Transmission Gully has long been a dog of a project. From it’s poor initial business case, to it being made a Public Private Partnership that would see taxpayers forking out over $3 billion over the coming decades and then having cost blow out after cost blowout and a range of other issues.
In August last year then Ministers of Transport (Phil Twyford) and Infrastructure (Shane Jones) announced an urgent review of the project, yesterday that review was released and it’s damning for both the previous government and Waka Kotahi. Stuff Reports:
A review into Wellington’s much-delayed and heavily over budget Transmission Gully has found multiple problems with the way the road project was established nearly a decade ago.
The review is scathing in parts, noting that the Government tendered the private contract out at an unrealistically low price by essentially “double counting” cost-savings the private sector could bring to the project.
Worse still, no one spoken to at the review knew or remembered how this tender price was arrived at – an all-important detail, partly responsible for years of delays and hundreds of millions of dollars in cost overruns.
The project was initially estimated to cost $850 million in 2012, but the most recent estimate is $1.25 billion.
However, the review stopped short of saying the Public-Private Partnership model used for Transmission Gully is intrinsically flawed. Instead, it says that key errors made at the beginning of the Transmission-Gully Project, when it switched from being a public sector led project to a PPP back in 2012, have led to lasting problems with the project.
It’s not surprising errors were made given the PPP model was hurriedly pushed through for ideological reasons by then Transport Minister Stephen Joyce. The report notes Waka Kotahi had just one month to convert “a non-PPP project, with an existing consented scheme design” into a design that could be compared against a PPP option. This mean they “had to use a design that was less developed than what they would normally include” in a procurement process.
Stuff’s reporting continues:
One of the key errors was in the calculation of what is known as the affordability threshold or AT. This is the cost that is put out to parties interested in tendering for work on a project and is regarded as the maximum price the government is willing to pay.
The AT is calculated based on another number, the PSC (public sector comparator) which is the number given to what it would cost the public sector to build and run a given project. This ensures the government is getting value for money by using private partners to do government projects.
In the case of Transmission Gully, the AT that was put out to tender was at a much lower cost than what it was believed the public sector could deliver the project for. Set at P75 for the public sector price, that meant there was a 75 per cent probability of the public sector building and running Transmission Gully for the price that it was put out to tender.
An old Waka Kotah-NZTA board paper dug up by the reviewers found that the AT was set lower than the PSC “to drive the Respondents’ behaviour in the achievement of innovation and efficient whole of life solutions”.
But the bidders weren’t so keen. One interviewee called the price “demonstrably unrealistic”, and another said that it was “dubious” whether it actually achieved value for money for the Crown.
Setting the tender price so low meant firms were tendering for a project knowing that it was unrealistic to be able to deliver it at that cost. The review noted that setting the price low essentially “double counted” cost savings because the public sector figure was already required to consider the most efficient and cost-effective way of doing things.
I recall speaking to a Waka Kotahi procurement manager at a conference at around the time this was all being set up. He told me that essentially all of the ‘innovation’ benefits PPPs are said to deliver can just as easily be achieved through an alliance model, like those used on projects such as Waterview and now the City Rail Link. Ultimately the only thing PPPs seem to deliver is a more expensive way of delivering infrastructure and great returns for the financial institutions lending the money to pay for it.
One thing that really concerns me about this whole saga is that many of those involved in creating these issues, and cost blowouts on other projects, are still in the organisation and in many cases now in even more senior positions. Worse still, the organisational structure means there is a ‘fox guarding the henhouse’ situation as those tasked with reviewing and approving funding for projects actually report to the people who create and design the projects. So while local government projects get put through the wringer, Waka Kotahi projects often get rubber stamped, both to keep colleagues happy but also so as not to annoy the boss. I do wonder if we need to go back to having transport funding decisions made by an independent agency.
Finally, it’s also scary to think that despite all of the known issues with PPP’s the current government were extremely close to pushing ahead with another one with the Superfund and their Canadian partners for Light Rail in Auckland.