Mediator called in to handle looming fight over cost overruns on Metro Tunnel project
A messy fight is looming over who will pay the huge extra costs of the Metro Tunnel, with the Andrew Government reportedly warned the total blowout of the project could come close to $3 billion.
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The Andrews Government’s flagship public transport project is facing billions of dollars in cost overruns and is feared to be a year behind schedule.
The Herald Sun can reveal a mediator has been called in to handle the looming fight over costs between the state government and the consortium building the $11 billion Metro Tunnel.
It is understood the consortium’s first claim will be between $200 million and $300 million for extra costs already incurred on the project, which is due to be finished in 2025.
But industry and union sources say the government has been warned the claim will be the first of many, with some estimating the total blowout at close to $3 billion.
The sources also say there is now “no chance” the 9km tunnel between South Yarra and Kensington — including five underground stations — will be finished on time, with 2026 the earliest it could open.
In recent weeks, corporate advisory firm Flagstaff Partners has been called in to mediate contract variations sought by the Cross Yarra Partnership
One industry source familiar with the project said the high-level mediation was likely be the “first of many” confrontations over costs, while a union source described the initial planning of the project as “a f--- up of global significance”.
A government spokeswoman said: “Rail Projects Victoria actively works with contractors on all of our projects to ensure they are delivered on time and on budget. Metro Tunnel is no different.”
It is understood the government is trying to defer some costs and “fix them up the back end” given a tightening state Budget, but there is broad recognition the biggest contract for the project — worth $6 billion for the tunnel and stations — will have to increase significantly.
Who pays for the extra costs is going to be heavily contested as the tunnel builders and the government fight over scope changes, minor route alterations and material costs.
The Auditor-General warned earlier this year that construction-focused early works were 30 per cent over budget, which was somewhat offset by savings in property acquisition.
Problems with the access shafts for building new stations were identified — something building sources say have continued to plague construction.
An industry source involved in the project said “everything” was under pressure but pointed to a shortfall of cranes and the design of the station boxes as immediate issues.
The fear of overruns comes as the state Budget is under severe pressure, while the Herald Sun also revealed last week that the government was dealing with a $770 million blowout across five other projects, amid rising material and labour costs.
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Opposition transport infrastructure spokesman David Davis accused the government of botching “the scoping of the Metro Tunnel project and that has caused massive cost blowouts”.
“Now the chickens are coming home to roost and Victorian taxpayers will be hit with the surging cost of this project. Labor can never manage major projects or their finances,” he said.
The consortium — including Lendlease Engineering, John Holland, Bouygues Construction and Capella Capital — declined to comment.