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West Gate Tunnel at impasse after builders say they will tear up contract

A source familiar with the negotiations said the project’s builders sent Transurban and the government a letter of intent six months ago, claiming they were confronted with a force majeure event, which refers to an unforeseeable circumstance that makes it impossible to fulfil the terms of a contract.

The builders claim that because the force majeure problem was not solved within six months, they are entitled to rip up the contract, the source said.

But Transport Infrastructure Minister Jacinta Allan said the dispute did not involve the state government.

Illustration: Matt Golding

Illustration: Matt GoldingCredit:

Ms Allan said she told Transurban that all companies involved in the project needed to “knuckle down and resolve this matter”.

When asked what action the government had taken since the builder raised concerns six months ago, Ms Allan said the situation needed to be resolved by the companies. 

“These matters were known prior to the contract being signed,” she said.

The contract for the West Gate Tunnel includes a force majeure clause that covers contaminated soil as well as other traditional “act of God” events such as earthquakes and floods.

It states that the contract can be terminated under a force majeure clause if the event “prevents the project company from carrying out all or a material part of the project activities … for a continuous period exceeding six months”.

The force majeure claim will kickstart a round of negotiations about whether the builders’ bid to terminate the contract is valid.

If the builders are successful in terminating the contract, they plan to write a new one that would bill for work done on an ongoing basis rather than agree to a fixed price, which would probably add to the costs of the project.

The government may also have the option of putting the contract out to tender again, but this would also probably add to costs.

Analysts believe the parties are more likely to find a commercial solution rather than find new contractors to carry out the work.

Meanwhile, Morgan Stanley analyst Rob Koh has advised that the Transurban’s 10-year extension on CityLink tolling, a key part of the project’s funding deal, would probably not be affected by construction delays. Tolls will increase by 4.25 per cent a year.

Mr Koh advised that shareholders are also unlikely to suffer, even if the project faced a six to 12-month delay.

The first of two 450-tonne tunnel boring machines was lowered into a launch site at Yarraville last August, but neither machine has moved a centimetre because of the discovery of the PFAS contaminants. Other work continues on the project, such as off-ramp construction.

Australian Workers Union state secretary Ben Davis confirmed crews had turned up for work on Wednesday morning, and that he expected work to continue as normal.

He said the brinksmanship that Transurban and its contractors were engaged in was irresponsible, and that both were effectively “holding the project to ransom” to protect their profits.

“Yet again the joint venture and Transurban seem to be trying to maximise their legal position … this is irresponsible,” Mr Davis said.

A West Gate Tunnel construction site in New Street, South Kingsville.

A West Gate Tunnel construction site in New Street, South Kingsville.Credit:Joe Armao

Transurban said in its ASX statement that it had received a legal termination document from CPB Contractors and John Holland, seeking to end the contract “on the basis of a force majeure termination event”but it did not believe the contract has been validly terminated and noted the builder would continue working on the project.

The state government, Transurban and the builders have been arguing over who is responsible for storing, treating and dumping soil contaminated with PFAS, in the wake of beefed-up EPA standards on how the chemicals should be managed.

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The EPA introduced a new interim standard on PFAS management in October, after the project’s contract was signed. The new standard states that the reuse of soil with very minor traces of PFAS must be overseen by the EPA.

However, The Age has been told that the EPA failed to specify how the project’s PFAS soil should be classified, which meant that there was no landfill site where the project could legally dump it.

When questioned about this, the EPA responded that its rules on PFAS had no material impact on the project, while Ms Allan claimed there had been no change in EPA policy.

Last week, 140 tunnelling workers were laid off as the blame game escalated over the indefinite tunnelling delay.

The opposition’s spokesman on transport infrastructure, David Davis, said the project was a mess and had been mismanaged from the start.

“This was a special cosy deal with Labor mates,” Mr Davis said, in reference to the role played by two of Treasurer Tim Pallas’ former staff members who worked as lobbyists for Transurban at the time the deal was signed.

Mr Davis said Victoria now faced “real risk and financial exposure with a project commenced but now stalled in chaos”.

The government expects the West Gate Tunnel to open on time in 2022 to link the West Gate Freeway in Spotswood and CityLink in Docklands. It is designed primarily to relieve pressure on the West Gate Bridge, which carries up to 220,000 vehicles a day.

One half of the joint venture building the West Gate Tunnel, CPB Contractors, is owned by listed company CIMIC. Its share price tumbled last week when it made the controversial decision to also walk away from construction of infrastructure projects in the Middle East. Its share price was trading around $29 on Wednesday, having been at $45 a year ago.

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