FED: Auditor recommends changes to success fees for sales

AAP General News (Australia)
12-21-1998
FED: Auditor recommends changes to success fees for sales

CANBERRA, Dec 21 AAP - Success fees paid to advisers on public asset sales could jeopardise
government objectives and undermine tendering processes, the Australian National Audit Office
(ANAO) said in a report released today.

It recommended the federal Office of Asset Sales and IT Outsourcing develop a policy on
success fees that ensured tender evaluators did not have a pecuniary interest in the outcome
of the tender process.

The recommendation followed the inclusion of a $250,000 success fee component in a contract
for the business adviser in the sale of Australian National Railways (ANR) last year.

The fee, to be paid to Deutsche Morgan Grenfell in the event of a sale price of $100
million or more, was intended to encourage the business adviser to maximise sale proceeds to
be received by the Commonwealth, the ANAO said in its report on the ANR sale.

"ANAO considers that such an arrangement has to be well managed as it has the potential to
encourage advisers to view maximising sale proceeds as the most important sale objective and
evaluation criterion," the report stated.

"In situations where there may not be clear formal guidance from the Commonwealth on the
relative importance of its sale objectives, such a view could result in less than satisfactory
outcomes."

But the Office of Asset Sales and IT Outsourcing (OASITO) disagreed with the audit office
recommendation, saying it would address the matter of a success fee on a case-by-case basis.

"Private sector specialist advisers' input to tender evaluation is always required, even
where the outcome may affect their fees," the OASITO said.

The nature of any success fees needed to be tailored to the specifics of commercial
proposals and the transaction rather than risk being constrained by general corporate
policies.

"This is because such policies may inadvertently preclude innovative proposals that may
have merit but were not contemplated in the framing of the policies," the OASITO said.

Deutsche Morgan Grenfell applied for the success fee to be paid even though the sale
proceeds of $95.4 million was below the threshold, arguing the Commonwealth had an offer
before it which would have realised more than $100 million.

OASITO rejected the request for payment.

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