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.

The original payment profile over the life of the PPP – before any of the cost blow-outs.

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.

Share this

26 comments

  1. It’s curious that the Report notes (2.1): “Key benefits of the TGP include:
    • Providing an alternate and resilient transport corridor to and from Wellington;
    • Reduce travel time, variability and congestion for motorists on State Highway 1 and the existing coastal route, and improve safety within communities like Porirua by significantly reducing through traffic;
    • Significantly reduce the number of fatal and serious injury crashes, and provide a more reliable and safer journey for all transport users; and
    • Facilitate economic development within the region and nationally.”

    But: The report above misses out the real key failing of Transmission Gully – that it will do nothing to relieve the morning rush hour, and may even make it worse. Yes, it is wider and safer than the Coast route, and yes, it will not have the single-lane stretches of highway that currently feature through Paekakariki and Pukerua, but the current pinch points of Ngauranga Gorge and Johnsonville back up traffic in the morning, often back to Tawa. With the new TG joining at Linden, all that this means is that more traffic will very quickly find its way to Tawa in the morning and so the traffic will back up even more.

    Yes, the afternoon return trip out to Kapiti will be sped up, but the sad thing is that all this gain is only temporary. With increased capacity, and new suburbs planned for places like Plimmerton Farm, Levin, etc, new dwellings and new people driving in – and no new rail facilities planned – there will be an inevitable large increase in traffic. As the old maxim goes, traffic expands to fit the space available. In 10 years time, we’ll be back in the same situation, waiting in a traffic jam.

    1. Good points, Guy, and it won’t “provide…a safer journey for all transport users”, either. NZTA’s evidence to the Board of Enquiry is that patronage on the Kapiti railway line will be 25% lower with TG than without it, and the risks of travelling by public transport (as on the train) are roughly 90% lower than by private car (as TG users will be). So for those travellers that would have been on the train, it will be a more dangerous journey.

      And of course the train is electric and cars are predominantly fossil fuelled, with all that implies for climate change.

      1. Fortunately the changes to the legislation recently *should* drive these sorts of business cases to consider rail as an option. So we see fewer of these sorts of things in the future.

  2. When the costs blew out the government really should have cancelled the whole PPP then and there as a result.
    Of course it never should have been a PPP in the first place and should have been simply government funded.. Typical National party cronyism.

  3. This sort of stuff is frustrating, with a three year election cycle,each keen to blame the other,meanwhile not much gets done.The good thing about current govt,is there is no credible opposition ,they should have their foot to the floor, trouble is,climate change seems to have caught them off guard ,and they don’t have policies/vision to deal with it.The gatekeepers NZTA,WK,and metropolitan councils are equally visionless. There is a gaping hole for a charismatic visionary politician,either locally or nationally to step up and lead, nothing to lose,especially nationally, the only way labour could lose the next election is if they decided not to run.

  4. I wonder if these excessively neoliberal politicians run their private life like this?
    Surely Joyce does not own a house considering he could outsource that to an “expert” and rent instead, that would be more efficient and productive, right?

  5. The Steven Joyce motorway, nice little money spinner for the highway builders and oil barons with further intergenerational car dependance locked in.

  6. Transmission Gully has syphoned away a huge amount of transport-funding that could have gone into a much-needed extension of Wellington’s rail system beyond where it currently terminates, and also a much-needed double-tracking of the pinch-point at North-South Junction. Instead, we have committed ourselves for the next 25 years, to paying-off a poor-business-case roading development which has grossly overrun its budget, and which will further-entrench car+truck dependency.
    Meanwhile, nothing is being done to address the impediments faced by the railway.
    This is what you get when you assume a businessman like Steven Joyce will automatically make a competent minister of transport.

  7. It was all fairly inevitable.
    Big players in the transport, and land development industries had made big political donations, and they expected to get rewarded, or else future donations would be impacted.
    So a road had to be provided.
    It was very obvious it was going to be horrendously expensive, in fact unpalatably expensive, especially if funded out of the current account, so immediatly raising government debt levels.
    So a collection of unaccoutable officials were instructed to provide fudges. The result, an under funded PPP arrangement. An arrangement that both disguised the true realistic costs, until they became a future government’s problem, and even worse, committed these future governments, for many more years, to paying for the very expensive “time payment” option.
    But the donors, no doubt, think they have got a bargain, and as the inevitable traffic jams appear at both ends of the works, they may well be able to look forward to much more work moving these jams a little further on.
    And the Wellington City Council is now saddled with the problem of finding space to store all these extra cars coming in, from arrival in the morning until their departure in the evening.
    Perhaps the Council should consider some similar type PPP’s to design, build and operate car parking buildings on land the Ratepayers could buy and donate to the project ? More magic money. MMM projects.
    Stephen Joyce could be hired as a consultant to get them off the ground, or more importantly off the books. Briefly.

    1. They only make sense when tolled IMO. If someone was prepared to do the project with the only revenue being tolls (they can choose the price) and a rebate from fuel tax / RUCs for the km’s traveled on the road, then they are taking all the risk and should get the reward. But that would never happen as not enough people would pay a toll large enough to break even let alone make a profit. Which makes you wonder how these business cases stack up of people value their own time more than the toll.

    2. “And the Wellington City Council is now saddled with the problem of finding space to store all these extra cars coming in, from arrival in the morning until their departure in the evening”- no, Wellington City Council has a reasonably sensible and rational parking policy that does not prioritise commuter parking. It’s up to these drivers to find parking, not up to the council to provide it.

  8. Transmission Gully Road will have minimum value, given the extra problem resulting from upward of 10,000 extra vehicles aiming to drive into Wellington, and grid lock at Nguaranga Gorge and/or the Terrace Tunnel. The volume of traffic will have be reduced through applying other measures such as Congestion Charges, and other disincentives such as removing street parking in the CBD. There will be ongoing pressure to reduce train fares in order to compete with highway travel. The one positive aspect that I see, is the improved connections to highway 58 between Porirua and Hutt Valley.

  9. I guess the positive is that the right of way has been secured and the earthworks done so it would be easy in future to reallocate some of that in future for an alternate high speed rail route to the Kapiti Coast.

    1. The TG route would not be suitable for a rail route, being heavily graded – particularly at the northern end, where the grade is about the same as SH1 Ngauranga Gorge, and three times as long. Heavy earthworks would also be required at the southern end where TG cuts across the grain of the land.

      What’s needed is duplication between Pukerua Bay and Paekakariki.

      1. Amazing to think that the existing rail tunnels at Pukerua were dug in the 1870s, by hand, with minimal money, and still function perfectly today – and yet the prospect of digging more tunnels today is viewed with horror at the potential expense. The coast road here, Centennial Highway, was only started in 1938 and completed in 1840. Have to say: contractors in the old days were far more efficient!

    2. Before high speed can be contemplated, just reliably being able to maintain an ordinary speed would be great. Not waiting on opposing trains to clear single track sections, or other trains at the at grade junctions, or express services unable to overtake stopping services anywhere.
      But Wellington services have at least avoided the excessive dwell times inflicted in Auckland.

  10. I did a study of Australian transport project outcomes a few years ago (38 road and rail projects from 1992 to 2015). I found no evidence PPPs saved government money vs public sector provision and they increased patronage risk. They are promoted by an army of finance and legal consultants who make lots of fees out of them. A slew of PPP toll road projects in Australia in the late 2000s went bankrupt within three years of opening. NZTA should have known better.

    1. I think the problem was that NZTA did know better, but was instructed by the Minister of the day to go ahead and make it a PPP anyway.

      It’s a difficult position to be in as a public servant. You’re bound to serve the governance body (so either parliament, council or the minister) of the day: even if this involves implementing incredibly dumb decisions.

      If you go ahead and do it, you’re a political hack. If you push back, you’re useless and “unaccountable”.

      1. I have been a public servant and understand the pressure. In the Westminster system public servants are supposed to give “frank and fearless advice” then act to implement government policy.

        So once government decides public servants must do it. But before government decides public servants must have the courage to call out bad ideas as just that. Also wherever I have worked public servants are still obliged to act truthfully and in the public interest. So hiding information about bad outcomes is never ethical, and probably illegal in most Commonwealth countries.

        1. Hi Scott

          I totally agree, but in this day an age the principle of free and frank advice can only take you so far.

          You’re still subject to a corporate employment contract which can (and has) been used to turf out anyone that disagrees to loudly or vehemently. Pour encourager les autres, perhaps?

          Which has quite the chilling effect on the public service’s desire and ability to speak out.

          We’ve done frankly terrible job of fostering courage, innovation and proactivity in our public service. Witness NZTA’s repeated failure to get the whole point of transport planning

  11. From what I understand the contractor is taking a bath on transmission gully. Whereas on an alliance the contractor can never lose money and I know of plenty of cost blowouts on alliances as well.

    1. Alliances are not the only alternative. In my study I found generally the more complex the contractual mechanism, the worse the outcome for taxpayers. The simplest contract forms – a straight construction contract with separate design contract, or a D&C contract – gave the best outcomes. Alliances did perform well for finishing on time, though had worse financial outcomes than D&C. They were not worse financially than PPPs, which were the worst.

  12. Is this contract issue only associated with transmission gully?

    It is difficult to find any central or local government project delivered on time and within the original budget.

    A total lack of exploring options, technical investigation, developing a list of risks with mitigation, together with the lack of management and project experience does not bode well for future projects.

    Too much politics and not enough engineering accountability.

    1. I dont know the answer to your question, but it would also be worth defining exactly what people mean by the “original budget”. The original budget that was spitballed by politicians and advocacy agencies, the original cost at the basic fesability investigation, the business case budget, the budget given at the time of construction start.
      Do we address the upgrades that along the way that added to the scope etc.
      It’s a hard question to answer I think.

      It is disappointing to see so many projects go over what was expected though, and that the original price seems extremely high, compared with construction costs overseas, in Spain for example.

Leave a Reply

Your email address will not be published. Required fields are marked *