Reason behind cost blows out on major Australian projects revealed
An explosive report has lifted the lid on why major projects — like the West Gate Tunnel and Metro Tunnel — are costing taxpayers more than promised.
Victoria
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Governments in Australia cave in too easily to construction companies’ claims when building infrastructure, a new report says, resulting in a quarter of projects costing taxpayers more than promised.
The report, by think-tank the Grattan Institute, says budget blowouts are more likely on large-scale road and rail projects because governments fail to drive a hard bargain when striking contracts.
It calls for governments to do more to reduce the risk of cartels dominating the industry, and says competition would be boosted by splitting up contracts and encouraging foreign-owned companies to bid.
With major infrastructure costs increasing in Australia, the authors also question why it is so much more expensive to build here than in other countries with similarly high wages.
The Andrews government last year capitulated to contractor claims on the Melbourne Metro tunnel, costing taxpayers $1.37bn more than was contracted. The consortium building the project also paid $1.37bn.
The government is also preparing to fork out hundreds of millions to resolve a standoff over the troubled $6.7bn West Gate Tunnel (WGT), which has stalled since a contaminated soil dispute erupted.
Report authors Marion Terrill, Owain Emslie and Lachlan Fox call for an end to market-led or unsolicited proposals – the method used to secure a WGT contract.
Deals on local content also risk affecting competition, and can be ineffectual as shown when John Holland and CPB snubbed a local steel requirement for WGT.
“We need more competition, smarter procurement, and greater transparency,” the report says. “There is a government culture of caving in to contractor demands and paying sometimes hundreds of millions of dollars to settle a problem a few months or years after a contract is signed.
“About 25 per cent of projects end up costing taxpayers more than governments promised when construction started.”
It says “industry claims that it’s hard to turn a profit and that the future of local firms is in jeopardy are overblown”.
It calls for a central register of all projects larger than $500m to be published, including information about contract value, tender process, bidders who submitted an expression of interest, short-listed bidders, any later changes to the contract value and scope changes.
Assessing ground conditions properly would avoid extra costs, as would avoiding using politics to guide decisions.
“Governments therefore rush projects to market with inadequate scoping, discovery of site conditions, or attention to how to ensure the best bang for the taxpayer buck,” it says.
“They commonly accept cost increases, even with fixed-price contracts,” the report says.
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