Transmission Gully has made a lot of headlines this year for budget blowouts but as we learnt on Saturday, it’s far from the only project. Stuff’s Thomas Coughlan reports:

A handful of roads have managed to go $1.1 billion over budget, forcing the Government’s transport agency to make tough choices to make its books balance.

It comes as a group has lodged a judicial review to challenge decisions around transport spending, saying that Waka Kotahi NZ Transport Agency had disregarded direct orders from the Government to pivot transport away from roads and towards cycling and public transport.

NZTA gets about $4b a year from fuel taxes and road user charges to spend all over the transport system, building and fixing roads, cycleways, and subsidising public transport.

But in between 2017 and 2020, $1.1b of its funding was ploughed into plugging cost overruns on 17 road projects that went wildly over budget.

That’s the equivalent of the entire annual budget for state highway improvements.

The worst offenders were the Wellington Roads of National significance, which went $381m over budget, and a series of Auckland roads that went $352m over budget.

The cost overruns were revealed in written Parliamentary questions to Green party transport spokesperson and former associate Transport Minister Julie Anne Genter.

A whole year’s state highway funding over budget is deeply concerning, especially as some of them are quite considerably over budget as shown below.

It’s not clear if the figures above also include the cost increases for Transmission Gully and Puhoi to Warkworth that came about as a result of COVID delays as both projects have had other cost increases announced this year for greater than these figures. It’s also not if the Northern Corridor Improvements line also includes cost increases to the busway – which is being funded from a different activity class, which I’ll get to shortly.

I haven’t been able to find the initial costs of all projects and sometimes it’s a little difficult to tell about the timing of the increases e.g. did the increase occur before it got to construction. However, as a rough take on what I can find it suggests the costs of these projects have increased by about 25% with many higher and one project nearly one and a half times more expensive.

RegionProject ChangeOriginal CostCost IncreaseIncrease %
AucklandNorthern Corridor Improvements (NCI)$700,000,000$147,325,79321%
SH1 Dome Valley Safety Improvements$35,000,000$28,246,68081%
SH1 Puhoi to Warkworth RoNS Detailed Design and Construction$710,000,00085,158,00012%
SH16 Brigham Creek to Waimauku Safety Enhancements$53,000,00078,045,229147%
SH20A to Airport14,223,738
Bay of PlentyW2T Waihi to Omokoroa (Safer Corridor)$101,000,00098,714,73098%
CanterburyWeigh Right Glasnevin15,041,284
Manawatu/WhanganuiTe Ahu a Turanga; Manawatu Tararua Highway$620,000,00047,000,0008%
MarlboroughNew Ōpaoa River Bridge$22,700,00014,363,02663%
NorthlandMinor improvements 2015-185,485,053
OtagoSH6A Corridor Improvements1,500,001
Stanley St Corridor Improvements(Queenstown Town Centre DBC)1,720,001
TaranakiSH3 Mt Messenger Bypass$200,000,000$96,926,14348%
WaikatoSH1 Wex Hamilton Section$607,000,000$113,152,21719%
WellingtonWellington RoNS (5) – Transmission Gully$850,000,000195,555,60023%
Wellington RoNS (6) – SH1 Mackays to Peka Peka Expressway$630,000,00075,522,86912%
Wellington RoNS (7) – SH1 Peka Peka to Otaki Expressway$330,000,000111,601,66434%

We don’t know the reasons for why costs have increased by so much but is similar in scale to that seen on the City Rail Link which was a combination of additional future proofing, allowing for greater contingency and construction cost inflation. For these roads the latter is being targeted.

Genter said she would propose the Transport and Infrastructure select committee investigate construction cost inflation “so we can get a good cross-party view of the problem and potential solutions.”

“The high cost of delivering transport infrastructure in New Zealand, whether road, busway or rail, is not good for anyone. Especially when we need to urgently invest significantly in infrastructure to decarbonise our transport system,” Genter said.

National’s transport spokesperson Michael Woodhouse said his party’s caucus would have to decide whether it would support a select committee inquiry, but the “eye-watering” cost overruns needed an examination.

“Whatever form that takes it is absolutely appropriate that we examine whether that represents value for the taxpayer,” Woodhouse said.

Woodhouse seems almost conflicted in his comments. Like he wants something to attack the government with but at the same time many of the projects are ones started when National was last in government.

Transmission Gully

Perhaps as well as looking at construction costs, we should also look into Waka Kotahi’s processes given these large cost blowouts are clearly not isolated incidents. It’s also notable because Waka Kotahi seem to be putting a lot of pressure on local authorities to business case projects to death to ensure every I is dotted and T crossed as well as to control costs and yet they don’t apply the same criteria and stringency to themselves.

As for where they’re getting the funding from the cover this, they’re raiding the budgets of other modes

“Waka Kotahi is able to move funding between NLTP activity classes provided the funding allocations remain with the bottom and top of the three-year funding ranges set by the GPS for each activity class,” the spokesperson said.

“The funding range for State Highway improvements for 2018-21 is between $3b and $3.85b.

“We are currently tracking to finish the three-year funding period near the top of that range,” they said.

With projects like the Northern Corridor Improvements, Waka Kotahi shifted the approximate $250 million cost out of the State Highway budget and into the Public Transport budget, preventing money being available for more services. At the same time:

Former transport minister Phil Twyford said a maximum of $1.15b should be spent on state highway improvements in 2019/20 and 2020/21.

But, in an answer to a written Parliamentary question, Transport Minister Michael Wood said that NZTA would in fact be spending $1.296b and $1.483b on state highway improvements in 2019/20 and 2020/21 – a full $479 million more than the top end of the Government window.

The Government said NZTA should spend a minimum of $80m and $95m on walking and cycling improvements in 2019/20 and 2020/21.

NZTA actually plans to spend about half that – just $45.5m and $54m in each of those years.

Despite all their multimodal rhetoric, this is all feeling very much like the highway first Waka Kotahi of old.

Finally, as noted in the article, Waka Kotahi are being challenged in the courts for not following the Government Policy Statement. This isn’t directly related to the cost blowouts and primarily in relation to a project in Nelson however given what’s happening above, it seems the timing is useful.

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45 comments

  1. This is super concerning. We have a transport agency that’s meant to be giving effect to the government’s transport direction but instead is burning all their funding on cost blowouts on projects started by the previous government.

    Meanwhile funding to actually progress priorities for this government, like walking and cycling, gets raided and progress is worse than snails pace.

    Serious questions need to be asked about what on earth is going on within NZTA. Incompetence or outright malevolence?

    1. I’d say they are following the government’s transport direction; didn’t Labour decide to spend an extra $6 billion almost entirely on “shovel ready” road projects last year?
      Between the government, councils, AT, NZTA, MoT, there is a lot of talk about alternative modes etc but almost no action whatsoever. Surely one of them could deliver something if they decided to spend any reasonable percentage of their money on it.

  2. And yet despite being over budget on all of these with you would think belt tightening going on as a result…. they felt the need to pointlessly waste millions on a rebrand and new name! (Which is meaningless to 90% of the population).
    They’re a government department not a business/retailer. We don’t need flashy brands etc to buy their products like other businesses…

    1. The names debate is an interesting topic. Do we use names to describe things and convey meanings of what they thing is or does? Would it be more useful if it was in a language that more of the country spoke? Or is signilling that your organization is… Whatever they’re trying to achieve more important? Or is there some other reason I’m missing?
      I suppose all these govt organizations rebrand every 10 years anyway to try seperate themselves from their mistakes. Why not make it a Maori name.

      Specifically with the WK name, it doesn’t even mean that much in Maori with, “We travel as one”. For a while I thought it was some play on words promoting single occupancy vehicles.

    2. Considering the name is still officially “Waka Kotahi / NZ Transport Agency”, your complaint is a bit silly, don’t you think?

      Also the fact that it may be meaningless to you (and, I sincerely doubt 90% of Kiwis, considering that most hear “Waka Kotahi” and think “NZT”) doesn’t mean a quick google can’t fix that gap in understanding.

      1. Presumably so you don’t have to actually read them to know you’ve got the wrong one.

        An organisation that shall remain nameless constantly produces internally distinct but externally identical customer-facing booklets that are packaged in the same boxes.

        Needless to say, mix ups happen often.

  3. On some of these projects big cost escalations are the result of additional ground improvement/support/retaining measures because the the ground conditions are unexpectedly bad. This is only ‘unexpected’ because they haven’t done sufficient geotechnical investigations before approving the project. Really these major projects shouldn’t be approved until detailed design has been completed but instead it is happening well before.

    I think the main reason for this is the pressure to get projects started within one 3 year political cycle, or they risk not happening at all. Back in the ‘good old days’ the Ministry of Works planned, designed and consented major projects years in advance of them actually getting built, which mitigated some of these risks. The MoW is not coming back but hopefully the recently created Infrastructure Commission can take up the role of planning and designing infrastructure in a future-looking way.

  4. Transmission Gully was always going to cost more than a billion – even when they announced it many years ago it was presumed to be costing more than a billion. The $885 million total was always just a hopeful bookmark. However the real concern is that no one really knows what the final cost will actually be. As it was done under a PPP, there is the cost initially borne by the contractor, and then the cost borne by the taxpayer, for $ X millions per year for at least 25 years. I understand those add up to well over $2 billion.

    1. I’m guessing because the design now includes the improvements made following submissions, which pointed out that the initial design was going to achieve very little of the stated improvements.

      That makes me think the initial costing was price-engineered down to a figure which they thought would get things moving. Given there’s no consequence for cost overruns at NZTA, once a project’s moving they can add in the things that should have been there all along but made it too expensive.

  5. Good grief. Cost increases of $1.1billion for all of those projects. That is almost as much as the $1.56billon increase in CRL costs from $2.86billion to $4.42billion.

    1. Yet the reserve bank tells us prices are only rising at ~1% P/A hence we need really low interest rates to push prices up much faster.

      1. Central banks all freak out at the prospect of deflation. The worst years of the Great Depression were deflationary periods. When it occurs people stop investing and spending on nonessentials because they expect the price to lower later. The effect is the economy comes to a prolonged halt and we end up wearing sackcloth and lining up for watery soup. At least that is what the current crop of economists were taught.

        1. In that case no one would ever buy anything electronic. I remember when a VCR would cost $2000, probably enough to put a deposit on a house in Ponsonby.
          I think the RBNZ dilute the amount of local inflation by combining it with imported deflation (which they can do very little about anyway)

        2. Yes practically all macroeconomics is bunk. It all suffers from an aggregation problem. But that doesn’t mean you cant set a rule to determine the level of increase in money. As soon as people give the RBNZ functions other than the money supply it all becomes nonsensical.

    1. I’m not a fan of tolling, it seems to only result in the road achieving less of the benefits it would have.
      I’d be happy if roads were only built and maintained from fuel tax / RUCs no exceptions with the NZTA having the ability to set the tax level (so it is more of a service rather than a government policy). That would free up a lot of the current general tax and rates money to be spent on alternative modes.

      1. I think all the people whos property goes up in value as a result of TMG should pay some of the cost as at tax when they sell their property.

        1. Do I get a discount for the reduction in my suburban house’s value because it has a state highway going past it?

      2. The thing is that tolls are here now and are feasible to implement. A massive fuel tax/RUC increase to cover all the costs of the RONS and NZ Upgrade would be politically much more difficult. And if a toll leads to less growth in traffic, that’s a plus (on congestion, emissions, and a car-dominated transport system) as well as a minus.

        The decision not to toll Transmission Gully (or even to consult on it) was a mistake that will likely have ramifications for many years.

        1. I imagine a toll leads to less reduction of traffic on the alternative roads and hence less reduction in deaths, emissions, etc

        2. Robert, I agree with your thinking. Anecdotal evidence from countries with significant road tolls shows that it encourages change in mode share. When you look at the large frequency of intercity train services in places like Italy, where they have road tolls of about $12 per 100km, the impact seems undeniable.

          Will some choose back country roads? Well a few might, but as an example in NZ Orewa is hardly overwhelmed by through traffic.

          I like your comment about easy to implement. I wonder how efficient the transponder system used around Sao Paulo is compared to the camera system of the Northern toll road?

  6. surprised you are majorly hitting on roads with cost blowouts across all modes. Example: a consented harbour crossing design backed to the hilt by nearly all parties for $35 million has now blown out x 10 to $350 million plus, ie. a 1000% increase and an all-time eye watering chart topper. Unsurprisingly, according to your headline enemy Bernard Orsman, the shovels have been dropped for further scrutiny. You should invite Minister Michael Wood to make a statement whether the current scheme represents value for the taxpayer.

    1. All these roads are actual funded projects that have blown out. The Skypath hasn’t blown out because they haven’t spent anything on it yet, except a little on design work. If they actually build it for $350m then you’ll have a point. My guess is big motorway blowouts get built and big cycleway blowouts don’t.

    2. I’d rate skypath as a total project change. Planning on building a gravel road then upgrading the scope and building a 4 lane morotway instead. And then some people calling it the same project and saying it’s a cost blowout.

      1. What is it giving us? The original design was shoestring, but is it giving us 10x the value? Granted the pathway on the foreshore was outside of the scope of the original proposal, but how much walking and cycling would that extra 90% cost do across the region?

        And on the face of it, that’s a legitimate question. But in reality, no one is proposing spending 90% of the current proposed Skypath cost on other stuff for walking and cycling across the region anyway, so go figure.

        1. The original design wasn’t being funded by anyone (remember, tolls were going to pay for it initially), so it had to be a shoestring cost to make the numbers add up. It was a narrower clip-on whereas the new independent column design avoids the dynamic loading problems that would have arisen, plus provides a wider path to minimise the interaction safety problems that would have occurred. And there’s 3km+ of additional pathways and bridges as well (for comparison, the 2.9km Avondale-New Lynn path is costing $44m).

  7. Why is everytime they post a fly over video all you can see is a digger , a couple of dump trucks and what seems to be dozens of Ford Rangers or Toyota 4wd’s . It seems to show the clowns that build these have no clue to what they are doing .

    And if you go back to the days of the MOW they had gear like carryall’s . bulldozers which could do verious jobs , like tow the rollers that compac the spoil and shape the banks and tow carryall’s . and ther works trucks were for repairs to plant and transporting all the crews to their jobsites .

    If you want to see the way they built roads ;-

    1. Modern earthworks machinery is much more productive than what was used in the past. The same job can be done with less equipment and fewer people. For example rather than have a surveyor and a chainman installing chainage and batter stakes full time, the excavator will have GPS machine control that shows the operator where the design surface is.

      As for the number of utes, you can thank the FBT exemption for ‘commercial’ vehicles for that.

      1. LogarithmicBear I have seen the large earthmovers with Sat gear attached and they work just as good or better than stuck on a slow digger , and most of the gear on these sites all seem to come out of Porters hire stable . And when come into Hamilton from the north thats all you see in there yards . And even the old Holden dealership in Pamure has been taken over by Diggers , don’t know if they are for hire or sale .

  8. Can someone please explain, what am I missing here. The time period noted in the article is when Ms Genter was the Associate Minister of Transport…
    Was she not over her portfolio, or was the Labour wing of the Government keeping information away from her?

    1. What you are missing is that Ms Genter’s delegated portfolios were:
      -Walking and cycling
      -Electric vehicles
      -Transport safety
      -Research and statistics
      -Oversight of Maritime NZ

      I’m sure she had full information in those areas.

  9. Hmmm.
    Interesting to know if optimism bias was included in the original cost estimates and whether the optimism bias was carried through to the final budgets.

  10. It seems that every major construction project in new Zealand always experiences a cost blowout. Why: construction takes too long and isn’t finished when the money drains out.

  11. Certainly not as bad as the CRL that went from $900million to over $4Billion, or the northwestern busway that has gone from $200million to some $6Billion and growing. Or the skypath that went from $15million to whatever it is now.

      1. Just as random guess based on the airport light rail line cost going from $2Billion to $6Billion over a mater if years.

        I think you’re missing the point if you’re getting stress out over the accuracy of the $6Billion figure.

    1. Where did you get 900 million for CRL? What are we measuring here, 1920s estimates inflated put to 2020? 1990s? The first organization that did minimal background research and plucked a figure out that was never really an expectation, the first full business case? The same could be done for any of these projects. There is an entire article about CRL cost increases, and we talked about skypath above.

      The northwestern busway is also genuinely going to cost a lot more now they didn’t add bus lanes when they could.
      The author is pointing out the most recent cost increases for highway projects in this article because that is what has been increasing lately

      1. I think the $2 billion or so figure used in the 2015 business case justification for starting work is the most reasonable benchmark for the CRL. But it’s still a colossal jump compared to that and they haven’t started the main boring work yet.

        There will be fingers crossed in Auckland City over the project. They’re on the rack financially already and it doesn’t take much of a percentage increase to have big implications. I doubt they could afford the 20% or so increase seen on average across the roading programme from here.

      2. The $900 million figure is from early Len Brown years, it was then $1.2 billion when they committed themselves to it building the section outside Britomart. The $2Billion figure was from when people were saying National was trying to kill it by inflating the price.

        I saw the talk about the sky path above. Fact is $15 million was an impossible sum, and the justification of changing scope is essentially the same reason all these road projects increase in cost.

        As for the northwestern busway, people like to say it could have been built cheaply at the same time as the motorway, however that simply isn’t true. A quick visit to the NCI project and you will see the great expense needed to build the busway even though there was already plenty of space within the existing motorway designation.

  12. Just catching up on this. The overall cost increase is $1.1 billion against initial estimates of $4.8 billion, average +23%. And zero projects reported as under budget. Unless scope has changed this suggests poor cost control and/or an inability to make contractors accept consequences for construction errors.

    Whether this is better or worse than cost increases in PT projects misses the point. It is beyond cost control norms for infrastructure project management. By comparison an Australian study showed an average real cost increase from planning to delivery for transport projects of +15%; this is worse. CPI in NZ from 2016 to 2020 was 5.8% (compounding; average 1.4%), so this is well beyond inflation too.

    The Danish economist Bent Flyvbjerg wrote a book “Megaprojects and Risk” that describes the sorts of behaviours that lead to these outcomes.

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