Whopping cost blowout of Victorian projects revealed in budget

As Victoria embarks on another unprecedented building blitz, the whopping billion dollar blowout to the state’s ‘Big Build’ projects has been revealed.

Mega infrastructure projects in Victoria have had $3.8bn worth of budget blowouts in the past two years, as the state embarks on another unprecedented building blitz.

Treasurer Tim Pallas revealed $90bn — or $1.9bn a month — will be spent on new roads, rail, schools and hospitals over the next four years, fuelling the state’s economy.

Mr Pallas said the spending was more than four times what it was early last decade and was necessary for the state’s future, but conceded this would put “greater heat” into the market.

The Herald Sun can reveal the top project overruns of the past two years were $1.37bn extra for the Metro tunnel, $735m for tram infrastructure upgrades and $429m for a new prison in southwest Victoria.

Transport experts have warned pumping too much construction work into the state at the same time could cause industry traffic jams and cost increases.

But the treasurer insisted the government’s efforts to invest in skills, provide access to raw materials, and change its contract processes, would reduce that risk.

Construction on the Metro Tunnel.

The Mordialloc Freeway project is now halfway to completion. Picture: NCA NewsWire / Ian Currie

He said the state’s total capital project pipeline was worth $144bn, while 177,000 jobs had been created through the state’s big build over the past six years.

“The government will continue to attend to what are the underlying causes associated with the escalation of price and risk,” he said.

“Those challenges will continue as we continue to invest more and more in the capital that this growing state needs. To do anything less than that I think would compromise the future.”

Opposition transport infrastructure spokesman David Davis said the state’s poor project management was contributing to blowouts.

He said the budget was “where the financial chickens start to come home to roost with literally dozens of transport infrastructure projects blowing out”.

“The cost blowouts on key projects total billions individually with smaller projects in the tens and hundreds of millions.

“Everywhere you look rail and road infrastructure projects have blown out because the Andrews government can’t manage these projects.”

Upgrades on the Monash Freeway will total $351m.

Work on the $440m Murray Basin Rail Project. . Picture: Zoe Phillips

Thursday’s state budget included a suite of social infrastructure spending in areas such as health and education.

There was $507m for mental health units, 10 new community hospitals, and $1.4bn for new or improved schools.

A massive pipeline of transport builds is already in the works, including a $15.8bn North East Link between the Eastern Freeway and the M80 in Greensborough, and an $8bn-$13bn airport rail link.

Those projects are not yet contracted but are in contingency funds.

Mega projects worth more than $100m have been hit by the worst cost rises, with smaller projects holding up better.

Budget papers show that 117 mega projects have been hit by $3.8bn in blowouts in two years, with a quarter having timelines altered.

Of a total 1141 state-funded capital projects, the net rise in costs has been $3.6bn, which puts some projects under budget, offsetting taxpayer pain from bigger projects.

The overrun for the Melbourne Metro Tunnel, which was contracted for $11bn but is to cost $13.7bn, was revealed late last year by the government after it agreed to share the bill with project builders.

A bigger bill looms on the West Gate Tunnel, which was to be finished next year at a cost of $6.7bn but now looks unlikely to open before 2024.

Mr Pallas said the state was not budgeting for that because we “have a contract”.

“It’s a fixed contract and we expect that the contractors, Transurban and their joint venture partner, honour the terms of that contract,” he said.

$735m will be spent on a E-class tram infrastructure program. Picture: Jake Nowakowski

Two railway station car park programs are being consolidated and expanded. Picture: Andy Brownbill

On broader construction industry congestion, Mr Pallas said there was “massive infrastructure investment going on right across the eastern seaboard of this nation”.

But he said shifts in government actions should offset blowout risks, including by better scoping projects.

“Early engagement with proponents (is crucial), the sort of thing we are starting to apply to our level crossing removals, with our North East Link,” he said.

“The second thing we need to do is give greater supply and certainty around resources.

“Additionally we need to put more and more effort and emphasis into ensuring that we have the skills necessary.

“Finally, the state needs to recognise that we need to have a flexible approach to the way that risk is managed based on each and every project.”

Global credit ratings agency S&P raised concerns on Thursday about the amount of debt being taken on to fund infrastructure, but said “infrastructure plans will help economic growth and address future infrastructure needs”.