Huge penalties for road’s late opening
The builder of Transmission Gully is on the hook for about $26 million worth of fines after the road opened three months late.
The $1.25 billion motorway out of Wellington finally opened to traffic last week, much to the delight of motorists, apart from those who were left with cracked windscreens from the fresh chipseal.
But the road was actually meant to be open in time for Christmas and the builder has been racking up fines of more than $250,000 a day since mid-December.
Transmission Gully has been 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. A company called Ventia has also been subcontracted to operate and maintain the motorway for 25 years after it’s completed.
Daily fines for not getting the road open on time started on December 17. They are payable by CPB and HEB to WGP.
Based on information provided by Waka Kotahi NZ Transport Agency that the fines amounted to more than $250,000 a day, about $26m worth of fines have accumulated up until the point of the road opening.
These fines, in the form of liquidated damages, were part of a settlement agreed to in 2020 covering the costs of delays and other impacts resulting from the five-week Covid19 lockdown earlier that year.
Waka Kotahi bailed out CPB and HEB to the tune of $145.5m. But the final $7.5m of that $145.5m settlement was only to be paid if the road opened by the new agreed date of September 27, 2021. This was on top of the fines.
In the end, these penalties were only triggered on December 17 because the September 27 opening date was affected by the Delta outbreak.
The time period between these two dates was the contractual extension given to the builder to allow time for discussions regarding the impact of the Delta lockdown and alert level restrictions.
Waka Kotahi spokesman Andy Knackstedt confirmed the $7.5m has not been paid to the builder, bringing the total amount of fines and penalties for delays to about $33.5m.
WGP chief executive Sergio Mejia could not confirm the exact amount the builder was liable for or whether the builder would be required to pay the full sum.
Mejia said he could not provide answers to the NZ Herald’s questions as these matters were subject to commercial confidentiality agreements.
“All we can really say is that the onerous level of the penalty payments is due to the high level of debt that WGP has accrued with its lenders.”
WGP chairman Brian Harrison paid tribute to the partnership’s lenders and investors for their continued support through “challenging times” during his speech at the opening ceremony of the road last week.
Mejia has previously said the partnership would continue to exercise its rights and obligations within the PPP contractual framework.
Over the course of the road’s life, Waka Kotahi has faced a legal wrangle over more than one settlement after Covid-19, the Kaiko¯ura earthquake, and severe weather events.
In total, these settlements have sent the cost of the project skyrocketing from $850m to $1.25b.
The parties remain in negotiations about the builder’s latest claim for more money to compensate for the Delta lockdown, meaning the price of the road will eventually cost even more than $1.25b.