Gully flawed from the start

A review into Wellington’s muchdelayed and heavily over budget Transmission Gully has found multiple problems with the way the road project was established nearly a decade ago.

The review is scathing in parts, noting that the Government tendered the private contract out at an unrealistically low price by essentially “double counting” cost savings the private sector could bring to the project.

Worse still, no-one spoken to at the review knew or remembered how this tender price was arrived at – an allimportant detail, partly responsible for years of delays and hundreds of millions of dollars in cost overruns.

The project was initially estimated to cost $850 million in 2012, but the most recent estimate is $1.25 billion.

However, the review stopped short of saying the Public-Private Partnership model used for Transmission Gully is intrinsically flawed. Instead, it says that key errors made at the beginning of the Transmission Gully Project when it switched from being a public sector-led project to a PPP in 2012 have led to lasting problems.

The review was carried out by Te Waihanga – the Infrastructure Commission – after being announced last August by then-transport minister Phil Twyford and infrastructure minister Shane Jones.

New Infrastructure Minister Grant

Robertson blamed the National government for establishing a partnership that lacked “proper rigour and consideration”.

The review found there was a lack of transparency as to how key PPP decisions were being made, less than ideal consenting risk management, and the price was set far too low from the beginning, Robertson said.

He said there would be yet another review of the project when Transmission Gully was finally completed.

One of the key errors was in the calculation of what is known as the Affordability Threshold or AT. This is the cost that is put out to parties interested in tendering for work on a project and is regarded as the maximum price the Government is willing to pay.

The AT is calculated based on another number, the PSC (Public Sector Comparator), which is the number given to what it would cost the public sector to build and run a given project. This ensures the Government is getting value for money by using private partners to do government projects.

In the case of Transmission Gully, the AT that was put out to tender was at a much lower cost than what it was believed the public sector could deliver the project for. Set at P75 for the public sector price, that meant there was a 75 per cent probability of the public sector building and running Transmission Gully for the price that it was put out to tender.

But the bidders weren’t so keen.

The review stopped short of saying the PPP model is intrinsically flawed.

One interviewee called the price ‘‘demonstrably unrealistic’’, and another said it was ‘‘dubious’’ whether it achieved value for money for the Crown.

Setting the tender price so low meant firms were tendering for a project knowing that it was unrealistic to be able to deliver it at that cost.

Equally concerning is the fact the review couldn’t actually work out who was at fault for setting the AT so low, with different arms of the government pointing the finger at one another.

That confusion led to two of the review’s key recommendations, which was to have much clearer reporting for the governance of any future PPPs, and better transparency around how costs were set.

The review was critical of many parts of the partnership process but stopped short of saying that a PPP was necessarily incompatible with a project like Transmission Gully. It said the commercial case used to justify the model ‘‘was based on internationally accepted approaches’’.

The review noted that any project on the scale of Transmission Gully was likely to be fraught. It’s a ‘‘highly complex project involving 25 bridges, including one that is 230 metres in length, as well as 534 hectares of ecological mitigation areas and 27 kilometres of stream remediation’’.

The review’s other key finding was that the consenting risks were poorly managed, with Waka Kotahi lacking any formal or documented strategy for managing the project’s multiple consents.

Transport Minister Michael Wood said the Government would implement the review’s recommendations.