Victoria can’t afford to keep haemorrhaging money on major projects: Matt Johnston

After years of assuring taxpayers the Metro Tunnel contract was rock solid, the Andrews Government is coughing up $1.37bn.

Victorian Premier Daniel Andrews inspects the State Library station. Picture: Daniel Pockett

As soon as major construction at the Melbourne Metro Tunnel began, rumours of cost blowouts emerged.

People running these projects can see problems coming a long way down the tracks, and questioned how five underground stations and 9km of tunnelling – including under the Yarra River and through complex geological terrain – would be finished for $6 billion.

Even so, there was a contract in place, and the Andrews Government assured Victorians they were “well protected”.

Rubbish.

A State Library station is being built as part of the Metro Tunnel. Picture: Daniel Pockett

The government will say that getting the contracted builder – made up of construction giants John Holland, Lendlease and Bouygues – to pay half the blowout is a good result.

I’d hate to see a bad result.

The spotlight should now focus on the fact that governments around the country are coughing up billions for major project overruns.

There is clearly a problem with the way contracts are struck and managed, with the private sector running to court for every minor problem and winning on many fronts.
They know that governments need projects to finish, even for a higher price.

The Andrews Government says it will move to a different style of PPP contract for new projects, including the $15.8 billion North East Link toll road.
This has already been done by the NSW government.

But the public needs clear assurances that this increased role for the public sector in major projects will fix the problem.

The cost of the project has blown out by almost $3 billion. Picture: Daniel Pockett

In percentage terms, the Metro Tunnel blowout announced today is 46 per cent of the $6bn station and tunnel contract price.

If that happens for the main NE Link deal, which will cost $7-9bn, then the budget would blow by $3.2-4.1bn.

Don’t get me started on what it would be for the Suburban Rail Loop, which will cost many billions for Stage One between Southland in Cheltenham and Box Hill.

The Andrews Government is already staring at another hefty bill for problems on the West Gate Tunnel, compared to which the Metro Tunnel has run as smoothly as silk.

The last thing the state needs while grappling with economic carnage caused by the coronavirus is to keep haemorrhaging money on contracts that don’t seem to be worth the paper on which they’re written.