Tunnel work halts on Lendlease-led rail project
The Lendlease-led Melbourne Metro Rail consortium halted tunnelling work on the $11 billion project on Monday without notice to the Victorian government, after weeks of talks about cost blowouts reported to be as high as $3 billion.
While tunnelling work regularly stops for maintenance of the giant machines boring the twin 9 kilometre rail tunnels from Kensington to South Yarra, Monday’s halt was unusual because the Cross Yarra Partnership communicated nothing ahead of the shutdown, The Australian Financial Review understands.
“Rail Projects Victoria (RPV) is in ongoing discussions with Cross Yarra Partnership (CYP) on all aspects of the project and is focused on achieving the best outcomes as works progress,” a spokesman for state government agency Rail Projects Victoria said.
“To date, CYP has not provided RPV with any specific detail of proposed changes to its tunnelling program.”
A Lendlease spokesman referred all queries to CYP. A CYP spokeswoman referred all queries to RPV.
The halt in work marks a deterioration in the contractual dispute that already poses a threat to Lendlease’s earnings.
Last month, Macquarie analysts said the appointment of consultancy Flagstaff Partners to mediate a $200 million to $300 million cost overrun claim – out of a possible total cost blowout of $3 billion – by the Lendlease-led consortium with its client, the Victorian government, could triple the costs to Lendlease of exiting the troubled engineering and services divisions that it is trying to offload.
Lendlease chief executive Steve McCann said at last month’s AGM that the company still expected to limit those costs to between $450 million and $550 million. Macquarie analyst Stuart McLean said it was likely to be much more.
“On top of these exit costs, we assume an additional $1 billion for indemnities on sale,” Mr McLean wrote.
A government spokeswoman on Monday said the issue was a matter for the consortium an RPV.
“Operational matters on the Metro Tunnel Project are a decision for Cross Yarra Partnerships and Rail Projects Victoria,” she said.
“There is a contract in place to build the Metro Tunnel by 2025, and we expect them to deliver that.”
The Cross Yarra Partnership of Lendlease Engineering, John Holland, Bouygues Construction and Capella Capital beat out a rival bid from ACCIONA Infrastructure, Ferrovial Agroman, Honeywell, Downer EDI and Plenary Origination and another from Pacific Partnerships, CPB Contractors, Ghella, Salini Impregilo Serco and Macquarie Capital in June 2017 for the $6 billion tunnelling component of the project.
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