First major SRL contract locks Victoria into sharing supply chain pain

Victoria would share in the cost of any unexpected price hikes in the first major works for the Suburban Rail Loop, as part of a new $3.6 billion contract that locks the state into the infrastructure project and forces the opposition to reconsider its policy to cancel it.

Premier Jacinta Allan on Tuesday announced the contract for 16 kilometres of tunnelling between Cheltenham and Glen Waverley had been awarded to CPB Contractors, Ghella and Acciona Construction.

Premier Jacinta Allan last Thursday.Credit: Joe Armao

On the same day, Infrastructure Australia released a report warning that workforce shortages would escalate costs and delay infrastructure projects across the country.

Allan acknowledged the pressures on the industry but said all work for SRL East, the first stage of the 90-kilometre orbital rail link, was still expected to cost between $30 billion and $35 billion. She would not say how much was needed to fund the entire project, which will eventually connect Cheltenham to Werribee via the airport.

Brian Hauser, state director of the Cement Concrete and Aggregate Association, said the industry did not have a workforce or material shortage but that the approval process to release quarry rocks near construction needed to be fast-tracked to keep transport costs and emissions low.

“Great announcement,” Hauser told The Age. “What about the supply chain?”

The Suburban Rail Loop worksite in Burwood.Credit: Paul Jeffers

The $3.6 billion contract with the global consortium includes a “pain share, gain share” arrangement, meaning the Victorian government and the private companies would need to split any additional costs – as well as any savings. The work will begin in 2026.

Allan said tunnelling for the SRL East was cheaper than the Metro Tunnel because the city had much more complex utilities and heritage buildings to work beneath.

Victorian Ombudsman Deborah Glass last week found the state’s top transport bureaucrat was sidelined in the secretive planning for the SRL, and that Infrastructure Victoria was blindsided by the flagship election commitment in the 2018 campaign.

The state’s auditor-general also said there was a risk the benefits had been overstated because the government did not follow department guidelines when producing their business case.

At the opposition’s request, the Parliamentary Budge Office last year estimated the north and eastern sections could reach a combined $125 billion. Allan has rejected those figures.

The Victorian government has committed $11.8 billion, or about one-third of the projected cost of the first stage, and wants an equal share stumped up by the federal government.

But the Commonwealth has only pledged $2.2 billion and Allan would not deal with a “hypothetical” question about what Victoria would do if that investment was not forthcoming.

“What we’re asking for from the federal government is for our fair share of funding,” Allan told journalists at the SRL East construction site in Burwood on Tuesday.

The state government is also counting on “a range of private sector investment and value capture sources”, budget papers state, with tens of thousands of extra apartments built around stations.

The opposition committed to scrapping the project if successful at last year’s state election and put its entire budget towards health funding.

But the signing of the first major contract – after Labor took the policy to two thumping election victories – forces the opposition to reconsider its position having attacked Labor for cutting up the contracts for the East West Link and the Commonwealth Games.

Allan refused to say what cancellation clauses were in the contract.

Shadow spokesman for transport infrastructure, David Southwick, called on the government to release the full details and said the decision to move ahead with Allan’s “vanity project” was reckless.

He said the Coalition would need to consider its position after seeing the contract and would not commit to either proceeding or blowing up the contract.

“We’re going to have to look at that. We’re not going to be making any rash decisions like the government has, in terms of signing contracts literally weeks before Christmas,” Southwick said.

“What out clauses are there?”

Southwick said he did not believe SRL East could be built for $35 billion during labour and supply chain shortages.

Transport Infrastructure Minister Danny Pearson told radio station 3AW that the contract would be disclosed in the usual way but that details were commercial in confidence.

“What I’ll say on this point is that we are committed to delivering this project. And the only people opposed to this project will be the Liberal Party and [Opposition Leader] John Pesutto,” Pearson said.

Allan said the orbital rail link was designed to address the objectives of Plan Melbourne by offering public transport options in a growing city, taking cars off the road and boosting productivity.

“We’re seeing plenty of blockers and knockers when it comes to the Suburban Rail Loop. There are plenty of people for their own, mostly political reasons, who want to stop [the project],” Allan said.

“What that is saying to communities in Burwood, Glen Waverley and Box Hill is that you don’t deserve better rail connections.”

A second contract for 10 kilometres of tunnelling between Glen Waverley to Box Hill will be inked next year.

The first trains are expected to run in 2035. The 2018 business case, released in 2021, forecast there would be about 71,000 daily trips on the eastern section.

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