That rail project has no start date. Premier Daniel Andrews and Treasurer Tim Pallas announce the deal to abandon the East West Link. Credit:Josh Robenstone "The government has entered into an agreement with the East West consortium," Mr Andrews said, as he announced the project would not proceed and the East West Connect consortium had been bought for $1. Mr Andrews said the money that had been handed to the consortium was not compensation. Instead he said it represented costs incurred so far by East West Connect, the group appointed by the Napthine government to build, own and operate the road.

Neither Mr Andrews nor his Treasurer Tim Pallas would be drawn in any detail on how the East West Connect consortium had spent hundreds of millions of dollars in the six months since the contract was signed to build the road. They said in a statement it had been spent on "the bid process, and design and pre-construction", but provided no other detail. Mr Andrews said there would be an audit process to identify how the money had been spent. The Age contacted a key director of the East West Connect consortium, Stephen McDonough - who has been instrumental in negotiations with the government - to ask how the consortium had spent the $339 million handed to it by Victoria. Mr McDonough said he could not comment, and directed queries about the project to the government.

Mr Andrews on Wednesday described the deal to pay East West Connect $339 million as "a good faith agreement". Labor in opposition promised to abandon the road link project. Mr Andrews conceded that the government could have legislated and walked away from the project, paying East West Connect nothing. But there would have been a consequence for that, he said. The Treasurer also said the blame for the massive payout should fall squarely at the feet of the former Liberal government treasurer.

"Michael O'Brien should seriously consider his position on the front bench of the opposition," Mr Pallas said. But Opposition Leader Matthew Guy said that the government's assertion it had resolved the dispute for a $339 million payout, plus the additional $81 million to shift loan money from the road project to rail, could not be believed. "Labor's claim that $339 million was paid or spent by the previous government is a complete lie," he said. "The $420 million payments announced today is in addition to approximately $400-500 million in sunk costs already incurred by the state government." He said the government's costs for resolving the payout for the toll road did not include "land acquisitions, project development and bid costs".

These would bring the total cost for a road never built to between $800 million and $900 million, he said. In a statement after the announcement, Prime Minister Tony Abbott accused the Victorian government of destroying 7000 jobs by tearing up the contract. He said the "reckless" decision had already damaged Victoria's reputation as a place to do business, discouraging private investment in infrastructure. "The East West Link is the only answer. Tens of millions of dollars and years of planning have already been invested to get the project shovel-ready," Mr Abbott said. "$3 billion from the Commonwealth government remains on the table for any Victorian government which wants to build the East West Link.

"We will talk to the Victorian government about other projects, but the truth is there is no other major shovel-ready project in Victoria. "Victorians will suffer as a consequence of this reckless decision." The government also released the contracts for the toll road that had been kept secret since last September when they were signed. Mr Pallas said there were contingencies in the state budget to be able to accommodate the $339 million payout. Asked what drivers who had wanted the road built should make of the payout to East West Connect, Mr Pallas said that, by abandoning the project, "the will of the Victorian people [at last year's state election] will be given effect".

In a statement, Premier Andrews said: "Today's agreement is the best possible result we could have achieved and it puts the interests of Victorians first – no $10-billion tunnel, no compensation and far more funding available for the Melbourne Metro Rail Project." Mr Andrews said that a $3-billion credit facility would be "repurposed" to pay in part for the Melbourne Metro rail tunnel. While Mr McDonough could not be reached for comment, the East West Connect consortium confirmed it had reached an agreement with the Labor government. It said in a statement that work on the project would cease, but the consortium members "look forward to pursuing future projects in the State of Victoria". Many of the residents whose homes were compulsorily acquired had bought new properties since Labor won the November election, after growing tired of waiting to find out if they would get their homes back.

The Tuxworth family bought a new home in January, after their Wellington Street four-bedroom property in Clifton Hill was acquired last year. Gillian Tuxworth said she was extremely angry with the Andrews government, who she said had failed in their promise to communicate with affected residents. She said it took the government almost three months to send a letter asking the family if they wanted to buy the property back at the same price it had been acquired. "[They're] out there talking to the consortium, making multimillion-dollar deals," she said. "What about the little people? We didn't ask them to take our house. None of this was our fault." Victorian Greens Melbourne MP Ellen Sandell said that now the East West Link saga has been resolved, it was time to focus on improving the public transport system.

"The most important thing is the road does not get built and we now invest in public transport alternatives like Doncaster Rail," she said. Auditor-General John Doyle said on Wednesday that he would audit the East West Link deal "as a matter of priority", and that the examination would include the total costs of the project, including the deal cut by the Andrews government to resolve the dispute over the road.