Victoria’s public sector financial watchdog is investigating whether bias influenced the state government’s investment in commercial joint venture Eloque, which collapsed after 16 months and burnt $20 million of public money.

The Andrews government announced in May 2021 it would invest up to $50 million in the partnership with US printing giant Xerox that sought to commercialise bridge sensor technology developed at government rail agency VicTrack.

Audit probes ‘bias’ in failed Eloque government joint venture

The Auditor-General will investigate the government investment in the failed joint venture Eloque.

However, the joint venture shut down in August this year after it failed to turn the “revolutionary” technology into a functioning product. Victoria lost $20 million from its 37.5 per cent shareholding, and developing and buying the unproven sensors, which it has since removed from about 30 bridges.

The Victorian Auditor-General’s Office said it would examine whether the Department of Transport and VicTrack’s decision “to enter into the Eloque joint venture arrangement was transparent, evidence-based and free from bias”.

The investigation was “important to ensure government investments of public money are appropriately informed and consistent with policies and principles”, the Auditor-General said in a brief update posted online.

The probe comes after The Age revealed in October that Victoria paid almost $10 million to install Eloque sensors on state bridges despite the devices not working as expected.

Seven former senior Eloque employees said there had been warnings within its Melbourne and California offices that the sensors could not reliably monitor bridges for structural weakness, and the technology needed more work before it was ready to be sold.

Queensland also decided not to buy Eloque’s sensors after it commissioned an independent review that found the technology was unviable, the Age’s investigation revealed, raising questions about what due diligence Victoria conducted.

VicTrack chief executive Campbell Rose ran Eloque for a period of about 10 months until he went on a period of unexplained “extended leave” earlier this year. The rail agency has said it put a management strategy in place to deal with potential conflicts of duty while Rose was running both organisations.

While the Andrews government said publicly it would put up to $50 million in the Eloque, leaked VicTrack board papers obtained by The Age showed that the government was willing to spend up to $82.5 million investing in the venture and buying its technology.

A Department of Transport spokesman said: “We will co-operate fully with the Auditor-General’s process.” A VicTrack spokesperson said that it would also “fully co-operate” with the audit.

Transport Infrastructure Minister and Deputy Premier Jacinta Allan and Treasurer Tim Pallas successfully pitched the government investment to cabinet in mid-2020 and announced the joint venture together in 2021.

Allan declined to comment on the audit, but has previously defended the state’s investment, saying the technology “was proven to be successful” in early trials, and only fell over during the process of developing it into a commercial product.

A McKinsey & Company report commissioned by VicTrack into the optic fibre sensors it trialled on five bridges in 2019 found that a commercial venture could install the technology on 14,000 bridges worldwide and generate annual profits of $167 million within a decade.

Victoria’s losses of $20 million from Eloque consist of its equity investment ($8 million), the purchase of its sensors ($10 million) and early trials of the technology at VicTrack ($2 million).

Xerox, which put $7 million into the joint venture, has previously said it agreed with Victoria to shut down the company when it realised developing the sensors into a commercial product “would require more efforts than initially expected”.

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