This was published 4 years ago
Metro Tunnel's $2.7 billion budget blowout revealed
By Timna Jacks
The cost of building the Metro Tunnel has blown out by $2.7 billion, with taxpayers set to fork out more than $1 billion extra for the underground rail project to be built by 2025.
Transport Infrastructure Minister Jacinta Allan confirmed on Friday that the consortium building the project and the government will pay an extra $1.37 billion each, following a protracted dispute over extra costs. This adds to the $11 billion the government is already spending on the project.
Design changes to two CBD stations, unforeseen challenges with the scale and construction of the underground stations because of Melbourne's challenging soil conditions and the rising costs of labour and materials have driven up the price tag.
The site of the Metro Tunnel in West Melbourne.Credit: Justin McManus
Rail Projects Victoria received a letter from the Cross Yarra Partnership, which comprises Lendlease, John Holland, Bouygues Construction, John Laing and Capella Capital, on Thursday night, confirming the in-principle agreement.
The extra money is intended to ensure delivery of the project at its original scale and ensure it is built on time, rather than fund any new upgrades.
The funding allocation will be outlined in the state budget released next year.
Ms Allan said she was confirming the cost overrun to the public at the "first available opportunity".
"The government and CYP have jointly agreed to invest an additional $1.37 billion towards the completion of the Metro Tunnel project.
"This is a big and important project, which is why we've negotiated very hard for the Victorian community to get this outcome.
“As I’ve indicated on a number of occasions over the past few months, as soon as we had reached an agreement with our construction partners, we would make that information available.”
When asked how Victorians could be assured there would be no further blowouts on other major infrastructure projects, Ms Allan said: “I think any contractor or company thinking that they can try on the Victorian government should take note of the fact that we’ve reached an agreement that’s a 50/50 basis."
Rail Projects chief executive Evan Tattersall said changes to the State Library and Town Hall stations in the CBD had driven up costs.
"As we got more into the detailed design and understood the construction methods, it became obvious that it was going to cost more than originally thought. The costs are spread right across the project to the tunnelling activities, the stations themselves, in particular the two CBD stations which are really, really complex, and the types of costs are additional materials, additional labour."
He said "the scale and complexity of the underground construction" given the "challenging" underground conditions in Melbourne meant the stations were "more difficult than we originally expected".
"So it takes more time and more labour, more materials to do the same sort of scale of works."
Mr Tattersall also said the government had agreed to pay extra to avert a lengthy legal battle.
“Our view is that we could have fought for several years in the courts and had the project stop and be delayed and delay those services for Victoria or we could approach it in a different way, recognising that we would have spent more in the courts and more in delay costs to do a settlement like we’ve done."
Opposition transport infrastructure spokesman David Davis said the government had "botched yet another major project, with a record cost blow out of nearly $3 billion, and the project is still years away from being finished".
“Labor can’t manage money or major projects. You can see why they have hidden the capital budget paper, because this is across almost every project," Mr Davis said.
The Cross Yarra Partnership switched off the project's tunnel-boring machines last December and demanded that the government stump up funds to help cover the extra costs. The state government said at the time that shutting down tunnelling was an "obvious tactic" aimed at squeezing money out of Victorian taxpayers. The parties have since been negotiating over the cost overruns and project delays.
Last month, The Age revealed that CYP had warned the government that design changes worth close to $1 billion at two CBD stations were driving a massive cost blowout.
Leaked confidential government reports revealed the government pushed back on initial claims made by the builders last year, dismissing the proposed $3.3 billion in extra costs as “overly conservative” and possibly inflated and labelling a projected delay of as much as 18 months “materially overstated”.
Despite initially refusing to bow to the demands for extra money, the government agreed in June to chip in, with the in-principle agreement confirmed in writing on Thursday night.
In an audit of the project’s budget last year, the Auditor-General said contractors had run into difficulties building in a physically constrained construction environment at the State Library station.
The Metro Tunnel project will result in nine kilometres of tunnel being carved beneath the CBD for a new rail line with five new underground stations. It will run between South Kensington and South Yarra, joining the Cranbourne-Pakenham and Sunbury train lines.
Another of the government's signature projects, the West Gate Tunnel, is expected to face $3 billion in cost overruns and is running a year late in a three-way dispute between the government, Transurban and its builders that is likely to wind up in court.
The government says it is refusing to pay more than the $2.7 billion it has already spent on the new toll road.