Metro Tunnel machines grind to halt in dispute over billions in cost blowouts

The tunnel-boring machines excavating the Metro Tunnel have been halted in their tracks, as the consortium argues with the government over who will cover the cost of the project's multi-billion dollar blowout.

Sources familiar with the negotiations say the Cross Yarra Partnership consortium building the $11 billion rail project beneath Melbourne's CBD has threatened to quit the project entirely unless the government agrees to help pay for up to $3 billion in blown out costs.

Metro Tunnel's first Tunnel Bore machine.Credit: Jason South

Tunnelling crews were told by the consortium's upper management on Monday morning that workers would not operate the tunnel boring machines and would instead receive two weeks of training.

The crews will continue to be paid despite not doing any work until Christmas, sources in the construction industry said.

"A construction job doesn't just stop like this unless it's got no money," a source said.

A mediator has been called in to handle the dispute, with the consortium, comprising Lendlease Engineering, John Holland, Bouygues Construction and Capella Capital, understood to be seeking about $200 million in extra costs.

On Monday, a government spokeswoman did not deny that the machines had been stopped, stating that builders were expected to finish works by the end of 2025, which they were contracted for.

"Operational matters on the Metro Tunnel Project are a decision for Cross Yarra Partnerships and Rail Projects Victoria," the spokeswoman said.

"There is a contract in place to build the Metro Tunnel by 2025 - and we expect them to deliver that."

The consortium would not provide comment for the story.

The Age revealed earlier this year that the project faced billions of dollars in cost blowouts, amid claims that contractors encountered unexpected problems including geological challenges.

The costs were expected to be worn by the consortium, with Treasurer Tim Pallas insisting in June that taxpayers would not cover any of the extra costs.

Mr Pallas said the project's price was "fixed" and the state would not be forced to pay extra cash.

The state had entered a contract with the consortium and “the state’s interests have been well protected in the contract," he said.

A Rail Projects Victoria spokesman said it had not been informed by the consortium about any changes to tunnelling.

"To date, CYP has not provided RPV with any specific detail of proposed changes to its tunnelling program.

"Rail Projects Victoria (RPV) is in ongoing discussions with Cross Yarra Partnership (CYP) on all aspects of the project and is focused on achieving the best outcomes as works progress."

So far the first tunnel-boring machine, named Joan, has travelled 540 metres underground, and the second, named Meg, has moved 281 metres.

The Victorian Auditor-General found that the early stages of the rail project has exceeded the original approved budget by 30 per cent, which was covered by contingency funds.

The financial watchdog warned that this was an "early warning flag" of a project cost blowout, with the government relying too heavily on rapidly decreasing back-up funds.

The Age also revealed that tunnelling for the project was at least four months late, raising fears that the government's 2025 completion date may not be achieved.

The first tunnel boring machine was supposed to arrive in December last year, but started tunnelling from North Melbourne to Kensington in May.

Tunnelling on the $6.7 billion West Gate Tunnel is also facing delays, due to the discovery of soil contaminated with a chemical that shut down the Fiskville CFA training college.

Chemicals including asbestos and PFAS were detected in the ground, prompting urgent discussions with Environment Protection Authority, the builders and landfill operators in recent weeks to try to find a solution to the problem.