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Ms Collins said she was concerned by some aspects of Justice Ian Binnie's report and after advice from the Solicitor-General decided it should be reviewed.
Ms Collins said she made it clear to Justice Binnie in September that there were concerns with his report and it would be peer reviewed.
She said the report contained assumptions based on incorrect facts, showed a misunderstanding of New Zealand law and lacked a robustness of reasoning used to justify its conclusions.
She said the decision had not been made lightly and she was disappointed a peer review was needed, but was "absolutely necessary".
"Put simply, it would not be acceptable to make a recommendation to Cabinet based on a report that would not withstand the considerable scrutiny it would attract.
"I think we would all agree that a timely conclusion to this matter would be best for everyone. But justice must be done - a robust and proper process is the only way to ensure a certain and final conclusion to Mr Bain's claim."
The reviewed report would be received this week and forwarded to Justice Binnie for comment.
"When I hear back from Justice Binnie, I will take a recommendation to Cabinet on the next steps," said Ms Collins.
In September, the Herald revealed that Justice Binnie had delivered a confidential report to the Government concluding that on the balance of probabilities, Mr Bain was innocent of the 1994 murder of his parents, brother and two sisters and should be compensated for time in jail.
Former All Black Joe Karam campaigned for Mr Bain, including taking a case to the Privy Council, which quashed his convictions in 2007 and ordered a retrial. Mr Bain was acquitted after a retrial in 2009.
The Cabinet has no obligation to follow the compensation recommendation. But if it does, the payout could be at least $2m, based on previous cases.