Why the East West Link is not dead yet

There is still a chance the East West Link will proceed because of the incredible mess the new government has inherited, and it will cost Victoria at least $1bn.

Small contractors on the East West Link were told after the Victorian election to stop work on the project because the Premier-elect came to power on a policy of scrapping it. But this week they’ve been told to get ready to start work again.

Behind these gyrations in construction is one of the most incredible infrastructure morasses Australia has ever faced. And it will have implications around the nation. The previous government proceeded at full steam with the project, even though six weeks before the election the Opposition leader at the time said he would scrape it.

When Daniel Andrews walked into the Premier’s office he will have discovered the East West Link is no ordinary project. A massive set of drilling machinery is under construction specifically designed for this project. Stopping the project will mean that all the money spent and committed will have to be refunded. In addition there will have to be substantial financial reversals, which will also be costly.

The total bill excluding any penalties will be in the vicinity of $1 billion. Penalties will make it much higher.

One of the key negotiating areas will be whether the CFMEU is allowed full access on site, in breach of the code under which contractor Lend Lease and its partners tendered. On any infrastructure project where the code is not used and the CFMEU has easy access, the cost of the project rises by between 15-30 per cent. The incoming Victorian government is prepared to pay the extra amount on all its new infrastructure projects, but the Commonwealth doesn’t want to fund the burden of unfettered CFMEU access to building sites and the disruption it causes.

Former premier Steve Bracks has been asked to roll up his sleeves and sort out the mess. He may try to limit the cost of CFMEU access to a more acceptable level.

In the case of the first stage of the East West Link the cost of CFMEU access will be much less than normal infrastructure projects because so much of the outlay is involved in drilling tunnels, where the big cost is machinery (hence the big payout it could have stopped).

Nevertheless Lend Lease, led by chairman David Crawford, has vowed that it will abide by the code guidelines that operate in New South Wales, Queensland and the Commonwealth. Lend Lease does not believe that taxpayers should have to pay 15-30 per cent extra on infrastructure projects simply to satisfy that the CFMEU has big links to the ALP.

There will be enough pressure on Lend Lease to allow the CFMEU access. But Lend Lease will almost certainly require the state government to guarantee the overrun, which while it would not be 15-30 per cent, will still be substantial.

But whether the Commonwealth will put its $3bn into projects where the code doesn’t apply, remains to be seen. Especially if NSW can now offer infrastructure projects that don’t have the burden of CFMEU access and the extra costs that go with it.

While Victoria supported the East West Link project by a big majority, there was considerable anger that the incoming government would be saddled with a huge bill even if won the referendum via the election. Understandably, it was one of the factors that toppled the Napthine government. What’s left is a very nasty mess where there are no rights or wrongs.

While all this jockeying is going on, there is as yet no certainty the project will proceed. It will be extremely difficult for the Premier to reverse his policy so soon after the election.