New headquarters for the Department of Immigration and Border Protection could have saved taxpayers more than $100 million over 15 years, but the savings were killed with the tender.
The project, which was likely to see 4000 Belconnen based staff relocated, was abandoned one day after the government published changes to its framework for public servants considering property leases.
During a senate estimates hearing on Monday, Department of Immigration and Border Protection secretary Michael Pezzullo said the tender was terminated to comply with new regulations.
"We made the judgement in consultation with finance that our request for tender (…) could not possibly conform with the local impacts requirement, so effectively we are starting again," he said.
The original tender aimed to consolidate Immigration's 5500 ACT staff.
It opened up the opportunity to move the department anywhere within a 10-kilometre radius of Parliament House. This included Civic, Brindabella Park near Canberra Airport and Woden.
The new framework requires Department of Finance officials to assess what impact any relocation would have on public transport, employment and prosperity in the local community.
The department's chief operating officer Jill Charker would not disclose the total value of the tender but said it was likely to save the department millions of dollars in coming years.
"We estimated that the total lease cost savings that we might aim to achieve through integration of all our campuses in the ACT was likely to exceed $7 million per annum or more than $100 million over 15 years," she said.
"Essentially, it was a large savings exercise that we believe could be achieved through integration of our property in the ACT."
The cancellation meant tens of thousands of dollars' worth of efforts by developers to win the contract went without reward.
Mr Pezzullo said the developers who had already registered interest could reapply for the process.
"I have asked Dr Charker to work with her colleagues in Finance to see how we can expedite the process consistent of course with sound procurement to not require players in the local market to do all of the work again," he said.
Mr Pezzullo said the departments would work to create an abbreviated process "to construct alternative bids that have regard to local impacts"
"We will work with the Department of Finance to develop an agreed procurement strategy to deliver a suitable accommodation solution," he said.
"We anticipate that a new approach to market will commence shortly."
Earlier this year some sources said Immigration had been leaning toward a move to the airport.
The original tender documents said Immigration wanted to use Canberra's weak commercial real estate market, which included high amounts of empty office space, to push building owners for a free fit-out and fewer rent increases.
Economic modelling by consultancy firm Urbis estimated the relocation of the Belconnen office would rob local traders of $55 million of potential revenue a year.
The Urbis research found that an ACT public servant was likely to spend about $45 each working day in 2014 in shops, cafes or other outlets near their work, considerably more than the $37 shelled out by government workers elsewhere in Australia.
ACT Liberal senator Zed Seselja said he was pleased by the appearance of a positive resolution for Belconnen.
"I just didn't want to see thousands ripped out of Belconnen."
Fraser MP Andrew Leigh described the abandoned tender as a huge win for the community that would likely protect local jobs in Belconnen.