Report from BusinessDesk

Transmission Gully contractor Wellington Gateway Partnership is seeking $352 million from the New Zealand Transport Agency over delays in starting the work.

The claim would increase the $850 million construction cost to almost $1.2 billion, amounting to a 41 percent increase. The government’s 2019 accounts noted the size of the claim as a contingent liability, and said it “relates to the delays in the commencement of work.”

NZTA’s contractual disputes in total are tagged as carrying a potential $385 million bill, the bulk of which relates to the Transmission Gully dispute.

The transport agency and Wellington Gateway have been tight-lipped over the claim, which was lodged in February, although NZTA noted it as a contingent liability in its second-quarter report. Despite the reference as a potential liability, NZTA assumed there was “no liability in relation to this claim.” At the same time, it said the project was on time and on budget.

The construction of the 27-kilometre stretch of highway is getting into the final leg, with the road scheduled to open in April next year. In August, NZTA decided tolling the new road would not be suitable and wouldn’t make a meaningful contribution to the cost.

Wellington Gateway won the contract to design and build Transmission Gully and maintain it for 25 years. The venture consists of Cimic Group’s PPP unit Pacific Partnerships, Accident Compensation Corp’s investment arm, and global investment manager InfraRed Capital Partners. ACC valued its 45 percent stake at $107.3 million as at June 30, 2019, up from $97.4 million a year earlier.

The PPP contract, signed in 2014, defines a claim as any claim, action, demand or suit for a payment of money, an extension of time, or relief from obligations.

An 80/20 joint venture between Cimic’s CPB Contractors and HEB Construction was sub-contracted to build the four-lane highway and expects to complete the task next year. The JV sought relief after work was delayed by the 2016 Kaikoura quake and flooding around the same time. It was granted a 20-working day extension last year.

Public private partnerships were pitched as a means of reducing the Crown’s risk on major infrastructure projects, while providing investors certainty of work.

When awarding the contract in 2014, NZTA estimated the $850 million net cost of the construction and design was about $25 million less than what it would have been under a traditional procurement process.

The price tag has shifted over the years, including a $985 million estimate in 2004, $1.025 billion in 2008, and $1.3 billion around 2012. After adjusting for inflation, the current $850 million figure would be $895 million in 2019 dollars, and the earlier estimates $1.33 billion, $1.22 billion, and $1.4 billion respectively.

The government valued the Transmission Gully PPP assets and liabilities at $854 million as at June 30, up from $603 million a year earlier.