Allan government issues secret cost blowout guide as works run millions of dollars over budget

The Allan government has issued new advice to delivery agencies on how to “avoid and mitigate” the risk of cost blowouts as more than 100 projects run millions over budget. See the full list.

The Allan government has issued a secret cost blowout guide for public infrastructure projects as more than 100 office refurbishments, school upgrades and transport works run millions of dollars over budget.

As Victoria battles skyrocketing debt, ongoing cost blowouts on both minor and major public projects have prompted the government to roll out cost escalation guidelines.

A Department of Treasury and Finance briefing note obtained under a Freedom of Information request has revealed Treasurer Tim Pallas approved new guidance for delivery agencies on how to “avoid and mitigate” the risk of blowouts on infrastructure projects in January last year.

The practice note was developed in response to “increasing requests and queries to DTF from delivery agencies” about ongoing cost overruns amid private sector reluctance to accept price volatility risk in public sector contracts.

Analysis of government documents found more than 100 contracts for capital works across Victorian school, health, community safety and infrastructure projects have had their budgets topped up since the advice was rolled out in February last year – forcing taxpayers to fork out an extra $300m.

They include a $176,000 cost blowout for “minor works” on Jacinta’s Allan’s office last year when she was deputy premier.

A whopping $636,053 was also added to the budget for an emergency and exit lighting upgrade in government offices.

Another $1,506,210 was dished out to cover blowouts on the Horsham Magistrates’ Court security upgrade, as well as an extra $699,613 for the construction of a carpark in Craigieburn.

A $200m contract on the North East Link more than doubled. Picture: Andrew Henshaw

A $200 million contract on the state’s most expensive toll road the North East Link – which is facing a $10bn blowout – also more than doubled to $441,000,000.

The ministerial brief noted that “volatile input costs” were presenting risks and challenges to Victoria’s construction sector and that the private sector was “unwilling to accept price volatility risk for specific nominated materials”.

Ms Allan on Thursday said she recalled her office being repainted last year but couldn’t remember any other renovations.

“I know we did some painting works,” she said.

“Beyond that I’m not quite sure what else that might be referring to.”

A government spokesperson later confirmed that the renovations were carried out over a period of time when the office was used by Ms Allan and former deputy premier James Merlino.

The Premier denied that cost blowouts were the norm on public projects, saying the advice was provided to delivery agencies as a consequence of a series of disruptions and inflationary pressures.

“Anyone who has done a house renovation big or small knows that increased costs of construction have had an impact,” she said.

“It’s the same pressure that comes about from that combination of factors … Covid disruptions, the inflationary pressures, workforce shortages.”

Ongoing cost blowouts on both minor and major public projects have prompted the government to roll out cost escalation guidelines.

Shadow finance minister Jess Wilson said the guidelines were an “admission that Labor cannot manage money and has lost control of delivery of projects of all sizes”.

“Whether it’s building the North East Link or delivering a minor office refurb, Labor cannot manage projects and Victorians are paying the price,” she said.

A state government spokesman said the “vast majority” of government projects were delivered on time and on budget.

“Infrastructure projects across Australia and around the world experienced supply and cost challenges during and after the Covid pandemic,” he said.

“This Practice Note was specifically developed to respond to changing market dynamics and increased pressures on the supply chain as a result of the pandemic, and did not apply after December 2023.”