Express law No. 26

5 August 2005

Australian Government Property Ownership Framework: to
own or not to own?

The Australian Government's core
business excludes property ownership unless specific government
objectives
require it.

From 1 July 2005 proposals to own or divest
property (other than surplus property) must be prepared
in accordance with
the Australian Government Property Ownership Framework
(the framework).

Australian Government Property Ownership
Framework

The framework replaces the Australian Government
Property Principles and applies to all government agencies,
but
not government business enterprises.

A proposal to own or
divest property, other than property that has no alternative
efficient use, must be developed
in accordance with the Budget Process Operation Rules and
apply the framework.

The Commonwealth Disposals Policy (disposals
policy) will still apply where property has no alternative
efficient
use. Such property must still be sold on the open market
at full market value. Exceptions to the disposals policy
are priority sales and concessional sales.

Factors to be
considered in the proposal

A proposal to own or divest property
must consider the following criteria:

  • any symbolic, national heritage or environmental reasons
    to own
  • whether the property is of
    a highly specialised nature
  • any national
    security or other strategic considerations in support
    of ownership
  • whether to own or divest
    provides value for money to the Australian Government
    over the longer term after consideration
    of all risks.

The Department of Finance and Administration
(Finance) will assess proposals against the criteria and
based on
a rate of return commensurate with the exposure to risks
associated with the nature of the property (financial assessment).

When
demonstrating value for money, an agency must consider
risks including:

  • planning, design,
    development and construction risks
  • capital risk
  • market risk
  • environmental risk
  • residual value
    risks
  • change of strategic requirement
    risk.

Risks may be identified through risk workshops that
include discussions with users, advisors, project managers
and stakeholders.

The agency must then assess whether
the likelihood of an identified risk occurring is low,
medium or
high and
if
the risk does eventuate, whether the impact on the
government will be low, medium or high. Finance suggests
that preparing
this risk profile may involve considering:

  • events that can occur at each stage of ownership and
    their likely impact on the Australian Government
  • factors contributing to an increase/decrease in the
    chance of each risk occurring
  • whether
    the risk will result in the crystallisation of other
    risks
  • whether the risks have eventuated with other property
    and any similarities with this property
  • how these risks have been managed in the past and
    whether that management strategy was successful.

It is the
responsibility of the agency to clearly demonstrate the
characteristics of the property (including
value
for money) that warrant government ownership or divestment,
including whether the identified risks make the proposal
low, medium or high risk. The latter is important
as it
has a direct impact on the discount rate used during
the financial assessment of the proposal undertaken
by Finance.

The financial assessment will be based
on a discounted cash flow model using an appropriate discount
rate.
Finance will publish discount rates annually to accommodate
different
property asset types and levels of risk.

Implications

While value for money (and risk) may not be
the sole criterion to consider when developing a proposal,
the agency must
carefully assess the nature of a property and the
risk associated with a proposal of that kind. Reference
should be made to the agency's prior experiences
with similar property and where appropriate, the
views of those outside
the agency, including stakeholders.

For further information
please contact:

Josephine Ziino

Senior Executive Lawyer

T 03 9242 1312 F 03 9242 1481

josephine.ziino@ags.gov.au

Andrew Whiteside

Lawyer

T 02 6253 7137 F 02 6253 7306

andrew.whiteside@ags.gov.au

Important: The material in Express
law is provided to clients as an early, interim
view for general information only, and further analysis
on the matter may be prepared by AGS. The material
should not be relied upon for the purpose of a particular
matter. Please contact AGS before any action or decision
is taken on the basis of any of the material in this
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