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Construction giant John Holland is pushing back against a state government demand that it be financially liable for cost blowouts building the North East Link in a move that could sideline the construction company from Victoria's most expensive road project.
In a bid to pressure the government to take on more financial risk on the $15.8 billion project, John Holland is planning to submit a non-compliant bid that rejects the project’s risk allocation, a set of conditions that determines who has to pay the costs of unforeseen problems on the project.
It is the latest stand-off between the state government and John Holland, with the builder halting works on the Metro Tunnel and the West Gate Tunnel amid disputes over cost blowouts and delays.
Minister for Transport Infrastructure Jacinta Allan has announced the Victorian government will establish a state-owned company to collect tolls for the North East Link. CREDIT:JASON SOUTH
Sources close to the builder said it wants the taxpayer to be on the hook financially for problems relating to the project’s delivery time and budget and any problems arising from the project’s design.
The building behemoth is refusing to take on other risks associated with industrial issues, legal changes and the protection and relocation of power and water supplies.
John Holland has hardened its position on the project's risk as it wages a separate campaign to dump a $2.5 billion contract with the government to build the West Gate Tunnel, as the two parties argue over responsibility for cleaning up the project's toxic soil.
The builder adopted an aggressive negotiation strategy on the Metro Tunnel, dramatically halting tunnelling on the project in a dispute over an overrun of up to $3 billion.
Submitting a non-compliant bid for the North East Link could rule out the ViaNova consortium – comprising John Holland, Acciona Construction, Lendlease Services, Plenary Group and Acciona Concesiones – from the project.
But that would leave the government with only one remaining consortium making a bid, Spark Consortium, as a third consortium led by CPB Contractors withdrew from the project after its demands that the government take on more risk were rejected.
John Holland declined to comment when contacted by The Age.
While the bulk of the toll road’s risk is currently allocated to the builders, the state government has accepted the financial risk associated with land acquisition and planning approvals. Soil contamination risks would be shared.
Transport Infrastructure Minister Jacinta Allan said on Wednesday the state government was setting up a state-run tolling agency to toll motorists on the North East Link — a first for any Victorian government. This revenue stream will contribute 22 per cent of the project's funding.
The state government will wear the risk of poor tolling revenue in the first few years, as it takes a while for motorists to use new toll roads when they open.
This was the advice of the project's business case, which found the private sector has “limited appetite” to toll brand new roads, following a string of scandals in Brisbane and Sydney that landed private firms in financial strife over lost revenue due to inflated traffic forecasts.
While the business case flags that the road's tolling rights could be sold off down the track, it is understood that the state government is not currently considering this.
Transurban's chief executive Scott Charlton has previously said he would consider taking over the project's tolling operations.
This article first appeared on www.theage.com.au
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