18 Apr 2019

City Rail Link cost underestimate tied to political pressure - Infrastructure NZ

11:31 am on 18 April 2019

A billion-dollar budget blowout for Auckland's City Rail Link has been partially blamed on political pressure to play down costs.

City Rail Link: works at corner of Albert and Victoria Street.

Photo: RNZ / Cole Eastham-Farrelly

The country's largest ever transport project is now expected to cost $1 billion more than the $3.4bn estimated in 2014.

The price hike is being pinned on a number of factors such as accommodating longer trains and higher construction costs.

The project's chief executive, Sean Sweeney, told media at a conference yesterday that an increase was not unusual for a project when it progressed through design, development, and procurement.

Before all this, the project team would have been dealing with uncertain information and this was the first time an accurate cost for completion could be given, Dr Sweeney said.

There was also often pressure to "keep the costs within an envelope" for projects, however Dr Sweeney said in the most recent estimate two peer-reviewers were told explicitly not to.

"They did that work separately and the fact that they came back together and they were within 2 percent of each other gave me a lot of confidence that they actually put a lot of rigour into their approaches and that we're getting close to a number."

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Works on the City Rail Link. Photo: RNZ / YouTube

Kickstarting the CRL is considered to be one of Len Brown's main legacies from his time in office, having changed the mind of an initially reluctant National Government to help pay in 2013 and then pressuring them to fund it earlier to get the project started sooner.

Infrastructure New Zealand chief executive Stephen Selwood said the push from the former mayor to get the project going may have contributed to a lower initial estimate.

"It is unfortunately the reality of these mega-projects, they are clearly sold politically initially and that was the case with central Rail Link; you'll remember mayor Len Brown was a very forthright advocate for it.

"What we're seeing here is a repeat of what happens globally where there is very strong political pressure to enable projects to proceed, in order to sell them through the costs are always underestimated - I wouldn't say deliberately, but there is an optimism bias that's built into these processes - and we can see that's happened here."

While Labour's Phil Twyford and National's Paul Goldsmith have each used the blowout to criticise the other, but Mr Selwood said neither could have done anything.

"I think the reality is, had Labour been in government at that time they would have experienced exactly the same issue. I noted that National were critical of Labour not controlling costs at the end but frankly if National were in government now they'd be facing exactly the same outcome," Mr Selwood said.

"I think if there's any suggestions that it should have been scoped more thoroughly at the outset I think that probably lies with the former mayor, Len Brown."

Auckland's current mayor Phil Goff said there were also other factors that built up to the extra costs, including a four-fold increase in works and money of commercial construction across Australasia, and the changes in the construction price index.

However, Mr Goff acknowledged that mistakes were made.

"Those things have impacted on it, but there were some mistakes made, I mean we didn't put enough money aside or at the beginning of this project, the people responsible didn't put enough aside for contingency and we've nearly doubled the contingency, we've added another $200 million to contingency for things that might be unexpected."

About $250m of the cost was going to go towards future-proofing the tunnel to ensure it provides capacity for 54,000 passengers at peak-hour.

"With the tunnel, if we don't future-proof it, you'd actually have to have opened the tunnel and then closed it for three years and then double its capacity, so you do it once and you do it right ... and it's absolutely the right thing to do and I don't think anybody challenges that."

While the CRL deal was reached by the former council and government, Mr Goff said he had always argued the 50-50 cost was a little unfair.

"This is an extension of KiwiRail and anywhere else in the country the cost would be met by central government and anywhere else in the country a major transport network would be met predominantly by central government.

Mr Goff said they were coming up with a plan to reach the extra $500 million without adding to Aucklanders' rates bill or breaching the debt to revenue ratio.

Future projects would, however, feel the impact of the cost blowout and there were important lessons to take for the sector, Mr Selwood said.

"It is essential that the homework is done fully on the new major investments to make sure the sort of budget blowout that was seen on this mega-project isn't duplicated on other projects going forward.

"What we can't afford as a nation is to be frightened by these sorts of numbers and then not invest when we need to because actually the opportunity cost of not investing is much greater in the end."

National's transport spokesperson Paul Goldsmith said he was "surprised and a bit shocked" by the inflation in cost pressures.

"This is supposed to be a year of delivery and what we're seeing is a $1 billion blowout; it does raise questions about the management of these major projects."

Mr Goldsmith also signalled the opposition would be asking questions about how initial estimates could have been so far off, adding that Mr Twyford had to start taking some responsibility for these sorts of blowouts.

Transport Minister Phil Twyford said in a statement the government would match Auckland Council's contribution and it was committed to seeing it through.

"The re-costing exercise has shown that the last government did not set aside enough money for inflation and cost escalation."

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