Part 2 – Investment Governance, Funding & Financing

Choosing an investment instrument and delivery vehicle

When developing investment proposals, Commonwealth entities are encouraged to explore all viable investment instruments and delivery vehicle options.

  • Investment Instrument refers to the particular investment used to finance (or support) the upfront costs of the investment (for example, a loan, equity investment, or a guarantee).
  • Delivery Vehicle refers to particular management and governance structures the Government can put in place to deliver its investments. Some examples of a delivery vehicle include:
    1. Government Business Enterprises (for example, NBN)
    2. Specialist Investment Vehicles (for example, the Clean Energy Finance Corporation)
    3. Investment fund (for example, the Future Fund)
    4. Partnership with the Private Sector (for example, the Public Private Partnership that was setup to build Defence’s Joint Headquarters) or State and Territory Government.

The assessment of options should be supported by an explanation of the costs, benefits and risks (including legal risks) for the Government’s consideration, taking into account:

  1. achieving the proposed policy objective of the Government
  2. the level and type of control the Government may wish to exercise during delivery
  3. the characteristics of different investment instruments or a blend of instruments, including any rights and benefits they may confer
  4. optimising net benefits for Australians and value-for-money.


Assessing the market

Investment proposals should include a clear rationale for intervening in markets and should ensure any intervention does not crowd-out private investment. Proposals should also include the assessment of user funding.

Assessments of investment proposals includes consideration of:

  1. whether any proportion of the proposal can be funded by the direct beneficiaries.

  2. the capacity for the proposal to be financed privately, with a proportionate risk allocation subject to the relevant proposal details.


Assessing risk in governance, funding and financing

All investment proposals involve a degree of risk. For the investment to achieve its intended objective, it is the responsibility of the Commonwealth entity to ensure an appropriate culture of engaging with risk and risk management throughout the investment lifecycle.

A financial risk signal (high, medium, low) to decision-makers provides a point of comparison for various investment instrument options. Commonwealth entities are responsible for assessing financial risk and selecting the associated signalling in accordance with the relevant Estimates Memorandum.

  1. The application of the financial risk rating is to be agreed by the Department of Finance (consult with your Chief Financial Officer team for the latest Estimates Memorandum on Financial Risk).
  2. A high financial risk rating will not necessarily mean a project should not be implemented. Where risks are rated to be high, further mitigation including additional governance, reporting and management arrangements may be required to safeguard the Commonwealth's investment.
  3. The Commonwealth Risk Management Policy requires accountable authorities and officials to establish and maintain appropriate systems and internal controls for oversight and management of risk.


The reporting of risk allows for an informed decision on the efficacy of the investment proposal. Sensitivity analysis for key risks should be included where applicable.

A Risk Potential Assessment Tool (RPAT) is to be completed by Commonwealth entities to determine and communicate the potential risk of an investment proposal to Ministers before seeking Cabinet’s agreement. Commonwealth entities are to complete a RPAT for each New Policy Proposal (NPP) with an estimated financial implication of $30 million or above.

Provision of a project or program with a delivery partner (including the private sector) should involve an appropriate allocation of risks with consideration to the alignment of incentives.


Costing and constitutional risk requirements

Costs to be agreed with the Department of Finance through the costing process for NPPs in line with the BPORs. This includes the projected impacts for Budget metrics including underlying cash and fiscal balance, net debt, gross debt, and Public Debt Interest (PDI) over the life of the investment proposal. For proposals going through a two-pass consideration process, costs only need to be agreed for the second pass consideration. However, reasonably robust indicative costs are required for the first-pass consideration, unless an entity is seeking funding to develop the second-pass business case.

In line with the BPORs, the Australian Government Solicitor within the Attorney-General’s Portfolio is to be consulted on the constitutional basis and legislative risk of the investment proposal to provide a constitutional risk assessment and ensure there is the necessary authority.


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