Contents of Part 2
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| 4.1 Acquisition of assets |
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| Asset acquisition decisions are to be made within an integrated service and financial planning framework.9 |
The acquisition of assets is a key asset management activity. It is imperative, therefore, that acquisition decisions be taken within an integrated planning framework that takes account of service delivery needs, corporate objectives, financial and budgetary constraints, and the Government's overall resource allocation objectives.
Options for acquiring assets include purpose-design and construction, purchasing or financial leasing. As part of the acquisition process, an entity needs to consider:
Minimising the exposure to risk
Acquisition decisions require thorough examination and economic appraisal. As outlined in Section 3.3, any potential risks as well as the consequences of acquiring an asset should be examined before any action is taken.
The involvement of the private sector in the acquisition process should also be considered, where appropriate.
(Further information is contained in the Victorian Government publication,
Infrastructure Investment Policy for Victoria (1994)).
In accounting for private involvement in public investment, however, the entity should arrange for an appropriate sharing of risk. This approach is consistent with the Government’s drive towards a more commercial focus in the management of its entities. Legal expertise should be engaged to assist in preparing contracts to minimise exposure to risk.
Some of the issues which may be applicable and need to be considered and clarified in contracts with contractors and suppliers include:
Purchasing ethics and principles
Officers involved in purchasing and supply management in the public sector shall maintain the highest ethical standards, and seek best value for money.
The following principles should be observed:
Procedures are to be established and maintained to ensure that:
- fair and equal consideration is given to each tender or quotation received; and
- selection is based on fitness for purpose and on the lowest total cost complying bid.
| Infrastructure Investment Policy for Victoria
Department of Treasury (Victoria), 1994
Project Development and
Supply Policies and Guidelines
Department of Planning and Development,
Department of Treasury and Finance,
Victorian Government Purchasing Board |
Acquisition of land
Land, for the purposes of this publication, encompasses both improved and unimproved land. It generally also includes all improvements of a permanent nature constructed on it.
Legislation governing the acquisition of land by entities for public purposes is contained in various Acts of Parliament. For example, the Acts listed below govern the acquisition of land within the stated portfolios:
Generally, the Crown or an entity acquires land either by agreement or by compulsory acquisition:
Entities uncertain about whether or not they have the capacity to enter a contract for the sale/purchase of land are encouraged to seek further legal advice.
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| Department of Planning and Development, Planning Division Telephone 61 3) 9628 5307
Department of Treasury and Finance, |
Construction of assets
This section relates only to the construction of assets, not the acquisition of existing assets.
The Project Development and Construction Management Act 1994 provides the Minister responsible for the Act with powers to set standards for public construction, and provides for empowerment of entities and Ministers to facilitate development projects.
Other Acts provide for land development, and for building and other construction works for various public purposes (ie residential subdivisions, public housing, roads, transport facilities, water supply etc).
Contracting methods
Choosing an appropriate contract method is fundamental to the feasibility, development and ultimate success of the procurement. Entities are responsible for choosing the most appropriate method on a project-by-project basis and for identifying, assessing and allocating potential risks
to optimise investment return.
The method used to acquire assets should enable:
The choice of a method is made by considering costs, financial benefits, funding options, risks, delivery times and the period for which the asset is needed.
Lump sum contracts involve the design and documentation of the project. Tenders are then invited and a contractor appointed to construct the works as documented in return for an agreed lump sum payment, paid as the work progresses. A project manager undertakes the management role for the delivery of the project within the specified time, and to meet specified cost and quality targets. The project manager may be an architect or other building professional.
Design and construct contracts
A design and construct contract involves a single supplier or contractor undertaking both the design and construction processes. The contractor engages consultants to design and document the project, generally with the close involvement of the customer.
This type of contract may include warranted or guaranteed maximum price, subject to allocation of risks.
Build-own-operate-transfer (BOOT)
The BOOT process involves private construction of a public asset at the expense of the private owner in return for the right to operate the facility and charge users a fee. At the end of the contract period, the facility reverts to the State. This process can be modified to suit particular needs (eg Build-own-transfer), depending on the requirements for ownership and operation.
Acquisition of other assets
The acquisition by entities of assets other than land and those that are constructed is governed by the Financial Management Act 1994 and by the policies and guidelines of the VGPB.
The supply guidelines issued by the VGPB currently define the Government acquisition requirements for entities.
After accreditation by the VGPB, departments will be able to develop and implement their own acquisition arrangements.
The VGPB will issue practice statements from time to time to assist entities in implementing policies.
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| Financial Management Act 1994
Supply Policies and Guidelines |
Assuming control of an asset
There are a number of ways by which an entity may assume control of an asset, and these are briefly described below. It should be noted, however, that not all these means apply to all classes of assets, or are available to all entities.
Acquisition with funds from appropriations
An asset that is purchased, constructed or developed by an entity using appropriation funds is controlled by that entity, unless it explicitly does so on behalf of another entity and an agreement between the entities specifies this.
Acquisition with funds from non-appropriation sources
An asset that is purchased, constructed or developed by an entity using funds from non-appropriation sources (eg user charges, grants, revenues, proceeds of sale of other assets) is controlled by that entity, unless it explicitly does so on behalf of another entity and an agreement between the entities specifies this.
Acquisition with Commonwealth funds
An asset that is purchased, constructed or developed by an entity with Commonwealth funds is deemed to be controlled by that entity unless the funding agreement specifies otherwise.
Acquisition by finance lease
Entities that lease assets under a finance lease are deemed to control those assets.
Acquisition by joint venture
An asset that is purchased, constructed or developed as part of a joint venture (eg private sector investment in public infrastructure and/or contracting-out arrangements) is deemed to be under the control of the entity accountable for the venture, unless an agreement between the joint ventures specifies otherwise.
Transfer
An asset that is transferred from another entity is deemed to be controlled by the entity to which it is transferred.
Vesting
An asset that is vested in an entity is deemed to be controlled by that entity.
Consignment of control
An entity will assume control of Crown land through a system of consignment, which will ratify existing control of the land and will be used for the future transfer of control of Crown land.
Entities that currently control Crown land will need to ensure that the terms and conditions of their control are evidenced in writing in the instrument of consignment.
The system of consignment is subject to further guidelines produced by the Department of Conservation and Natural Resources.
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| Department of Conservation and Natural Resources Telephone 61 3) 9412 4678 |
Donation/gift/bequest
An asset that is donated, given or bequeathed to an entity is deemed to be controlled by that entity unless any restrictions exist that prevent the entity having control of it.
Sovereignty
An asset over which the Crown has asserted sovereignty is deemed to be controlled by the entity using the asset or holding it on behalf of the Crown.
Seizure
Some entities have control over, and are accountable for, the collection of revenues on behalf of the Crown. Assets seized by those entities where customers default on payment are deemed
to be controlled by the entity.
Contingent control
Some arrangements, such as private sector investment in infrastructure, afford an entity the right to take control of an asset.
Compulsory acquisition
Some Acts afford an entity the right, on behalf of the Crown, to take control of an asset.
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