An interim agreement on Transmission Gully is due to expire, meaning the road's builder will now be liable for more than $250,000 per day in liquidated damages.
It's the first time such penalties can be applied, despite one deadline already being missed since they were agreed to.
The four-lane motorway out of Wellington is being built through a public-private partnership (PPP), the Wellington Gateway Partnership (WGP), with CPB Contractors and HEB Construction subcontracted to carry out the design and construction.
Transmission Gully was meant to open on September 27 and the financial stakes were high.
The builder was going to be liable for damages of more than $250,000 a day if the road was late. Furthermore, Waka Kotahi NZ Transport Agency could withhold $7.5m of the last settlement agreement.
But the Delta outbreak triggered the force majeure clause in the contract, which relieves an affected party from contractual obligations due to an event outside of its control.
The opening date was then revised to December 17, however, earlier this week Waka Kotahi conceded the road was not going to open by Christmas because the builder had run out of time to complete safety, quality and assurance, and consent tasks.
Waka Kotahi chairman Sir Brian Roche appeared before the Transport and Infrastructure select committee yesterday for an annual review hearing.
National's transport spokesman Simeon Brown asked Roche whether a process was being undertaken to issue fines in light of the September deadline being missed.
Roche said with effect from December 17, the new opening date, Waka Kotahi would "apply" the contract.
A Waka Kotahi spokesperson told the Herald an interim agreement was put in place, and extended once, following the August 2021 Covid-19 lockdown.
"This agreement and extension was to allow time to determine a new opening date, and how much of this delay was due to the lockdown and subsequent alert level restrictions. The extension is due to end on Friday 17 December."
As the road was not yet open and no other agreement was in place, the penalties apply as if the previous opening date of September 27 had not been achieved, the spokesperson said.
It's understood the penalties are mostly payable to WGP by CPB and HEB. Whether the penalties in the contract will be applied from the date the agreement expires is up to WGP.
WGP chief executive Sergio Mejia said the partnership would continue to exercise its rights and obligations within the PPP contractual framework.
Both CPB and HEB declined to comment.
Brown said the purpose of a PPP was to share the risk between the taxpayer and the private contractor tasked with delivering the road.
"There's clearly been some issues in terms of its delivery over the last number of months."
This week the Herald revealed a significant factor behind the road's delayed opening was flawed chipseal on the southbound lane.
Extensive parts of the road have evidence of "flushing" - a phenomenon caused by bitumen seeping up through a layer of chipseal on top of it, according to two inspection reports obtained under the Official Information Act.
Several instances of water seepage with brown staining were also identified between two bridges during inspections.
Roche told the select committee the two reports had been received in recent months in response to concerns Waka Kotahi had about the quality of the pavements.
The first report was received while the pavement was still being laid and construction continued.
Brown said this pointed to weak contract management.
"They could have dealt with the issue months ago rather than letting it come to a point where now they're going to have to rectify the issue and the road won't be open for a number of extra months."
Waka Kotahi is concerned about how the pavement will perform once the road opens and 25,000 vehicles travel on it each day.
Waka Kotahi transport services general manager Brett Gliddon said they were talking to the builder about things that could be done now and after the road was open to manage the pavement.
He said it was not unusual to manage the bedding-in of bitumen when a road with chipseal opened.
Waka Kotahi still did not have a clear understanding of when the road will open, Roche said.
"It's something that we're working through. Our objective remains, as we've stated publicly, to get it open as soon as we possibly can and as early as we can in 2022."
Brown asked whether that could be before Easter. Roche replied: "It could be".
"It's been no great public secret that this has been a problem contract for us", Roche said.
Transport Minister Michael Wood has previously referred to Transmission Gully as a "mess" inherited from the last National government, which the PPP was established under.
A recent review of the project found a lack of transparency as to how key PPP decisions were being made, less than ideal consenting risk management, a non-PPP scheme design used in the PPP procurement, and the price being set far too low from the beginning.