The West Gate Tunnel Project mess and the infrastructure challenges facing Australia
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The Victorian state government will be paying billions more on its problematic West Gate Tunnel project than was anticipated. Originally planned for completion in September this year, the project is also now set to be two years behind schedule. We dig into some of the reasons why.
What went wrong?
Late last year a settlement was finally reached between the Victorian government, toll road giant Transurban and major contractors John Holland and CPB after over a year of negotiations. The legal dispute was centred around who should pay the additional billions of dollars required to complete the project.
Transurban pitched the toll road to the Andrews government back in 2015 to assist Melbourne’s traffic congestion with an initial fixed price proposal of $6.7 billion. Costs ballooned in part due the discovery of soil contaminated with the dangerous chemicals known as PFAS. This caused tunnelling delays because of problems finding a place to take the toxic soil.
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The government considered finding a new builder but concluded that doing so would cause an even more significant blowout of costs. In the deal that was reached all parties are to make additional contributions or sacrifices for the project.?
As reported in?this ?Australian Financial Review (AFR) article, “Transurban’s share of the settlement is $1.7 billion, while Charlton will need to tip in a further $300 million for insurance and other costs. The state government will contribute $1.9 billion, while the contractors will take a revenue hit of $600 million and forgo their profit margin on the project.”
The VIC government is now tasked with justifying to the community the additional billions of taxpayers’ dollars needed to complete the West Gate Tunnel project. Additionally, there has been outcry amongst communities where the toxic soil is set to be dumped.?This ?recent article looked at findings by Victoria’s environmental watchdog which concluded that the EPA (who were tasked with finding locations to dispose of the toxic soil) had failed to convince the community that there was no risk presented to them.
Implications
The ballooning costs and problems around completion of the West Gate Tunnel project are indicative of bigger issues facing large scale infrastructure projects in Australia. This is due to the inherently complex nature of the projects, rising construction costs and the small number of contractors able to take on projects $1 billion dollars or more. As Transurban chief executive Scott Charlton conveyed to AFR, Transurban “hope future governments will be somewhat understanding, given tunnels in major infrastructure projects are inherently complex and never seem to go to plan, time or budget.”