Construction of the 27-kilometre Transmission Gully Motorway has suffered a number of setbacks and delays even before the pandemic and has required additional funding to proceed. Richard Silcock reports.
Well before the Level four Covid-19 lockdown back in March-April and the slow restart of work on the Transmission Gully Motorway project there had been rumours flying around about the reasons for the slow progress that included requiring additional earthworks, pavement issues, increasing costs and threats by the CPD/HEB joint venture (JV) to leave the project.
While the parties involved are remaining tight lipped over the ‘closed-door’ protracted and tense negotiations that subsequently took place, an agreement was reached in mid-August, albeit at an increased cost and a new completion date of September 27, 2021. (1)
As a part of the agreement, additional capital has been injected by the Transport Agency bringing the original PPP contract of $850 million to $1.25 billion.
The settlement includes a compensation payment of $145.5 million to the JV to cover costs of delays and other impacts resulting from the Covid-19 shutdown and separate payments to WGP ($12.5 million) and Ventia (approximately $5 million) to cover their costs. (2)
The payment to the JV includes a $19 million advance payment that was made to ensure a winter construction programme could continue while the delicate negotiations were in progress.
A further $28.5 million has since been paid with the remaining $98 million to be paid in monthly instalments through until the agreed opening date. The final payment of the $7.5 million will only be paid on completion of the project by the agreed date.
As part of the agreement, the JV has provided letters of credit to the value of $35 million, available to the Transport Agency up until the project is completed. It will also allow progress on the project to be monitored by an independent party.
Penalties will be incurred by the JV if the motorway is not completed by the due date, amounting to $250,000 per day.
The agency has for its part agreed to a contract variation, costing an additional $45.5 million, to allow for a different paving to be used over one-third of the motorway. Other costs agreed relate to additional earthworks in the Wainui Saddle area.
Following a visit to the project in July, Transport Minister, Phil Twyford said “it was a “spectacular piece of civil engineering … amazingly challenging and complex for the contractors … and that he was motivated to get the contractual negotiations completed and the motorway finished.”
Transport Agency board chair, Sir Brian Roche says prior to the settlement they (NZTA) did not have sole rights on the matter.
“We are reliant on the contractor taking a fair and reasonable approach to this, but we can’t deny the fact Covid-19 created time delays and created additional costs.”
Commenting on the agreement reached, Nicole Rosie, chief executive of the Transport Agency, says it was unfortunate there had been a lot of misinformation in the public arena regarding the project.
“However, we, together with WGP and the JV contractors have reached an agreement over additional funding and a new completion date of September 2021,” she says.
“This follows our extensive negotiations at which we took a very careful and considered approach in our discussions with the parties involved to ensure the motorway is completed to an extremely high standard and at a price that still provides value for money.
“We understand all stakeholders and the travelling public are keen to see it completed as soon as possible at the least additional cost and that has been at the front of our minds in our negotiations.
“While the delay is disappointing, we’re pleased that we are now able to provide certainty over the completion date.”
WGP and the JV partners they say in one of their newsletters the additional up front funding allows them to source and bring onto site critical materials that will enabled the project to progress through the latter part of our past winter.
“If aggregate had not been sourced it could have caused additional delays,” they note.
“Due to the Level four lockdown and the subsequent working restrictions through L3 we lost a good part of the critical summer construction period. This, along with other contributing factors such as the need for additional earthworks, has impacted on the project.
“The uncertainty over future disruptions has also required us to change the method and labour we were using to complete the construction. We will now use more local sub-contractors and local resources and change the type of paving in some sections.
“Deep-lift asphalt (structural asphalt) will now be used over the Wainui Saddle and on other sections where there is a gradient. This asphalt is much more resilient to poor weather during construction and will allow paving work to continue during marginal weather conditions.”
Following the funding and completion date announcement on 21 August, Ministers Twyford and Shane Jones issued a media release saying they had asked the Infrastructure Commission to carry out a review of the project.
“It appears the PPP agreement, signed by the previous government was too loose and failed to protect taxpayers … it seems it was rushed through without due diligence,” Twyford claims.
“The Transport Agency has now provided certainty on the cost and the completion date, but it’s not good enough that the project has repeatedly had delays and incurred increased costs.”
Infrastructure minister Shayne Jones says the review is also important to learn lessons for the future.
“We can’t have the problems of Transmission Gully put us off using innovative procurement models to tackle our infrastructure deficit.”
The review will be carried out by an independent international expert on behalf of the Infrastructure Commission to avoid any conflicts of interest.
The Commission says the review will focus on how the PPP agreement was awarded for the original agreed price, whether that was a realistic price, and whether the risks identified were appropriate and taken into account.
The review will also consider whether the construction budget was based on supporting analysis and costings, inherent and contingent risks and the financial implications. It will also look into whether the risks were appropriately allocated and communicated; the consenting processes, timeframes, governance and implementation, including what key events impacted on the projects costs and schedule; and look at whether the PPP procurement model was the best fit for the project.
The Transport Agency’s general manager transport services Brett Gliddon says the settlement with the various parties acknowledges that the pandemic and the resulting disruptions were out of the WGP and JV contractors control, and not something that could have been reasonably anticipated.
“Their inability to access the site during the lockdowns, plus the loss of productivity at levels three and 2, the border restrictions on foreign workers and pushing the work programme into winter all contributed to the increase in costs and the extended completion date.
“The new agreement does not change the warranty conditions. Any aspects of the motorway which do not meet required standard will have to be remedied by the JV at their cost.”
The contract also requires WGP to operate and maintain the motorway for 25 years after the opening, after which it becomes the Transport Agency’s responsibility.
When the motorway opens it is understood further work will still be required before the project is fully completed.
This will include landscaping some areas and testing traffic technology systems that is expected to take up to a further six months to complete.
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Footnotes
1. Initially the motorway was scheduled to be completed by April this year but was put back to November. It will now be completed by September next year – over a year later than originally forecast.
2. The PPP contract is between NZTA and WGP. The design and construct subcontract is between WGP and the CPB/HEB JV. WGP are a group of investment companies responsible for financing, management and maintenance (with Ventia). Under the contract all operational decisions relating to construction, materials and the workforce are the joint responsibility of WGP and the JV contractors.