NZTA hopes the Spanish-owned contractor behind the stalled Transmission Gully Public Private Partnership will not abandon the project. Dileepa Fonseka reports the contractor is accused of doing just that in other big PPPs in Australia.
Transmission Gully isn’t the only roading PPP to run into major issues in this part of the world. CPB Contractors, the 80 percent shareholder in the joint venture building the key motorway to the Kapiti Coast is locked in a legal dispute within another PPP arrangement across the Tasman too.
A multi-billion dollar roading project sealed with a 1,465-page PPP agreement in Melbourne has seen workers served redundancy notices, its deadline extended out by a year, a force majeure clause exercised, and CPB contractors try to walk away. All to the apparent surprise of the other major party locked in a joint venture with them.
Victoria’s Minister for Transport Infrastructure, Jacinta Allan, told Newsroom the State had A$70b worth of construction work in the pipeline and firms like CPB could face consequences down the line when it applied for those future contracts.
“While businesses across Australia are going to extraordinary lengths to keep staff on – here in Victoria we’ve seen Transurban’s builders CPB and John Holland sacking people over a petty dispute – it’s disgraceful.”
“We won’t be held ransom by construction companies especially when we have a lot of work here on offer.”
We are relying on similar consequences to keep CPB committed to our own $1b Transmission Gully roading project. Amalgamated Workers Union National Secretary Maurice Davis said CPB wouldn’t be able to get any more big projects here if it walked away from Transmission Gully.
Even so, it appears the firm is locked in a similar stand-off with NZTA and has reportedly leaned on force majeure and other clauses in the PPP agreement that allow them to walk away if they are locked out of the site (as they were when the country went into Level 4 lockdown).
The Melbourne experience was enough to spook a Queensland State Minister overseeing a completely different PPP project with CPB in Brisbane to amp up her oversight powers and signal she would replace the entire board governing it.
“Right now, CPB is trying to weasel its way out of its contract with the Victorian Government on the multi-billion-dollar West Gate Tunnel,” Queensland Minister for Cross River Rail Kate Jones said in February.
“I’m not going to let CPB run roughshod over Queenslanders or the workers on this job.”
Infrastructure Minister Shane Jones hinted that events across the Tasman hadn’t gone unnoticed over here.
“The challenge for NZ First is we really want to see the road [Transmission Gully] built.”
“I know that the Spanish contractor who stands behind the project have similar projects in Australia and I Google and I read – like any other literate middle-aged politician – and it’s evident to me that something has gone awry in the background there.”
“I won’t cut across whatever work Phil Twyford or the NZTA board might be doing. They’ve got to manage that problem.”
Transport Minister Phil Twyford has said there is no “Plan B” for Transmission Gully involving a different set of builders, but sources in the industry told Newsroom earlier that they have been asked to complete different sections of the road outside of the current PPP arrangements.
“There’s only Plan A and that’s to get the thing built and to work through the current negotiations between NZTA and the builders and get the job done as soon as possible,” Twyford said.
Wider parental issues
On Thursday The Australian Financial Review tabulated the trials and tribulations of CIMIC – which owns CPB Contractors – raising questions about their financial health and that of Spanish global parent company Grupo ACS.
CIMIC had issues that stretched beyond CPB. It reported a A$1b loss globally in February and its mining firm, Thiess, made 70 staff redundant in Australia. Another subsidiary of CIMIC in Hong Kong was being prosecuted over a rail project in the city, while S&P have said Grupo ACS could face a ratings downgrade.
A spokeswoman for CIMIC wouldn’t comment on the AFR story or its implications for Transmission Gully.
‘They have lots of rights to do everything‘
Victoria’s West Gate Tunnel project has consumed countless column inches across the ditch and also attracted fierce opposition before the public private partnership agreement was signed in 2017.
The PPP with Transurban and a construction joint venture of CPB and John Holland would create a second road crossing across the Maribyrnong River in Melbourne. Transurban would agree to raise A$4b of its own money to fund the project and the Victorian State Government would contribute A$2.7b.
As part of the PPP agreement Transurban would also be able to raise tolls on other roads it operated which would add up to an extra A$37.3b by 2045.
However, last year the CPB John Holland JV discovered contamination on the construction site and warned Transurban it would exercise ‘force majeure’ provisions to back out of the PPP agreement. In doing so both CPB and John Holland would walk away from a A$2.5b payout.
CPB’s warnings became very real in January when Transurban was forced to inform the Australian Stock Exchange that CPB had officially exercised those rights.
“Transurban has advised the CPBJH Joint Venture that Transurban does not consider the D&C subcontract has been validly terminated and, as such, the contract remains valid,” Transurban company secretary Fiona Last told the ASX.
The Australian reported that CPB’s willingness to use the provisions had apparently taken Transurban CEO Scott Charlton by surprise even though they were signalled months before.
“We received a notice that they reserve the right to potentially call a force majeure, but under the contract, they have lots of rights to do everything. So they reserve the right doesn’t mean that they would actually issue the force majeure event.”
The dispute led to 125 employees and another 100 subcontractors being stood down by the CPB John Holland JV in May.
Jenny Wiggins of The Australian Financial Review wrote: “The [State] government, which is already pumping in A$2.7 billion to help pay for the new toll road’s construction, is worried that it is being pressured into forking out extra money to pay for its completion, in the same way the NSW government was forced to spend an extra A$600 million to finish Sydney’s light rail after being taken to court by Spanish contractor Acciona.”
PPPs are ‘not your usual construction contract’
Max Rashbrooke, author of Government for the Public Good and a vocal critic of public private partnerships, said disputes could happen within normal construction contracts, but they were more “protracted” in the case of PPPs.
“Having seen some of the contracts for PPPs they are so extraordinarily complicated – they’re a level of complexity well beyond your standard construction contracts.”
“And I think that means there’s a high chance that any dispute will be more protected than it would be in a normal construction contract.”
Rashbrooke said the key thing for Governments tied up in PPPs were that they didn’t pay consortiums for anything more than they were owed for the work they had already done.
“In the end…there may not be much you can do about the delays to be honest.”
‘The risk often comes back anyway’
Jones said Transmission Gully wasn’t within his ministerial remit, but he believed PPPs could become an election issue this year with some politicians likely to bring it up as a way the country could pay for major water infrastructure upgrades.
“Whenever the Crown is wanting to use capital from another source that might make sense in terms of commercial logic…[but] even when you think you’ve outsourced your liability and your risk -because you’re the Crown – so often the case is that people come back to the Crown.”