East West Link: Contractors call for long-term planning after settlement

East West Link: Contractors call for long-term planning after settlement by Jenny Wiggins and Mathew Dunckley

Contractors will receive $339 million after the Victorian government abandoned plans to build East West Link
Contractors have welcomed the Victorian government’s award of a $339 million financial payment to the consortium that was hired to build Melbourne’s East West Link motorway, but warned other state governments should not repeat Victoria’s mistake.

“No one has really particularly won out of this situation,” said Megan Motto, chief executive of Consult Australia, which represents engineers and project managers.

While contractors believe that an agreement allowing reimbursement of the money invested by a consortium of Lend Lease, France’s Bouygues and Spain’s Acciona for the costs of bidding for East West Link and designing plans to build it is fair, they now regard Australia as a more risky place to do business.

“The major issue was the cancellation of the contract in the first place,” Ms Motto said.

Contractors will receive $339 million after the Victorian government abandoned plans to build East West Link

The Lend Lease consortium signed a contract to build the $5.3 billion motorway project in October with Victoria’s previous Liberal government, but the new Labor government suspended the contract after winning a state election in November.

David Castledine, CEO of the NSW branch of the Civil Contractors Federation, said the contract’s termination had bred “instability”.

“We’ve made it very clear to the NSW government and the NSW opposition that it is absolutely critical, if you want industry to invest, that you must paint a very clear picture and then back that picture up.”

Lend Lease, Bouygues and Acciona declined to discuss the financial payment, with confidentiality agreements understood to be part of the deal with the Victorian government.

The $339 million payment is understood to have reimbursed the consortium for the money they had invested in the proposed project, but not for the “opportunity cost” of foregoing bidding for other projects while they waited on the Victorian government’s final decision.

The consortium’s contract with the government required it to keep resources available for the motorway project until their contract was formally terminated.

Christophe Lecourtier, France’s ambassador to Australia, said the government had acted in a “responsible” way by making the payment.

“The outcome is good news for Victoria, good for Australia and for the business relationship between France and Australia,” Mr Lecourtier said.

But the Committee for Melbourne’s chief executive, Kate Roffey, said the precedent set by the government’s repudiation of the contract was “terrible” and had damaged the state’s reputation.

“It certainly didn’t represent us in the best light,” Ms Roffey said, adding the saga had highlighted a clear need for an independent agency to assess infrastructure priorities.

Victoria is in the process of following NSW’s lead and establishing a new independent planning body for infrastructure.

Garry Bowditch, executive director of the University of Wollongong’s SMART infrastructure research group, said governments should reflect on how they plan infrastructure projects in the wake of East West Link’s cancellation.

“The establishment of Infrastructure Victoria is now all the more important in light of this settlement, by ensuring proper community consultation on major infrastructure projects and seeking to create and align bipartisan support,” Mr Bowditch said.

“A proper infrastructure governance process could have avoided this very difficult situation.”

Jennifer Westacott, chief executive of the Business Council of Australia, said the sovereign risk created by the decision not to proceed with East West Link was “simply unacceptable”.

“It is important that the Victorian government now puts in place arrangements to develop, prioritise, fund and deliver infrastructure projects that ensures this situation is never repeated in the future,” Ms Westacott said.

Tim Piper, the Victorian director of the Australian Industry Group, said Australia could not afford to lose the confidence of contractors.

“There is no doubt that companies are going to be more wary of contracts that they enter into with governments,” Mr Piper said.