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Transmission Gully PPP

Written By: - Date published: 10:46 am, May 7th, 2020 - 56 comments
Categories: corruption, Politics, Public Private Partnerships, Simon Bridges, transport, uncategorized - Tags:

No Right Turn has a piece on the Transmission Gully project – which appears to be turning into mush. The title “A death-knell for PPPs?” says it all.

When the then-National government approved a public-private partnership (PPP) funding model for Transmission Gully, it claimed it was all about building it quicker and cheaper. Paying a private company’s profit margin would supposedly give “certainty of delivery and… better value for money”. So how has it turned out? The cost has blown out by $191 million, a third of the road has failed quality checks and needs to be torn up and re-laid, the project is now delayed until 2021, and rather than face these costs, the PPP contractor is planning to walk away and dump everything back on the government:

That last NewsHub link indicates that NZTA said in February that a cost overrun of more than a fifth would push the total cost up to over a billion dollars and have a delay in completion from May to December. Now, presumably as a result of missing crucial periods during lockdown before the winter months and the inability to fly staff back in from overseas, they appear to be saying that it will complete some time in 2021.

But the NewsHub article also suggests that the primary contractor CPB HEB may be looking to pull out of the contract. That it has already dropped sub-contractors and that equipment is already being moved off-site. The urgent negotiations could be that or or could be who is going to have to pay for the costs related to the pandemic.

No Right Turn’s conclusion is that..

The entire project looks to be an expensive failure. Rather than transferring risk to the private sector, it turns out to be the usual scam of privatising profits and socialising losses. And its hard to escape the impression that we could have built it quicker and cheaper and without the quality issues caused by the contractor shaving costs and using substandard materials to increase its profits by just getting the government to do it in the first place. And hopefully it will be a death knell for PPPs in this country.

It is hard to disagree about the lack of public value with PPPs. At least if you aren’t a blind ideological idiot with delusions that the private market is always more efficient. While there must have been the mythic ‘good for the public’ PPPs. But I have never observed them when looked retrospectively from 20 years in a developed non-corrupt country. The best that I have seen have been ones that would be about the same what would be expected if the government agencies built it themselves. Except those always look like lowball build to get higher toll profits.

I’d also observe that just having PPPs appears to correlate pretty well with increases in public servant corruption – even if you just look at aussie. The way that PPPs cover themselves in ‘commercial sensitivity’ and highly prejudicial contract clauses disguises from the public the true risk costs of public projects.

The worst one I saw was for a toll motorway in Sydney that if the toll revenue wasn’t sufficient, would cause the state government to close the free roads to drive revenue to the private operators of the toll road – the roads that were meant to provide a non-tolled alternative. There are quite a few examples listed in this NSW state government report in particular Chapter 3.

When you look at the cost overruns and delays on commissioning projects compared to the government builds after the fact. It’d be interesting to find if any one has done a decades after analysis of comparable projects. But to my eye the results really don’t look different, and certainly don’t indicate any real advantage in private involvement.

In effect, as No Right Turn states PPPs seem to be designed to “be the usual scam of privatising profits and socialising losses”. They also seem to be perfectly designed for politicians to take lowball bids and push the true costs into the future. But which also allow them to view with alarm at a later date. Cue our ex-minister of transport Simon (no) Bridges.

While the current circumstances with the pandemic of this PPP are pretty unusual for NZ, I suspect that we’re going to see the other unfortunate effect of PPPs. A discontinuity in the build whilst the parties have a legal obligation and who bears the costs disagreement – that further delays the project.

As Jenny Michie said here back in 2011 in “Are PPPs the best we can do?

PPP is privatisation with a better name. It’s no surprise that National is in favour of them: getting rich on the public purse is in their DNA. What is more concerning is that people like Len Brown want to use them to help build infrastructure in Auckland.

Are we really so bereft of ideas as a nation that PPPs are the best we can come up with?

56 comments on “Transmission Gully PPP ”

  1. Dukeofurl 1

    Wasnt the situation the Same for the PPP for the Holiday Highway project north of Auckland , Fletchers were the main contractor partner but its was turning out to be an expensive mistake for them (like a lot of their other big jobs.)

    This was 2018

    https://www.newsroom.co.nz/2018/04/17/105267/more-bad-news-as-fletcher-plans-750m-raising-asset-sales

    In a real world , the contractor losing money is only a problem for the PPP partners including the financial backers, who have a very long term out look.

    One thing made me smile about Transmission Gulley , was the comment of one commuter 'who had sold up and moved to Otaki on the prospect of a quicker run on the motorway driving into Wellington'. This is exactly why these sorts of projects dont stack up as commuters move further out negating the 'saving time cost benefit' in BCR

  2. Andre 2

    Here's the Treasury sales weasel snow job on how PPPs are supposed to work.

    The Greater Auckland piece linked below includes a good graph on how the payments are supposed to work. (h/t Ad)

    https://www.greaterauckland.org.nz/2020/05/06/times-up-for-ppps/

    • RedLogix 2.1

      Maybe the devil was in this not so little detail:

      The contract guarantees unprecedented certainty for a highway project, as Transmission Gully must be delivered for a set price, and must perform to measurable performance standards for the full 25 years.”

      Maybe someone decided that the road was never going to go the distance and the potential maintenance costs were going to blow any potential profit into the weeds.

      • Ad 2.1.1

        25 years uninterrupted use and access on a fault line with a major event return period of, shall we say, Wellington, is bodaciously bold.

  3. Pat 3

    PPPs nothing more than a pointless accounting trick that fools nobody….the problem is we have reduced state capability so much over the decades we have almost removed alternatives.

    • Andre 3.1

      It doesn't look like a pointless accounting trick to me.

      It looks like a very successful accounting trick to transfer more public money to private interests in a hidden fashion while allowing devious weasel politicians to lie that they've improved the country's financial situation through innovative financing of major projects.

      Reduced state capability is a separate issue to PPPs. Getting rid of PPPs and going back to old-skool procurement of paying private contractors for a project as its built would give much better outcomes by improving transparency on how much it really costs and possibly get pollies to think a bit harder about which projects actually deliver value.

      • Pat 3.1.1

        Its a pointless accounting trick in terms of the justification used for it…..reduced gov debt.

        Reduced state capability is not separate issue to PPPs….that lack of capability directly impacts the governments ability to assess any proposal, any design, and any costings….not to mention quality control and oversight once contract is awarded, PPP or not.

      • Gabby 3.1.2

        Egg Zachary, best siphon ever.

    • Tricledrown 3.2

      Subsidizing donors of the National Party kick backs and graft.

    • Marcus Morris 3.3

      Bring back the Ministry of Works

      • Pat 3.3.1

        Yes…except to rediscover that which was lost will take many years…the problem is sadly more immediate

  4. Ad 4

    The Ministry of Transport Value For Money composting unit is going to sprout the stinkiest shitflower bouquet delivered for the Minister of Transport to clasp to his electoral chest.

    Betcha the new Infrastructure Commission runs a mile from the ppp turdblossoms that many in there advocated nurturing.

    I smell High Court for damages against NZTA on Transmission Gully, and High Court for Judicial Review against the Minister for light rail.

  5. Dennis Frank 5

    No problem. Twyford will just bang a few heads together, everyone involved will gulp & get things back on track. In an alternate universe.

    It's also possible there’s a taniwha hidden there, and the local Maori haven't noticed. Te Ara says they have lairs in "pools, caves, or dangerous waterways". Any of those in the gully? If it got word of how successful its colleague was in the Waikato it may be using the same strategy.

    • Incognito 5.1

      Why are you mocking Māori culture and beliefs?

      • Dennis Frank 5.1.1

        Didn't realise I was, actually. `Tis true that I've always been non-pc tho, so it wouldn't surprise me at all. Did you notice that I was mocking Twyford? Perhaps you think it's okay to mock some folk & not others??

  6. Gabby 6

    What's the liability of the ceo and board when things are managed so incompetently? Is it fraud to use materials of lower quality than specified for instance?

    • Dukeofurl 6.1

      You seem to be mistaken , the CEO and Board of NZTA are hands off , the design , construction and financing is in the hands of the PPP

      " The contract will see WGP design, build and finance the project, as well as operate and maintain the road for 25 years after the expected five-year build finishes in 2020.

      The Wellington Gateway Partnership consists of:

      • HEB Construction Ltd
      • Leighton Contractors Pty Ltd
      • Accident Compensation Corporation (ACC)
      • InfraRed Infrastructure General Partner Ltd
      • Bank of Tokyo-Mitsubishi UFJ, Ltd (BTMU)

      • Ad 6.1.1

        While that's true in theory Duke, if Transmission Gully does go tits up, the restructures inside NZTA will come thick and fast. It's the public service way.

      • Gabby 6.1.2

        I meant the ceo and board of each of the private 'partners'.

  7. I imagine that the Nat administration treated this project like they did Novapay — by ignoring quality concerns, cutting corners, slashing key public servants, pressuring management to hit unrealistic deadlines. Result: burned out staff, half-arsed job, waste of public money, endless litigation

  8. Dean Reynolds 8

    And National are whining about the Transmission Gully outcome, having set up the fiasco in the first place. Another example of 'free market' failure.

    FFS, re-establsh the Ministry of Works & just bloody get on with it!

  9. Gosman 9

    Where was the government oversight on this project? This should not be a surprise to the Ministry of Transport. They should be all over this.

  10. There is silence from the national self entitled politicos about this debacle. I wonder why?

    Whose idea was it for ppp?

    Simon has some bridges to cross.

    • Sacha 10.1

      Some in Labour also favour PPPs. This is not a partisan thing, more of a neoliberal one.

    • infused 10.2

      Because it's nothing to do with the PPP as to why this has gone to shit.

      • KJT 10.2.1

        Sure.

        Have I got a bridge to sell you!

        • infused 10.2.1.1

          its mostly weather related. look into it

          • KJT 10.2.1.1.1

            Contractors that didn't realise there is such a thing as weather.

            Give me a break!

            They underbid to get the contract, knowing that the dimwits in the National Government and NZTA, would pay for the overruns.

  11. Sacha 11

    PPPs are very popular with global financiers and their lackeys in the ratings agencies. That's who this sort of rort is designed to suck up to, in exchange for letting us borrow so much beyond our means.

  12. Wayne 12

    Going by the rest of the big roading and infrastructure projects, an increase in cost by 20% does not seem so extraordinary. The CRL has just about doubled price in the last four years. Most of the other big projects have cost overruns in the order of 20% and take at least a year longer to complete. For instance the southern motorway has taken more than 2 extra years to complete. A lot of them have do over work.

    The PPP aspect does not seem to be the problem, rather New Zealand contractors have generally not had sufficient experience to properly manage and cost projects of this scale. They have had to learn on the way. And the longer a project takes, the more it is affected by things such as increased cost of materials and increased wage costs.

    As I recall (and I am old enough to do so) the MoW was beset by these kinds of issues as well. Over time it got worse rather than better, so that by the 1980's the MOW was the byword for inefficiency.

    • Ad 12.1

      It's not led by local contractors. They are in the mix but not the leads.

      I'm mulling a post about this romantic notion of bringing back the Ministry of Works.

      • roblogic 12.1.1

        The private construction sector in NZ hasn't exactly covered itself in glory. Leaky homes, corporate collapses, cosy cartels, crappy materials, lowball quotes followed by doubling the price later down the road.

        A few shareholders are laughing while subbies and muggins taxpayers are left with a mess to clean up.

        NZ to too small for some markets to operate properly, hence the need for proper state oversight or even ownership. The Rogernomics notion of private sector efficiency is a shoddy scam exploited by grifters

        • Ad 12.1.1.1

          There are no shareholders laughing now at anything. Even our largest remaining construction corporations have been brought low.

          It was the private construction sector that built all those state houses you still see around the place in the 1940s and 1950s. The state specified them.

          Lowball quotes are generated by the entire public sector preferring the "lowest cost conforming" bid for decades. That's the fault of the public sector, and that's still the case mostly. There's a big Construction Accord in place trying to shift these past sins.

          The public client binds itself in the same jam with respect to quality and price: everyone wants to go to heaven, but no one wants to die.

          • roblogic 12.1.1.1.1

            Glad to hear the public sector is re-thinking its approach. The cost cutting mentality costs lives. e.g. Cave Creek tragedy

          • RedLogix 12.1.1.1.2

            Lowball quotes are generated by the entire public sector preferring the "lowest cost conforming" bid for decades.

            I remember getting a RFI over my desk from a district council for an upgrade and consolidation of their existing water supply control system. Now most council staff had the wit to try and minimise the different generations of equipment and vendors they used … but these guys (and I recall counting them with incredulity) had no fewer than 34 different and mostly incompatible platforms.

            All installed by the contractor who'd made the biggest fuckup on price that day.

            We looked at it closely, talked to the client, decided their lowest price mentality hadn't changed much … and figured we didn't have a barge pole long enough to touch this one with. Sure enough one of our competitors went on to lose a satisfyingly large sum of money pursuing it.

            About a decade later my successor went in and cleaned up nicely … but only after certain senior council staff underwent radical face transplants.

    • ScottGN 12.2

      The CRL hasn’t just about doubled costs actually. The 2014 estimate was 3.4 billion dollars. That’s increased to 4.4 billion by last year. Almost all that increase is due to the common sense decision to lengthen the platforms at the new stations to accommodate longer trains and provide an alternative entry for K Rd station at Beresford Sq. These were included in the original designs for the line but were stripped out at the insistence of the National govt when they finally agreed to allow the project to progress. Typical National penny pinching a la the Harbour Bridge design shortfalls. The CRL, alone, of all the big projects underway is actually pretty much being delivered on its time line and within its budget.

      • Sacha 12.2.1

        The cost figures bandied about by the previous govt for CRL were all in future dollars whereas the roading ones were not. Never a level playing field and no agencies resisted the lying.

      • Wayne 12.2.2

        The revised design also drops out the station at Eden Terrace on the grounds of costs. Yes, stations have lengthened, but a whole station (1 of 3 underground stations) was dropped.

        There is no way it is being delivered on the original time line. It was originally going to be built by 2021/22, and by that I mean after work started in 2016. Now that is more like 2024/25. They have not even built and delivered into NZ the tunnel boring machine.

        • Sacha 12.2.2.1

          The Mt Eden Station replaces the former Eden Terrace one a few hundred metres away. That design change was ages ago. However the delays in starting were caused by the government of which you were part. Only lobbying by business interests overturned Joyce, Brownlee and English’s resistance.

          • Wayne 12.2.2.1.1

            Sacha,

            You are mixing up the timing of the original decision to proceed with the CRL with the delays once the contract was commenced.

            Yes, it took time for National to be convinced that the CRL was a good idea. The government formally agreed with the Auckland Council to go ahead with the CRL around 2014. The agreement with the Council meant the govt would pay 50%.

            The construction contracts were completed around 2015 and work started in 2016. It was expected to take 5 years to do the whole job. Instead it will take a minimum of 8. I personally think it will take 10 years, given that the boring machine has yet to be delivered to NZ.

            What do you think that the Albert St retailers have been complaining about? It is the fact they have had to suffer disruption for twice as long as they were originally told. As a consequence some of them went broke.

    • KJT 12.3

      Even a cursory Google this morning, showed up the myriads of problems with PPP, projects all around the world.

      Some of the worst, have been with contractors who were, supposedly, experienced, like Serco in the UK.

      Almost all PPP, projects have ended up costing more than other models.

      In New Zealand, we also have the issue of lack of skills and competency in the State agencies managing it. With the deliberate, " shrinking of the State sector" in years of privatisation mania.

      The MOW, may have been famous for shovel leaners. But now we have simply transferred the inefficiency to invisible ticket clippers, in back offices.

      • JO 12.3.1

        And the famous shovel leaners of the MOW will be there for all those shovel-ready projects – as if it's been decreed, cometh the need, cometh the deed.

      • Dennis Frank 12.3.2

        The MOW, may have been famous for shovel leaners. But now we have simply transferred the inefficiency to invisible ticket clippers, in back offices.

        Which hits the nail on the head. Everyone agreed socialism had discredited itself via bureaucratic bungling & bloating back then. Now everyone will be obliged to agree that the alternative we switched to has failed due to the various reasons given (bureaucratic bungling being the common factor).

        Caveat: someone may be able to identify ppp models that have actually worked according to plan. Analysis must then identify the factors present that weren't in the other models – if we are to proceed with usage confidently by means of trial & error.

    • left_forward 12.4

      Haha, right Wayne good try- the neolib / PPP / LATE / privatisation stuff was meant to be, according to the RW rhetoric, significantly better, not as bad as it used to be under the ol' MOW. If there was ever any public value in adding private profits on top of the cost of public works, it was to be that PPPs were able to give price certainty, efficiency, and risk management.

      Now you are defending this disaster by desperately calling equivalence with the ol' days!

      Rational dissonance!

  13. Wensleydale 13

    Can you trust the private sector to not attempt to enrich themselves by cutting corners wherever possible? Probably not. ("It's not enough that we're being paid millions of dollars to do something! We'll use cheap labour and substandard materials to do it, because… money!") If the profit motive is their only real consideration, as opposed to, you know, building a decent fucking road for the taxpayers of the nation to drive on… then yeah, that seems to be a problem right out of the gate. The ONLY thing you can trust the private sector to do in situations like this, is to make a ton of money for themselves. It's pretty much their sole reason for being.

    • Ad 13.1

      If you want the work done you haven't got any choice.

      We make 5-6% margin if we're lucky on the big jobs if we're lucky, which is a couple of points above inflation.

      And no, profit isn't the only consideration, but it comes in handy if you want to get paid.

  14. Damn. The Herald published this at 6:15 pm today (26 May)

    Almost 100 redundancies proposed at Transmission Gully

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