Melbourne contracting model to minimize risk
21 Nov 2013
Peter Kenyon, TunnelTalk
- Victoria state government will award the Aust$6-8 billion eastern section of the East West Link highway mega-project in Melbourne, Australia as an availability PPP.
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Fig 1. East West Link eastern section links M2 Citylink and M3 Eastern Freeway
- The 8km highway project, scope for which includes a 4.4km three-lane twin-running tunnel section at its heart (Fig 1), will be the first in the state's contracting history to be let on such a model. The availability model, under which losing bidders will have part of their bidding costs reimbursed by the Victoria State Government and the winning bidder will receive staggered 'availability' payments according to the tunnel's performance rather than on actual traffic volumes, is seen as a way of restoring contractor and investor interest in highway tunnel projects in Australia. Effectively the public sector, which will collect toll income to fund the availability payments, will shoulder the usage risk.
- Reliance on optimistic usage forecast data has led to the financial failure of a number of tunnel projects in the country including Sydney's Cross City and Lane Cove tunnels, and Brisbane's Clem 7 and Airport Link tunnels. Between them they have cost investors and contractors millions of dollars and led to civil lawsuits being filed against the big-name consulting companies who made the projections - including Parsons Brinckerhoff, Arup, Aecom and Booz Allen Hamilton.
- Australian construction giants Thiess and John Holland, part of the Leighton Group which is owned ultimately by Hochtief of Germany, are said to have lost £632 million on Airport Link and Lane Cove alone. The German parent company has since acted to completely revise its procurement strategy and make moves to manage construction risk of PPP projects more tightly.
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The availability PPP approach seems to have worked - four teams of investors and contractors, among them John Holland and Leighton, answered calls for Expression of Interest in East West Link, with three invited at the end of September to make proposals and submit bids. They are:
• East West Connect, comprising Capella Capital, Lend Lease, Acciona and Bouygues.
• Inner Link Group, comprising Cintra Infraestructuras SA, Retail Employees Superannuation, Samsung C&T
Corporation, Ferrovial Agroman (Australia), Ghella, Transfield Services (Australia), and Macquarie Capital
(Australia) Pty Ltd.
• Momentum Infrastructure, comprising John Holland, Dragados Australia, Leighton Contractors, Iridium
Concesiones de Infraestructuras SA and The Bank of Tokyo - Mitsubishi UFJ.
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Fig 2. Full East West link
- A reference project design has been completed and consultation over environmental impacts and legal permissions are ongoing in tandem with the procurement process. Victoria State Government as project owner has committed Aust$294 million towards early works and procurement, with a further $1.5 billion expected to be added from Federal funds. A contract is expected to be awarded by the end of next year (2014) with five years of scheduled construction beginning soon after. The tunnel section, likely to be mainly bored by TBM with cut-and-cover sections near the eastern and western portals, is expected to take three years to construct and fit out. Bidders are being encouraged to come up with innovative designs that do not have to stick rigidly to the owner's basic reference design.
- The eastern section of the East West Link is designed to ease pressure on overstretched local roads by creating a three-lane link between the M3 Eastern freeway in the east and the M2 Citylink in the west. It is also aimed at creating a better road transport links with the Port of Melbourne and Melbourne Airport. In the $6-8 billion western section of the East West Link, which is not yet funded and will go ahead as a possible future project, a link will be made with the M80 Western Bypass (Fig 2).
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Australia suffers toll concession failures - TunnelTalk, July 2013
Brisbane Airport Link breakthroughs - TunnelTalk, March 2011
Deal values Cross City tunnel at half its construction cost - TunnelTalk, November 2013
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