The Government has launched an inquiry into the Wellington region’s troubled Transmission Gully Public-Private Partnership (PPP) project just as the New Zealand Transport Agency has come to an agreement with the consortium on it.
Transport Minister Phil Twyford and Infrastructure Minister Shane Jones jointly announced the inquiry on Friday afternoon and said it would finish by mid-2021.
Twyford said Wellingtonians and taxpayers deserved to know what had happened.
“We want to make sure future governments aren’t left in the same predicament our Government has been.”
Jones said the problems with the Transmission Gully PPP couldn’t be allowed to put the country off using “innovative procurement models”.
The inquiry will be conducted through the Infrastructure Commission who would commission an independent international expert to conduct it. An experienced construction industry professional based here would peer review the inquiry.
Agreement reached
Despite all parties coming to an agreement on the stalled Transmission Gully project the road will be regularly resurfaced for years.
The terms of the PPP mean the New Zealand Transport Agency (NZTA) was powerless to demand it be done any other way.
NZTA general manager transport services Brett Gliddon said the end agreement was the best they could do and balanced value for money with the desire to get the road open soon.
It included a $1.25 billion final price tag for the road’s construction ($145.5 million before the road opens), a “double opening” of the road with the main alignment open to traffic in September 2021, and a level of direct project oversight not seen on any other public private partnership (PPP).
The current lot of negotiated payments come on top of another $190m advance payment in March. Which means nearly 40 percent ($335m) – the road’s original $850m price tag – would have been paid out in advance.
PPPs traditionally allocate construction and financial risk to private parties by only paying out after the work has been completed.
“We also looked at all our options around what was the best way forward – including whether termination was a good option for us as well.”
Construction on Transmission Gully came to a screeching halt during the pandemic and the associated lockdown. Under the terms of NZTA’s PPP contracts it was classified as a “force majeure” event, allowing parties to either re-negotiate or terminate the contract.
Transmission Gully is a PPP between NZTA and a consortium called the Wellington Gateway Partnership (WGP). WGP has contracted the CPB HEB joint venture to build it and another firm called Ventia to maintain it for 25 years after it opens.
Australian-based CIMIC is the largest player on the other side of the table. They own CPB – which has an 80 percent share of the joint venture – and Ventia.
Gliddon said it was a tough set of negotiations, with NZTA even contemplating walking away from the whole thing.
“At no point did they threaten that they were going to terminate. However, like us, I’m sure they did look at all their options.
“We also looked at all our options around what was the best way forward – including whether termination was a good option for us as well.
“The deal that we have got here and the deal that we have settled, we believe, is the best way forward for this contract. It opens the job the earliest that we can possibly get it for the lowest additional cost.”
Negotiations on a payment to CIMIC-owned Ventia will continue, but they are expected to total $5m. WGP will also get a payment of $12.5m.
Both payments are related to the payout they could have expected to receive had the road opened this year.
Chip seal and ‘deep lift’
Two-thirds of Transmission Gully (18km) will have a chip seal surface, meaning it will require regular resurfacing for years to come.
“We set a minimum standard in the contract about what we wanted which allowed them to use chip seal,” Gliddon said.
“They could do whatever they want because they’re making this trade-off of course where they’ve got to manage it for 25 years so they need to decide how best they’re going to manage it over 25 years.”
CIMIC-owned Ventia will have to manage that surface within the confines of a maintenance contract originally said to have been worth over $2b.
However, nine kilometres of the road approaching the Wainui Saddle will be surfaced with asphalt with a base course underneath constructed using a method known as “deep lift” at a cost of $45.5m to be paid by NZTA.
This uses multiple layers of asphalt as the road’s base course (the next layer beneath the road’s surface).
Other parts of the road have been filled using a cheaper method where aggregate and stabiliser are used.
This is difficult to do during winter because wet weather can wash this mix away after it is laid. Using deep lift allows work to continue through the winter months.
“All of our big suppliers and providers know how to do this [deep lift method] and they know how to do this well,” Gliddon said.
A warranty requirement will remain unchanged. However, under the terms of the PPP a ‘warranty’ means something different to what it does on a road procured through a more traditional method.
A road normally would be subject to a warranty after it opened, but under the PPP agreement there is no warranty requirement until after the partnership hands it over to NZTA’s ownership in 25 years’ time.
The incentive to build it to a good standard while cars are driving on it is held within the staggered pay-out after the road has been built.
Unprecedented oversight
Transmission Gully will have an unprecedented level of oversight not seen on any other NZTA PPP project.
While the road was technically 85 percent completed, the remaining 15 percent would require a lot of work – including earthworks.
The builders (CPB HEB) will receive some of their advance payment in instalments every month until the road has been built and a final $7.5m will only be paid out after the road opens to road traffic in September 2021.
NZTA will also hold letters of credit totalling $35m from CPB HEB until the project is completed.
A monitor from the transport agency will be appointed and embedded within the Transmission Gully project team to track progress too – an unprecedented step for PPPs, which are generally given a high degree of autonomy on projects.
“We haven’t actually done that on the other PPPs. So we’re only doing that on this PPP.”
Transmission Gully will also be opened up to road traffic before it is fully completed. However, the remaining work to be done would be off the main alignment of the road.
Gliddon said a four-lane highway would need to be open to all road traffic by September 27, 2021 or the consortium would be liable for damages of $250,000 for every day over the deadline.
A “double opening” concession had also been made so that the road could be opened up to traffic as soon as possible.
“That’s not what the original provision in the contract was for, but we’ve made that change simply because we want to get it open. So that was the reason why there’s this double opening.”
Longer delays to the project would have been likely had the same base course been used right the way through instead of the “deep lift” method for the part leading up to the Wainui saddle. That would have meant waiting for multiple summer seasons to get crucial earthworks completed.
So, does the project now have the “clear run” Transport Minister Phil Twyford asked for?
“There’s still a lot to go on this project. Not only in the construction, but we’re in a pretty volatile world at the moment with Covid-19,” Gliddon said.
“While we’ve got good certainty now and we’re really happy with the position we’re in, there are still risks on this job in a changing world.
“So we are just going to have to continue to manage it.”
