Tolling giant Transurban has confirmed to investors the $6.7 billion West Gate Tunnel project has blown out by $3.3 billion and says the Victorian government and the project’s builders will be expected to help cover the cost of the multibillion-dollar overrun.
But the final project cost blowout could be even higher than $3.3 billion, with Transurban signalling that the project’s builders have arrived at a different, higher estimate of the project’s overall costs.
‘Subcontractor’s construction costs could increase in the order of $3.3 billion,’ Transurban said in financial results.Credit:Joe Armao
The dispute centres on the handling of about 3 million tonnes of soil, with an unknown portion of it, believed to be contaminated with per- and polyfluoroalkyl chemicals – the potential carcinogens known as PFAS.
The tunnel linking the West Gate Freeway in Yarraville with CityLink at Docklands was set to open this year but is running two years behind schedule due to a protracted three-way dispute between Transurban, its joint building venture CPB Contractors and John Holland, and the Andrews government over costs.
“Estimates of additional costs to complete the project differ among project parties and remain uncertain,” Transurban said in financial results released on Monday.
“Based on preliminary independent analysis and subject to a number of assumptions including risk profile, commencement of tunnelling in early 2022 and completion timing, the Group estimates the [design and construct] subcontractor’s construction costs could increase in the order of $3.3 billion. The [design and construct] subcontractor’s claims are higher.”
Transport Infrastructure Minister Jacinta Allan tried to distance the government from the project’s cost overruns, saying this fell squarely on the toll giant’s shoulders.
“Transurban has today told its investors that it believes it has a multi-billion-dollar problem with the contract it signed with CPB and John Holland – it’s in the interests of their shareholders that they get on and resolve that dispute.
“Transurban brought this project to government, it selected the builders, it identified the presence of PFAS and then signed a contract to deliver the project – they need to finally settle this dispute with their builders and get on with the project.”
Transurban finally disclosed the tunnel’s projected cost overruns, two years after work on the Andrews government’s signature road project came to a halt in late 2019 amid a soil contamination crisis. Tunnelling was set to begin in late 2019 but has not yet started.
It follows reports in The Age in September last year that revealed leaked Cabinet documents warning of claims of a $3 billion blowout.
In updated documents revealed in June this year, the government believed the project’s PFAS problem was facing claims of a $3 billion to $3.3 billion blowout, while $1 billion has been attributed to challenges in relocating pipes for major utilities.
Transurban is proposing that it share the project’s cost overruns with the government and the project’s builders, with each party to make a contribution that depends on risk-sharing, costs already incurred and agreements struck on the project’s timeline.
A conflict resolution process overseen by a non-binding independent expert ended unsuccessfully in March this year. A mediation process is underway, but Transurban has signalled that court action will be waged if a commercial agreement is not reached.
“Negotiations between project parties have become increasingly challenging and may not result in a commercial agreement,” Transurban said.
“If matters are not resolved commercially, legal pathways can be pursued by the project parties under the existing contracts, with continuing obligations on the parties to deliver the project.”
Transurban listed several costs it has already incurred on the project, including $443 million in advance payments made to builders until June 30 this year and $132 million for a soil disposal site.
Transurban decided to send the project’s contaminated soil to Hi-Quality landfill in Bulla in Melbourne’s north-west.
More to come.
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