Melbourne Metro early stage is over budget, says auditor

By David Donaldson

June 7, 2019

Picture: News Limited

Speeding up construction of Melbourne’s Metro Tunnel has led to a cost over-run at the early stage of the project, says the auditor general.

Early works “have adequately prepared the Melbourne Metro Tunnel project for its next phase, although at a greater cost and longer timeframe” than originally planned, according to a report published by Victorian Auditor General Andrew Greaves on Thursday.

The state government’s desire to complete the tunnel in 2025 — one year sooner than planned — “has come at an unanticipated extra cost”, in large part due to unforeseen challenges in digging deep shafts around the State Library precinct.

The construction activities in the early works phase have exceeded the original budget of $477 million and are currently forecast to cost $626 million all up. This is a $149 million, or 31%, increase.

This approach has, however, “effectively ‘de-risked’ some key elements of the overall project”, and “has avoided some costs to the state”, which should bring forward expected economic and social benefits from the project.

However, the over-runs have been paid for out of the project-wide contingency budget, and the auditor is concerned this is “an early warning flag” and won’t leave much for the rest of the project.

“With at least five years of complex and risky construction to go, this raises some risk that the project may exceed the publicly announced $11 billion budget,” says the Victorian Auditor General’s Office.

On the other hand, land acquisitions have come in $53 million under the approved budget of $781 million.

Such a big project is full of risk, and some have been handled better than others, argues the auditor-general:

“The agencies we audited showed good practice in their early identification of project risks and made a focused effort to mitigate them. Examples of this include the early relocation of utilities and other services, as well as prompt land acquisitions and site clearances soon after the confirmation of the project’s boundaries.

“Another area of good practice we found was the effective coordination of the detailed design for the project to achieve environmental assessments and planning approvals before the state had signed contracts with the private sector for the main works.

“Areas that could be improved relate to proponent agencies of major projects not showing comprehensive analysis of all realistic options in business cases, and central agencies not giving comparative advice on the costs and benefits of all realistic and sensible options.”

The project is complicated not only from an engineering standpoint, but in terms of the stakeholders involved, with a public-private partnership consortium contracted to deliver the tunnel and stations project component. Changes from the original business case have required redesigns and negotiations with the consortium over costs and risk for construction delays.

This has led to the consortium raising $173 million in variations, paid for by Rail Projects Victoria, though the agency believes the state would have incurred these costs regardless and that the arrangement has reduced risk overall.

“The wider public sector can learn from the interface risks that have realised in this project,” thinks the auditor.

The report also notes train ridership assumptions have not been updated since other major transport projects were announced. If the number of passengers exceeds the assumptions used in the business case, “the new stations may not have enough entrance and exit capacity to meet future demand or enough elevators or escalators in the stations”.

There should also be greater transparency around the assumptions underlying investment decisions, thinks VAGO.

The report made 11 recommendations, which have been accepted by the relevant departments.

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