Billions at risk in toxic brawl over Melbourne’s West Gate Tunnel

The Andrews government may be forced to spend billions of taxpayer dollars to save its signature $6.7bn West Gate Tunnel.

A mound of soil-covered in a black tarp behind the barricades running along the Westgate Freeway and Daniel Andrews (inset). Main picture: Jay Town

The Andrews government may be forced to spend billions of taxpayer dollars to save its signature $6.7bn West Gate Tunnel.

In the midst of a toxic dispute, the project’s builders notified toll road company Transurban of their intention to terminate the contract because of a dispute over ­contaminated soil.

Ratings agency Standard & Poor’s on Wednesday issued a warning, saying it expected the termination notice to trigger commercial negotiations between builders CPB and John Holland, Transurban and the Victorian government.

“The parties are likely to remain incentivised to find a commercial solution to continue the project rather than seek a replacement contractor,” S&P said.

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Tunnelling, which had been scheduled to begin in July 2019, is yet to start.

The West Gate Tunnel is designed to provide a second river crossing in addition to the 220,000-vehicle-a-day West Gate Bridge, linking Melbourne’s western suburbs to the southeastern suburbs and airport via CityLink.

The project’s $6.7bn price tag includes $2.7bn from the state government and $4bn from Trans­urban, in exchange for which the toll road company has received approval to increase tolls by 4.25 per cent every year for a decade, netting it an extra $37.3bn by 2045 according to Parliamentary Budget Office calculations.

Victorian Transport Infrastructure Minister Jacinta Allan said she had engaged in a “robust” conversation with Transurban chief executive Scott Charlton over the dispute, but maintained it was the companies’ responsibility to resolve the soil dispute.

“I made it very clear to the head of Transurban that it was my and the government’s expectation that the three parties knuckle down and get these matters sorted out whilst the project continues to be delivered, which is also importantly happening out on the ground right now,” Ms Allan said.

Standard & Poor’s said the West Gate Tunnel development underscored the “complexity” of toll road construction and development, noting that the disruption followed delays on Transurban’s NorthConnex project in Sydney, due to open in 2020.

Transurban notified the ASX on Wednesday morning that it had received a letter from CPB and John Holland advising the company that the building consortium intended to terminate the contract on the basis of a “force majeure event” — namely the “presence, classification and disposal” of polyfluor­inated alkyl substances, otherwise known as PFAS firefighting foam, within the site.

The Australian understands Transurban had been warned six months ago that the joint venture partners intended to terminate the contract unless an agreement could be reached over disposal of the contaminated soil.

“Transurban has advised the CPBJH joint venture that Transurban does not consider the D&C (design and construct) subcontract has been validly terminated and, as such, the contract remains valid,” the toll company said in its ASX statement. “In the document, despite the purported termination of the D&C Subcontract, the CPBJH JV states its intention to continue works on site.”

The Andrews government last week held crisis talks with Transurban, amid the sacking of 137 workers and ongoing delays, for which the company and its builders blame a lack of suitable sites at which to dispose of the huge quantities of contaminated soil.

AWU Victorian secretary Ben Davis accused CPB and John Holland of holding workers and taxpayers to ransom.

“I think it’s unconscionable that the joint venture would yet again hold the jobs of those who work on the project and the project itself to ransom to maximise their commercial and legal position, in what is ultimately a legal dispute,” Mr Davis said. “Every commercial contract ever has got a dispute-resolution mechanism. It’s outrageous that rather than utilising those, they then go out and hit the nuclear button and threaten or terminate the jobs of those that work on these projects.”

Opposition Leader Michael O’Brien said the threat to terminate the contract would see both the cost of the project and its 2022 completion date blow out.

“Daniel Andrews’ ‘big build’ has become the big bust with the West Gate Tunnel’s builders walking away,” Mr O’Brien said.