71 viii 4.9 Council decision to accept tender from Lakes Village Pty Ltd ................... 73 4.10 Probity of the tender process............................................................................ 75 4.11 Conclusion........................................................................................................... 77 5. WERE COUNCIL PROCESSES ADEQUATE FOLLOWING THE AWARDING OF THE TENDER? ............................................................................ 79 5.1 Background and audit criteria .......................................................................... 81 5.2 Finalisation of the contract of sale .................................................................... 82 5.3 Conclusion ........................................................................................................... 93 6. DID THE COUNCIL EFFECTIVELY MANAGE THE CONDUCT AND SETTLEMENT OF LEGAL ACTION? .................................................................... 95 6.1 Background and audit criteria .......................................................................... 97 6.2 Supreme Court writ and council response...................................................... 97 6.3 Conclusion ......................................................................................................... 113 7. DID THE COUNCIL COMPLY WITH PLANNING AND FREEDOM OF INFORMATION LEGISLATION?.................................................................. 115 7.1 Background and audit criteria ........................................................................ 117 7.2 Planning permit application process.............................................................. 117 7.3 Council handling of requests for information under FOI legislation ....... 123 7.4 Conclusion ......................................................................................................... 126 8. EXPRESSION OF INTEREST PROCESSES FOR A SLIP ROAD, PAYNESVILLE PROPERTY.................................................................................... 127 8.1 Background........................................................................................................ 129 8.2 Council’s expression of interest process for Squatters Row, Slip Road, Paynesville in 1997-98 ................................................................... 129 8.3 Council’s expression of interest process for Squatters Row in 2002.......... 130 8.4 Conclusion ......................................................................................................... 133 9. LESSONS LEARNED AND OPPORTUNITIES FOR FURTHER GUIDANCE FOR THE LOCAL GOVERNMENT SECTOR ............................ 135 9.1 Introduction ....................................................................................................... 137 9.2 Lessons learned................................................................................................. 137 9.3 Opportunities for further guidance................................................................ 142 APPENDIX A. BACKGROUND TO THE AUDIT, CHRONOLOGY OF KEY EVENTS AND LISTING OF COUNCIL MAYORS AND CHIEF EXECUTIVES .................................................................................................................. 145 1 1. Executive summary Executive summary 3 1.1 Introduction In February 2004, the East Gippsland Shire Council requested our Office to examine the adequacy of its processes and actions in attempting to sell the property at 55 Palmers Road, Lakes Entrance and in settling an associated legal action. This report outlines the results of our review of these matters. The property at 55 Palmers Road, Lakes Entrance is owned by the council. Covering some 14.9 hectares, it is situated on a hill overlooking the Tasman Sea, and includes the council’s Lakes Entrance Corporate Centre. The former Shire of Tambo had purchased land at 55 Palmers Road, Lakes Entrance in 1982 for $150 000. Subsequently, council offices were built on the site at a cost of around $2.5 million and later refurbished at a cost of $600 000. In December 1994 the Shires of Bairnsdale, Tambo, Orbost and Omeo and the City of Bairnsdale were abolished and the East Gippsland Shire Council was established. The council was governed by commissioners until March 1997. The new council has maintained 2 administrative offices: one in Lakes Entrance at the Palmers Road site, and the other in Bairnsdale, since 1994. In August 1997, an Inspector of Municipal Administration was appointed to review the council’s financial affairs. In his October 1997 report, the inspector expressed concerns about the council’s ongoing financial viability and also expressed