Cost blowouts on West Gate Tunnel to sting taxpayers an extra $1.94bn

Treasurer Tim Pallas has apologised for budget blowouts on the West Gate Tunnel but lashed Transurban for wilfully obstructing the project.

Transurban and builders on the West Gate Tunnel delayed and obstructed works on the scandal-plagued project as they negotiated blowouts, according to Treasurer Tim Pallas.

It comes as Victorian taxpayers will be slugged an extra $1.94bn to finish the Andrews government’s flagship road project.

A deal to rescue the plagued project, which has stalled for two years due to cost disputes, has been inked between the government and the builders. It splits up budget blowouts totalling an incredible $3.9bn.

The road, which will connect the West Gate Freeway to CityLink, is now expected to open in “late 2025” – three years behind schedule.

The embarrassing and costly settlement comes after legal wrangling over who was responsible for cost blowouts and the disposal of contaminated soil – an issue the Herald Sun revealed in 2019.

The West Gate Tunnel is now expected to open in late 2025 – three years behind schedule. Pictures: Craig Hughes

Mr Pallas on Friday also claimed a key issue on the long-running saga was that the tolling company had underbid its initial $6.8bn offer.

He apologised to the community for the inconvenience caused and said he took responsibility for the the projects costs.

Speaking on Friday morning, Mr Pallas said the government had no choice but to intervene and pay $1.9bn on blowouts, despite regularly insisting it was a dispute between Transurban and it’s builders.

“I’m not happy about this,” he said.

“I’m not happy about the fact that we had to live with a process where effectively the delays on this project have been structured in a way to try and put pressure on the state.

“But at the end of the day, this project needs to be reset and it needs to deliver quality infrastructure for Victorians.”

Mr Pallas conceded the companies had employed delays and obstructions, willfully used as a negotiating tactic.

“I believe that has been part of the approach that they’ve adopted,” he said.

“If you look at the essential costs on this project, the so-called soil remediation costs around PFAS are a very, very small part proportion of these costs.

“But you would have thought given the noise around this project, that it was a considerable contributor.

“It wasn’t, the cost principally around this project relate to an underbid that the construction partners and Transurban realised that they had a problem.

“If they’d have been a little bit more cooperative with the state in declaring what their problem was, rather than contend and try and dupe the community that this was something more than an underbid on a project then we could have moved a lot more efficiently to resolve this issue.”

Despite this, tunnel boring machines crucial to the most complex part of the project are idle in the ground and will not start digging until at least March 2022 when a soil disposal site comes online.

The process was meant to begin in 2019.

When asked if the payout was rewarding bad behaviour, Mr Pallas said he was not happy with how Transurban and the builders had carried out the process.

“You could probably, with some degree of justification say that the behavior that has been exhibited is less than exemplary,” he said

“Certainly from our perspective, we would prefer to see better behaviour when projects encounter difficulties.

“The simple observation I would make about this process is you get a lot more done when you work cooperatively, transparently and you don’t pretend that you have one problem when in fact you have another much more substantial problem.

“This was never about soil remediation in substance.”

Mr Pallas said he was sorry for the impact to the community.

“Ultimately, I have to take responsibility for the costs of projects going forward and that is exactly what I’m doing,” he said.

“If you’re asking me if we are prepared to acknowledge that the community has been inconvenienced by a longer term delivery of this project, I do acknowledge that.

“For that inconvenience, we are so sorry.”

Tolling giant Transurban, which proposed the project in 2015 after Premier Daniel Andrews dumped contracts for an East West Link tunnel in Melbourne and wasted $1.2bn of taxpayers’ money, will pay half of the total blowout bill.

Transurban’s builders, John Holland and CPB, will lose $1bn in profits and revenues as a result of the deal.

Treasurer Tim Pallas ­described the eye-watering sums as a “significant additional contribution to the project”.

Earlier this year he insisted taxpayers would not bail out project builders because there was a contract in place.

“The deal we have reached means that both Transurban and the state will make a significant additional contribution to the project, Transurban will forego years of toll revenue and CPB-John Holland give up all of its profit margin and make significant losses,” he said.

It is understood the government explored other options to end the stalemate on the project, including terminating contracts and recruiting other builders to finish the job.

This would have cost $6.8bn, according to the government.

Earlier this year Transurban chiefs told shareholders they expected at least a $3.3bn blowout on the tunnel, and flagged the potential for long legal battles over costs.

Mr Pallas said the road was an “urgently needed second crossing of the river”, and it was not an option to abandon the project.

“We need to make sure it’s built. This agreement protects thousands of jobs – which are more important now than they’ve ever been,” he said.

The Andrews government earlier this year he insisted taxpayers would not bail out project builders. Picture: AAP

Billions of dollars have ­already been spent on the toll road, including on widening the West Gate Freeway and upgrading off-ramps.

In a blow to motorists, the extended standoff and timeline blowout mean above-ground works will continue until 2025.

As part of the deal to build the tunnel, Transurban was given a generous decade-long extension of its tolling deed on CityLink.

This deal does not change that arrangement or the rate at which tolls can be charged.

Transport Infrastructure Minister Jacinta Allan said Victoria needed the project because it would take thousands of trucks off local roads in Melbourne’s inner west and “slash travel times from the western suburbs to the CBD”.

Tunnel-boring machines, which have been idle since late 2019, are expected to be turned on again early in the new year as a result of the settlement.

This would be contingent on a dedicated soil disposal site being built in Sunbury, to ­dispose of excavated material contaminated with industrial chemicals.

The government argues only a small part of the settlement related to the toxic soil disposal dispute, which flared in 2019, and the core issue between the parties was a material underbid in the original contract.

Originally published as Cost blowouts on West Gate Tunnel to sting taxpayers an extra $1.94bn