A joint venture building Transmission Gully has presented NZTA with a take it or leave it deal extending the road’s opening date out nearly a decade after the PPP was signed.
Sources told Newsroom CPB Contractors has laid an ultimatum at the feet of the Government: extend the completion date out to 2023, remove warranty obligations on the road, make a lump sum payment (alleged to be greater than $200m), and move the whole agreement to a ‘charge-up’ contract.
If the terms put forth by CPB are accepted, the road will open nine years after the PPP agreement behind its construction was signed and well after its initial expected opening date of April 2020.
The proposed conditions attached to the new deal would leave taxpayers and road users in a vulnerable position if problems with the road reported by people close to the project prove to be correct.
Both NZTA and CPB’s parent company CIMIC wouldn’t comment on the reports. HEB Construction – a 20 percent stakeholder in the joint venture – was presented with the allegations too, but would not respond to requests for comment.
CIMIC also wouldn’t comment on whether it believed negotiations were now at an end.
A charge-up contract is one where companies invoice for what they spend rather than work within a contracted amount. Both that and the removal of a warranty on the road would be a massive departure from the way PPPs usually operate.
Transmission Gully is a public-private partnership (PPP) which means the consortium financing it – in this case the Wellington Gateway Partnership, which includes a joint venture between CPB Contractors and HEB Construction – is supposed to take on the finance and construction risks associated with the project.
They don’t get paid until the contract ends and are incentivised to build a high quality road by a 25-year maintenance contract attached to it.
However, NZTA has already paid out over $200m to the builders in advance: a $190m payment in February and a $14m payment in May.
Newsroom has reported that Covid-19 opened the door up to a legal challenge by the road’s builders because the private partners weren’t able to access the site for an extended period of time after the country went into lockdown.
However, problems with the road allegedly stretch back well before lockdown and include stabiliser spread unevenly through the road’s base course and drainage issues in the subsoil.
A bad ‘throuple’
Road Transport Forum Chief Executive Nick Leggett said he didn’t envy NZTA’s position, but there would be serious safety concerns if NZTA agreed to the reported conditions attached to CPB’s proposal.
NZTA should explore other options to terminate the joint venture’s contract and use another set of contractors to finish the road, he said.
“It seems like a very bad marriage. A very bad ‘throuple’.”
If the Government agreed to the reported terms – a charge-up contract plus payout – half a billion dollars could be tacked on to the already blown-out $1b project.
A three-year extension would also tie up the country’s road-building resources at a time when they may be needed on other projects with billions of dollars to be spent on the Government’s roads-heavy NZ Upgrade Programme.
Worse than that, the removal of a warranty would mean that even if the road opened in three years’ time, the public could not be assured it would be safe.
The issues around Transmission Gully appeared to be dampening the political appetite for PPPs. A fact acknowledged by Infrastructure Minister Shane Jones at a select committee hearing on Thursday.
“I’m on record on a number of occasions that there’s no way that the public purse exclusively can meet the cost of all of our infrastructure woes.
“If the fiasco that seems to be unfolding in Transmission Gully causes us as politicians to lose our appetite for using private capital then I can’t see – in the strictures that all governments in New Zealand have to live by – how we’re going to get the capital.”
Jones said he was open to public-private arrangements, but had issues with PPPs where foreign partners were involved (like Transmission Gully and the unsolicited Auckland light rail bid) which he said were difficult to manage.
“My worry with a lot of these private-public things is that where we have foreigners coming to New Zealand to invest and they don’t understand either the ethos or the kind of social envelope that [operates] in New Zealand.”