Metro Tunnel project’s eye-watering cost blowout

Taxpayers will have to front up more money for the Metro Tunnel, with costs blowing out by a whopping $2.74 billion.

Inside the construction area of the State Library station being built as part of the Metro Tunnel project. Picture: Daniel Pockett

The cost of the Melbourne Metro Tunnel has blown out by $2.74 billion, with taxpayers set to cough up half the eye-watering overrun.

The project, which will provide an alternative to the City Loop by connecting South Yarra to Kensington via five underground stations, was initially priced at $11 billion.

Problems with station box designs, minor route realignments and shifting utilities were among factors that blew the budget, which experts said was too low when contracts were signed.

The 9km underground rail line will now cost almost $14bn, assuming no further blowouts occur.

But in a sliver of good news for commuters and the Andrews Government, the rail line is on track to open in 2025 at the latest — with the potential for trains to be running on the new route in late 2024.

Victorian Premier Daniel Andrews speaking at the future State Library station. Picture: Getty

The group building the tunnels and stations, Cross Yarra Partnership, includes construction giants Lendlease, John Holland and Bouygues Construction, as well as John Laing, Capella Capital, and train operators Metro.

It was contracted to build that section of the project for $6bn, which is paid back over time by the state through what is called an availability-based public-private partnership.

Infrastructure experts questions the budget at the time, with fears CYP had quoted a price that was too low for such complex works.

The May Budget is likely to show taxpayers forking out the majority or entire $2.74bn amount, with CYP paid back less money for its work at the back end of the project.

John Holland is also contracted for rail infrastructure works that allows trains to run in the new tunnel.

While the settlement on the tunnels and stations works won’t preclude future claims against the state for overruns, contracts have been strengthened to try to avoid litigation.

The announcement comes after Rail Projects Victoria came to an in-principle agreement with the Cross Yarra Partnership on Thursday night.

Rail Projects Victoria chief executive Evan Tattersall said the agreement means the dispute will not go to court and means the project is on track to be completed in 2025.

“Both the contractors and ourselves are fairly firm in our views on where the extra costs have come from. As I say, complex projects lead to complex contracts,” Mr Tattersall said.

“Our view is, we could have fought for several years in the courts and had the project stop and be delayed and delay all those services for Victoria or we could approach it in a different way, recognising that we would have spent more in the courts and in delayed costs than it would to do a settlement like we have done.”

The funding spread across multiple areas of the project, including to cover the costs of additional materials, labour and equipment.

Mr Tattersall said the construction of the two CBD stations - the State Library Station and Town Hall Station - was proving particularly difficult.

“The costs are spread right across the project, from the tunnelling activities, the stations themselves - in particular the two CBD stations that are really complex.

He added:“Nothing completely different but more difficult than we originally expected so it just takes more time, labour and materials to do the same scale of work.”

The Metro Tunnel budget has blown out several times. Picture: Daniel Pockett

Mr Tattersall said there “would have been lawyers lined up for years” if they had not struck the deal with the contractors.

When asked what the disagreement was over, he responded: “There’s always interpretation over contracts and there would have been lawyers lined up for years trying to agree who was right and who was wrong. The approach we’ve taken gets a settlement that ensures we get the works open on time which is critical for Victoria”

Transport Infrastructure Minister Jacinta Allan confirmed that the government’s investment will be included in next year’s Budget.

Ms Allan said that any contractor that thinks they can “try one on the Victorian government” should note the 50/50 agreement reached with Cross Yarra Partnership.

“It sends a very clear message that the government will negotiate hard on behalf of the Victorian community to get the best outcome in terms of the projects we’re committed to being delivered and the best possible outcome on the costs and the time to complete,” she said.

Ms Allen said the additional funding means the project could be fast-tracked for completion a year ahead of schedule in 2024.

However, Mr Tattersall said he “wouldn’t bet” on the Metro Tunnel Project being finished ahead of the original 2025 deadline.

“(The chances of finishing in 2024 are) reasonably good, but here we are four years out, a lot of work to go and a lot of things can go wrong.

“So 2025 is the completion day, for a 2024 (opening) there is potential on paper if everything goes really well.

“But four years out, you wouldn’t bet on that.”

The Andrews Government has embarked on a massive infrastructure blitz since it was first elected in 2014, including removing 50 level crossings, building the Metro Tunnel, and beginning works on toll roads in the west and northeast of the state.

However, it is now being dogged by blowouts on most of its biggest projects as competition for skills, material price rises, and what some experts say has been poorly constructed contracts.

The government is now moving away from the public-private partnership model it has used for the first six years of government under Daniel Andrews, in a bid to reduce risks associated with mega-projects.

This includes giving the public sector a greater role in controlling problems with community groups, councils, utilities and other aspects of mega-projects that could otherwise end with lengthy court disputes.