Auditor General's Report into the management of State Agreements tabled in WA Parliament

The Auditor General has tabled a report into the management of State Agreements in Western Australian Parliament (the Auditor’s Report). The audit assessed whether the Department of Jobs, Tourism, Science and Innovation (JTSI) has been managing State Agreements effectively and monitoring benefits to the State and community. The Report has made general recommendations that JTSI improve the transparency and efficacy of the management of the State Agreements, and reiterated the importance of implementing the outstanding recommendations from the previous audit in 2004.

Background

State Agreements have been used since 1952 to statutorily enshrine the contracts between companies (proponents) and the State of Western Australia in relation to major resources projects. There are 64 State Agreements which are managed by JTSI. The management of State Agreements was last audited twenty years ago in 2004 by the Auditor General.

The Auditor’s Report makes clear that JTSI’s progress in implementing the recommendations from the last audit has been slow. The Auditor’s Report particularly stresses the lack of transparency of the overall benefits for Western Australia delivered by the State Agreements, and flagged that JTSI does not always inform the government when its attempts to modernise a State Agreement through negotiation have been unsuccessful. While the Auditor’s Report does acknowledge that JTSI has focused in recent years on actively monitoring local content obligations and implementing risk and management practices, it emphasises that these processes are still lacking in efficiency. Here, the Auditor’s Report included a case study illustrating that due to outdated systems and processes relying on manual data entry, the 2022-2023 KPI spreadsheet had not yet been finalised as of July 2024.

Key findings

Key findings of the Auditor’s Report included that:

• State Agreements establish project delivery and royalty requirements but often lack detail on social and community benefit obligations for proponents;
• the social and community benefits delivered by State Agreements are not transparently reported;
• JTSI does not proactively pursue updates to outdated State Agreements, which could expose the State to risk; and
• JTSI has improved some aspects of its management of State Agreements but has more work to do to embed a comprehensive management framework.

Auditor’s Report Recommendations

1. JTSI should improve the transparency of state agreements and the benefits they deliver by:
   • reporting annually to the Government and Parliament on the benefits delivered by state agreements, including reporting compliance, local content, capital expenditure, job creation and total royalties
   • prioritising the publication of consolidated state agreements, similar to the way amended legislation is usually published.

2. To help ensure government decision-makers are fully informed of risks when considering new or amended State Agreements, JTSI should:
   • advise government decision-makers of the outcome of all negotiations, including those that are unsuccessful or where alternative arrangements have been made
   • provide opportunities for stakeholders to communicate whole-of-government context, local priorities and community needs.

3. JTSI should continue its efforts to improve its management of State Agreements by:
   • introducing documented management plans for each State Agreement
   • implementing outstanding actions in response to previous audit recommendations, including improving management of conflicts of interest and updating the state agreements database
   • developing detailed guidance material for negotiating new State Agreements, ending State Agreements and managing non-compliance by proponents.

Key takeaway

For proponents, the key takeaway is that the recommendations are geared at encouraging greater transparency and better processes for the management of State Agreements within government. Proponents will need to wait to see whether this amounts to further changes being implemented by JTSI. Given the Auditor General has recommended the publishing of annual reporting on compliance, local content and royalties (amongst other matters), proponents should use this as an opportunity to improve compliance and reporting processes to the extent they are not already doing so.

The Auditor’s Report can be found here.

If you would like to discuss the implications of the Auditor’s Report, please contact us.

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Written by Melanie Debenham (Partner), Naomi Hutchings (Executive Counsel) and Gillian Mahony (Solicitor)