Big projects in danger of billions in budget blowouts, admit the people who run them

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Signature government projects including the North East Link and a commitment to build 10 new hospitals have been identified by their own departments as being in danger of billions of dollars in budget blowouts.

The first stage of the Suburban Rail Loop has also been flagged as at moderate risk of going beyond budget as it sits $24 billion short of the total funding needed to complete the project.

Construction on the North East Link is underway.Credit: Jason South

In its latest report, the Victorian Auditor-General’s Office asked agencies to provide their own self-assessments of major projects, marking them in a traffic light system.

Anything marked green was viewed to be likely to run on time, on budget and within its initial scope.

A project marked amber was “likely to be more than 11 to 20 per cent over its current
approved budget” or up to 6 months overdue. Red projects were likely to be more than 20 per cent over their initial cost.

The briefings collected by the Auditor-General’s Office show multiple projects are considered by the Victorian government departments overseeing them as having potential to sail past their original funding expectations.

Premier Jacinta Allan.Credit: Eddie Jim

The Department of Transport and Planning has a red rating on the remaining contracts to be awarded for the North East Link. The already-signed primary contract is valued at $11.1 billion, higher than expected because its tunnel is longer than first planned.

Victoria’s largest road project will stretch 10 kilometres from Bulleen to Greensborough and include 6.5 kilometres of tunnels. It will widen the Eastern Freeway to up to 20 lanes and is due to open in 2028.

The remaining contracts have not yet been signed, but three construction industry sources told The Age these would also blow out, as identified by the department, amid rising labour and resource costs. It is now expected the total cost of the North East Link could rise from $18 billion to $20 billion.

In its response to the Auditor-General’s Office, the department said it would report a total value once “procurement processes and commercial arrangements are finalised”.

The proposed Suburban Rail Loop.Credit: Supplied

The duplication of the Western Highway between Buangor and Ararat, north-west of Melbourne, is rated red because of delays and disruptions related to Indigenous cultural heritage issues. The project was meant to be finished in 2020, but legal protection has been sought for birthing trees sacred to the Djab Wurrung people.

A government commitment to build 10 new community hospitals in growth areas is being reviewed because it is also considered to be in danger of going significantly over budget.

The $675 million program is rated red and its scope is being reconsidered to keep funding within this envelope.

Each hospital project is being managed individually, with some still in the planning stage.

One of the Metro Tunnel’s new underground stations.Credit: Eddie Jim

The state government has also given a moderate or amber rating to the first stage of its signature project, the Suburban Rail Loop stage between Cheltenham and Box Hill.

This is not because its $34.5 billion price tag is being reviewed, but because there is a significant funding shortfall.

The project has $11 billion in finance committed, $9 billion of which comes from the state. However, the Allan government wants a third of the project to be funded from the Commonwealth and another third from the private sector.

Federal Infrastructure Minister Catherine King has previously said further Commonwealth funding for the loop will not be decided until more details about the project’s costs are provided. It is also being independently assessed by Infrastructure Australia.

Catherine King.Credit: Alex Ellinghausen

Transport experts have questioned whether $11 billion can be raised through value capture methods such as development levies and other charges around Suburban Rail Loop stations.

Victoria’s Treasury department has provided advice to cabinet about addressing the shortfall in the projects funding, but the document is cabinet in confidence.

Melbourne’s Metro Tunnel, a cross-city rail line between Kensington and South Yarra, has also been rated amber. But the government says this reflects a renegotiation of the contract from 2020 and COVID payments which have already taken its cost to $12 billion.

A state government spokesman said the report showed the majority of its projects were on time and on budget.

“The Metro Tunnel remains within its total estimated investment figure and on track to open in 2025 – a year ahead of schedule, delivering more trains more often,” he said.

“We’re building 10 community hospitals close to major growth areas which will offer a range of everyday health services tailored for the current health needs of each community.”

Opposition major projects spokesman David Southwick said the report showed the premier couldn’t manage the state’s building agenda.

“The [Suburban Rail Loop] is the most expensive and least scrutinised project in Victoria’s history,” he said.

“With Victorians doing it tough in a cost-of-living crisis, the premier needs to do the right thing and pause the SRL until its true costs and benefits can be independently assessed by Infrastructure Victoria.”

Speaking on Sunday, Premier Jacinta Allan said the Suburban Rail Loop was needed to support Melbourne's growth in the suburbs.

"It's not just going to provide that orbital rail connection from Cheltenham to Box Hill …
It also gives us the opportunity to think about how the areas around each of these stations will continue to be supported."

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