Transmission Gully. Photo / Mark Mitchell
ANALYSIS:
The price of Transmission Gully was too good to be true and demonstrates why there's no value in trying to cut corners when it comes to building large infrastructure projects.
An interim review into the 27km Wellington road undertaken by Te Waihanga, the Infrastructure Commission, was made public on Tuesday.
The key finding, an issue that has become increasingly apparent for a while now, is the price was set far too low to begin with, resulting in "major implications" for the project.
Transmission Gully is being built through a public-private partnership (PPP), the Wellington Gateway Partnership (WGP), with CPB Contractors and HEB Construction sub-contracted to carry out the design and construction.
The review also revealed more details about what Infrastructure Minister Grant Robertson called "less than ideal consenting risk management".
In fact, Transmission Gully's detailed business case only contained a one-page statement outlining the "consenting strategy".
The Herald revealed in June last year there were a whopping 167 consent breaches, incidents/failures, and unconsented activities at the troubled site.
One expert said at the time the number of incidents was astonishing and suggested contractors were not taking the environment seriously.
Other findings of the review include the fact a non-PPP scheme design was used for a PPP procurement and that there was a lack of transparency as to how key PPP decisions were made.
The four-lane highway was initially meant to cost $850 million but that budget has since been blown several times, coming to a grand total of $1.25 billion.
The review comes at a time when the country has huge infrastructure needs and is embarking on massive projects as part of the Covid-19 pandemic recovery.
Wellington is in crisis and is struggling to get its $6.4 billion Let's Get Wellington Moving transport project off the ground, with costs ballooning in the meantime.
Transport Minister Michael Wood told the Herald Transmission Gully, which connects with State Highway 1 at the existing Mackays Crossing interchange and merges at Linden, is a major piece of regional infrastructure.
"You just don't cut corners with projects of that kind", he said.
"You need to work them through carefully, make decisions well, not do things on the fly and try and make an ideological point or save a bit of money at the beginning, because ultimately you'll end up paying and there will end up being delays."
During the procurement process in a PPP something called an affordability threshold (AT) is disclosed to parties. This is the maximum "price" the Government is prepared to pay a contractor for delivery of the project.
Wood said this cost was "totally undercooked" and set "way too low".
One person interviewed as part of the review remarked the price agreed for Transmission Gully was "demonstrably unrealistic" for such a substantial and complex project.
Two shortlisted bidders actually advised Waka Kotahi NZ Transport Agency they could not meet the AT.
Another interviewee spoke of how the price impacted on their bidding strategy, saying they developed several designs, but in reality none of them would be able to achieve the price.
Parties were forced to put forward bids to conform with the AT through scope and design savings.
Among the extremely technical issues at play in setting this price was that some staff at Waka Kotahi were concerned about the risk of "gold plating", meaning bids might be too high or expensive.
The review said this concern, possibly based on traditional delivery experience, led them to set a low AT as a strategy to manage any gold-plating risk.
The price turned out to be a major headache for the Transmission Gully project, yet no one interviewed could remember or point to who was responsible for setting it so low.
So, could Transmission Gully be already open if the price was set higher to begin with?
Wood said it was impossible to say exactly and noted there were genuine delays to the project due to Covid-19 and bad weather events.
"But I do feel that I can say with some certainty that had this procurement process been overseen properly at the beginning by the Government of the day, it's very likely the project would have been opened earlier and we would have had fewer issues in terms of the cost of the project."
The bargain that was meant to be Transmission Gully is the most important issue the review dealt with.
The issue of consenting hasn't been publicly scrutinised to the same extent, yet it has been identified as one of the four primary causes behind the project's delays and increased costs.
The review found consenting risk could have been better managed by all parties involved.
Several interviewees confirmed the consenting strategy and designation for Transmission Gully was developed with a traditional non-PPP procurement in mind.
This is one of many examples in the report of the inevitable problems created by using a non-PPP scheme to procure a PPP project.
One interviewee said it became obvious in the early stages that the project parties were struggling to meet consent requirements.
They said local government regulators provided significant effort and resource to work alongside partners to address ongoing compliance and approvals performance issues.
These efforts failed and regulators were forced to resort to more traditional enforcement tools in an effort to encourage improved compliance performance.
The Herald has previously reported that by the middle of last year there had been 167 consent breaches, incidents/failures, and unconsented activities.
Greater Wellington Regional Council resorted to prosecution in at least one case.
The road builder was issued with 21 infringement notices with fines totalling $15,750, as well as 23 formal warnings and 16 advice letters.
The offences include sediment discharges into local streams, unapproved works, and slips.
Waka Kotahi said at the time it was committed to acting in an environmentally responsible manner.
Additional specialist resources were contracted to assist with monitoring work and improve environmental compliance across the site.
The review recommended Waka Kotahi develop a structured consenting strategy for future PPPs as a key project control document in the procurement process.
Transmission Gully Autumn update said construction work is 92 per complete and earthworks are now 99.6 per cent complete.
It is a long-awaited road for many, but Road Transport Forum chief executive Nick Leggett said it has been tarnished by all the construction difficulties.
He said New Zealand had to improve the way it built and planned infrastructure.
"It costs money, we shouldn't be trying to cut corners and make things as cheap as possible. These bits of infrastructure have got to last for decades and often beyond a century, so we've got to put the best investment and best minds to them."
The review provides valuable insights and recommendations for other projects, but it won't change the end result that is Transmission Gully - it's too late for that.
The road is due to open in September this year.
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