The controversial $7bn cost estimate used by Daniel Andrews to justify axing the 2026 Commonwealth Games was based on a worst-case scenario modelled by the event’s organising committee and a government department, it has been revealed.
The government cancelled the event on 18 July, with the former premier blaming cost estimates tripling from $2.6bn to up to $7bn.
Commonwealth Games Australia has previously described the $7bn figure as a “gross exaggeration” and the source of the cost estimate has not previously been known.
The first day of an upper house inquiry into the event’s cancellation heard on Monday that Andrews’ successor as premier, Jacinta Allan, was briefed by the Department of Jobs, Skills, Industry and Regions in March that costs could reach $4.5bn.
Allan – then the deputy premier and minister for the Commonwealth Games - told the department to try to reduce the costs but it again warned in June that it would need $4.2bn to deliver the 12-day sporting event.
Jeremi Moule, the secretary of the Department of Premier and Cabinet (DPC), told the inquiry the Department of Jobs estimates did not include the costs for transport or policing, or factor in possible risks.
Moule said the DPC later received further analysis from the Victoria 2026 organising committee and the office of the Commonwealth Games (OCG), which was within the Department of Jobs, that included “cost implications if risks materialised”.
“Essentially, if the risks were weighted at 50% the costs would likely reach or exceed $6bn. If they were weighted at 100% the cost would be closer to $7bn,” he said.
He was not asked to reveal what those risks were.
“Both DPC and the Department of Treasury and Finance (DTF) formed the view that there was a very high probability that the risks would be realised. In fact, DTF formed the view that it was prudent to rate them all at 100%.”
On 13 June, Moule said he flagged the costings with Andrews.
Law firm Arnold Bloch Leibler was engaged on 14 June. At the same time, the OCG and Victoria 2026 were tasked with examining other possible options for the games, such as a “hybrid regional-Melbourne games, or hosting the Games in Melbourne”, Moule said.
On 30 June, he arranged a meeting with the chief executive and president of the Commonwealth Games Federation in London.
“At that time, no decisions had been made, but it was clear that the government would need to make a significant decision regarding the games to either materially reshape it in a way that would require renegotiation of the host contract, or to cancel the commitment. The meeting was set for 17 July,” he said.
In his evidence to the inquiry, Tim Ada, the secretary of the Department of Jobs, said the original business case – put together by Ernst & Young in March 2022 and peer reviewed by KPMG – greatly underestimated the cost of the event.
Ada said their projected cost of $2.6bn “largely relied on top-down estimates and benchmarking against known amounts from the 2018 Gold Coast Games”.
“It is clear now, with the benefit of hindsight, that the business case prepared in early 2022 did not reflect the true cost of delivering a sporting program spread across five cities, nor anticipate the significant cost escalation that’s been experienced in the construction sector,” he told the inquiry.
Former chief executive of the OCG, Allen Garner, said it was clear “sometime in 2023” that there would be a “significant shortfall” in funds, largely due to rising building costs and challenges at the sites of proposed athlete villages.
Garner said he was only notified of the decision to scrap the games the night before the public announcement.
Asked whether he was effectively “kept in the dark”, Garner replied: “Yes. We were very focused on delivering [the event].”
The organising committee – headed by chief executive, Jeroen Weimar, and chaired by the former Richmond Football Club president Peggy O’Neal – were also told on 17 July.
“We were confident that we could deliver a successful games but the costs of delivering those games would far have exceeded the estimates made during the bid, so we understand the government’s decision and we respect it,” O’Neal told the inquiry.
After cancelling the event, the government went on to pay $380m in compensation to Commonwealth Games bodies for terminating their contract.
The inquiry on Monday formally invited Allan to appear as a witness. As a member of the lower house, Allan cannot be compelled to give evidence to the upper house inquiry and she has previously indicated she will not appear before it.
Opposition spokesperson for sports, tourism and major events, Sam Groth, urged the premier to front the inquiry.
“Despite being aware of multi-billion dollar cost blowouts and the total inadequacy of the initial business case, Jacinta Allan kept the Victorian community in the dark for months on end,” he said.
“Premier Jacinta Allan needs to take responsibility for this debacle, and commit to fronting this inquiry to explain how this all went so wrong.”
