Sydney’s flagship harbour metro rail line billions over budget

The cost of building the NSW government’s signature metro rail line under Sydney Harbour and the central city has blown out by at least $2.2 billion following the renegotiation of contracts with large construction companies.

Amid a surge in building costs, tender documents reveal the government has agreed to increases to scores of contracts for the City and Southwest rail line, including those for new stations at North Sydney, Martin Place and Waterloo.

Premier Dominic Perrottet and Transport Minister David Elliott tour one of the metro rail tunnels under Central Station last month.Credit: James Gourley

Senior government sources, who spoke on the condition of anonymity, now expect the total cost of the rail line to pass $17 billion.

The blowout in the cost of the metro rail line from Chatswood to the central city, and on to Sydenham in the south and Bankstown in the west, comes as the government faces overruns on other transport projects, including the first stage of the M6 motorway in Sydney’s south.

The contract variations for the City and Southwest line amount to a $2.2 billion increase in the cost of the vaunted rail project, even before all deals for the underground rail line and the conversion of a 13-kilometre stretch of the Bankstown line have been awarded.

The contract for tunnelling and station excavation works surged by $1 billion to $3.73 billion, making it the largest change in contract price. It involved constructing 15-kilometre twin tunnels between Chatswood and Sydenham and excavating caverns for new stations.

The cost of the new metro station at Martin Place in Sydney’s CBD has soared.Credit: James Alcock

The extent of contract variations is the strongest indication that the final cost of the metro rail line will run billions of dollars over the government’s original budget of about $12 billion.

The Herald has previously revealed that transport officials estimated several years ago that the City and Southwest metro project risked blowing out to $16.8 billion, which a senior government figure said it would almost certainly surpass.

The City and Southwest line, which is meant to open to passengers in just over two years, is the second stage of Sydney’s emerging metro rail network. The Herald reported last year that the cost of the biggest part of the network – the Metro West line between central Sydney and Parramatta – risks ballooning to almost $27 billion, which is nearly $3 billion more than earlier estimates.

In a sign of the challenges for the City and Southwest project, tender documents show the amount payable to contractors for work at Sydenham station alone is estimated to have surged by $456 million to $757 million.

The cost of the new Waterloo station has increased by $52 million to $352 million, while the Victoria Cross station in North Sydney has risen by $72 million to $530 million. The price of the Martin Place station in the Sydney CBD has surged by $269 million to $647 million, and the metro station and upgrade works at Central Station by $185 million to $1.14 billion.

The escalating costs come as the NSW Auditor-General conducts a performance audit of the unsolicited proposal by Macquarie Group for the Martin Place metro station to determine whether the government effectively assessed, planned and managed the deal in 2018.

Shadow treasurer Daniel Mookhey said the City and Southwest line was on track to report a massive blowout and the government needed to come clean about its true cost. “If the public is paying to build it, the public deserves to know what it is likely to cost,” he said.

“This government habitually hides the true cost of major projects. They use absurd arguments to cloak the cost of major projects in a veil of secrecy as they try to cover up their incompetence.”

Sydney Metro, the government agency managing the rail project, said in a statement that it was “no secret” that the construction market on Australia’s east coast was the “hottest it has ever been”, and every major construction project around the world had challenges with demands for labour and materials.

“Government projects are not immune from market impacts. These impacts have been exacerbated by the COVID-19 pandemic and Sydney Metro is continuing to work with our delivery partners to manage these impacts,” it said.

The agency declined to comment on what it estimated to be the final cost of the project.

Grattan Institute transport and cities program director Marion Terrill said large infrastructure projects were the most vulnerable to cost overruns.

“These mega projects are just so risky,” she said. “There is a big problem getting a competitive response from the market for big projects because the average contract is large and there are very few firms that are able to bid for them.”

Ms Terrill said the large number of major projects on Australia’s east coast meant governments were competing for a finite pool of contractors, which inevitably increased the cost of construction. “There is just so much work on. It all puts pressure on prices,” she said.

She cited analysis showing that 28 per cent of $1 billion-plus projects incurred cost overruns during the construction phase. The median increase was $627 million.

Ms Terrill said the extent of contract variations highlighted a cultural problem within the construction industry that would not be tolerated elsewhere. “There is a very pronounced culture … of using the period after contracts are signed to increase the price paid,” she said.

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