$1b compo payment limits government's options in light-rail stoush

The state government faces termination payments of more than $1 billion if it decides to sack the consortium charged with delivering Sydney's troubled light-rail project.

The government is hamstrung in its ability to fire Acciona, the Spanish contractor constructing the line from the CBD to the city's south-east, because the $2.1 billion contract to build and operate the light rail is with ALTRAC, a consortium of four companies.

While the laying of tracks has been completed in nine of 31 zones, civil construction has yet to be finished in any of the zones along the entire 12-kilometre route, highlighting the extent to which the project has become a debacle.

The original schedule was for all of the major civil construction, which includes poles and footpaths, to be finished this month.

Martin Locke, an adjunct professor at Sydney University and a former investment banker and infrastructure adviser, said one of the government's options would be to terminate the contract with ALTRAC but he warned the cost of that could be in excess of $1 billion.

And it would take six to 12 months to terminate the contract because of its complexity.

The government would then be forced to find another construction company, which would be in the box seat to demand a hefty premium to complete the work and dictate onerous conditions.

“The government is really in a bit of a corner at the moment. The government cannot require Acciona to be terminated – that is a decision by ALTRAC,” he said.

“The government's actions are heavily constrained by the potential termination scenarios and the consequences of termination as set out in the contracts.”

 

Transport for NSW declined to reveal what the termination payments would amount to if the contract was scrapped, citing “commercial in confidence”. The dire state of the Berejiklian government's signature project has been laid bare in a legal stoush with Acciona, which will have its first hearing in the NSW Supreme Court on Friday.


The relationship has soured amid allegations by Transport Minister Andrew Constance of poor work and counter claims from Acciona that his remarks are “not supported by objective facts”.

The Spanish construction giant is suing Transport for NSW for $1.2 billion in loss and damages for “misleading and deceptive conduct”.

Acciona, which has other government projects in NSW, such as work on upgrading the Pacific Highway, alleges the lead transport agency made misrepresentations about underground utilities in the lead up to signing contracts in 2014.

The difficulty mapping and shifting utility cables and pits under George Street in the CBD and in Surry Hills has been repeatedly cited as the main reason for delays to the project.

The slanging match between the two sides has also revealed that the government has little idea of when Acciona will complete construction of the line.

In a letter to Acciona on March 22, Mr Constance attacked the contractor's “unwillingness to provide a meaningful timeline for completing your part of the project”.

He has also taken aim at the contractor for ongoing concerns about the “poor quality” of its work, “numerous site safety incidents”, and an “ever-dwindling numbers of workers”.

Despite the project's delays and cost blow-outs, the City of Sydney remains committed to making further payments towards the light-rail line. So far, the council has handed over about $115 million of the $220 million it agreed to contribute towards the project.

A spokesman for Lord Mayor Clover Moore said the council had worked with Transport for NSW and the ALTRAC consortium to “hold the state to their commitments on the project”.

ALTRAC - a consortium of Transdev, Alstom, Acciona and Capella Capital - said it had been upfront about work in many construction zones taking longer than expected because of unknown utilities.

And Premier Gladys Berejiklian urged people on Thursday to look at the project in its entirety, noting that some stages of the project, such as along Anzac Parade, were ahead of schedule.

“That's why we want to make sure we will deliver the project in a timely way and we are getting on with the job,” she said.

A final contract summary for the project outlines Transport for NSW's rights to terminate the project deed, which includes failure to achieve completion by a “longstop date”.

The contract summary indicates that ALTRAC is required to do its best to achieve completion by March 16, 2019, and that a termination event is triggered if ALTRAC fails to achieve completion within two years of that date.

Mr Locke said that implied the state government had to sit on its hands until March 2021, provided ALTRAC was still proceeding to diligently build the light rail.

And he said ALTRAC would be reluctant to be in a hurry to terminate Acciona until all options had been explored.

The consortium had a vested interest in supporting Acciona's claim against the government for additional costs under the project contract. Acciona has a 5 per cent equity stake in ALTRAC.

“If the project is in difficulty, it is up to ALTRAC in the first instance to identify alternative potential remedies and ALTRAC's debt and equity parties have a strong financial incentive to try to find a solution to avoid the prospect of capital write-offs,” he said.  

The other equity investors in ALTRAC are First State Super with a 62.5 per cent stake and British investor John Laing (32.5 per cent).

Metis builds capacity for professionals to:

Our clients include:

AECOM, Jacobs, WSP, GHD, Laing O’Rourke, Fulton Hogan, Vision Australia, NSW Health Infrastructure, The City of Parramatta, The Department of Infrastructure and Regional Development, SMEC, Norman Disney and Young. Learn more.

Our programs are:

Related Posts