A review into Wellington's billion-dollar highway Transmission Gully has found the project was flawed from the start.
The 27-kilometre stretch of motorway was supposed to cost $850 million but has now exceeded a budget of $1.25 billion.
The report, led by international expert reviewer Steve Richards and peer-reviewed by Sir Michael Cullen and Lindsay Crossen, has found serious flaws at the planning stage of the public-private partnership project, undermining its successful completion.
It was commissioned in August last year after the Transport Agency had to pay another $209.7m to get the project back on track after the Covid-19 lockdown.
Official documents show the negotiations went on for months and the contract could have been terminated completely.
The interim report focused on how the project was initially priced, whether that price was realistic and whether the risks identified were appropriately considered.
Transmission Gully is the first motorway in New Zealand to be delivered under a public-private partnership (PPP) model set up under the National Government in 2012.
It is being built in partnership between the Transport Agency-Waka Kotahi and the Wellington Gateway Partnership who are responsible for the design, construction and financing of the project.
The road was supposed to be completed by April 2020 but was delayed by more than a year because of significant re-estimation of earthwork requirements, storm events, the Kaikōura earthquake and Covid-19.
Responding to the review, Infrastructure Minister Grant Robertson said it is clear that when initially drawn up, the public-private partnership lacked proper rigour and consideration.
Pricing
The report said the maximum price the Government would pay was set too low and the project's bidders soon worked this out.
That decision meant proposals were "value-managed down" or made cheaper on designs and timelines to make costs look acceptable.
"These value management changes represented risks that would eventually manifest themselves after procurement once construction commenced," it read.
The budget was later reviewed twice after feedback from bidders who were having difficulty meeting the figure.
The 27-kilometre stretch of motorway was supposed to cost $850 million but has now exceeded a budget of $1.25 billion. Photo / RNZ, Dom Thomas
It was increased by $151.5m in the middle of the proposal process because it had not properly included road safety, seismic or geotechnical risks.
Changes to road design standards and structural upgrades for bridges also inflated the initial price.
One key increase came after the road costed at a 100km/h speed limit needed to be changed to 110km/h.
Robertson said the Transport Agency Waka Kotahi also used a non-PPP scheme design when putting work out to tender.
This was being blamed for the running up of extra costs as the original design was found to be inflexible when the needs for the highway became more clear.
"Obviously this was not a recipe for success and I've asked the Infrastructure Commission Te Waihanga to revise New Zealand's PPP guidance to make sure any future PPPs don't encounter the same issues."
Other documents Waka Kotahi used to ask for proposals in 2012 were also based on different kinds of contract, which meant many parts needed to be revised, resulting in design changes, cost and scheduling delays.
Waka Kotahi also had "a very short period of time", about a month, to convert a non-PPP project which had already been consented into a PPP business case for Transmission Gully.
This means the design included in the business case wasn't as developed as it should have been and wasn't through a "PPP lens".
The 49-page review said the project's governance "could have been better" and lacked transparency.
It was concerned about how key decisions were made, specifically around the budget where there were not enough checks and balances to ensure the costing of the job was correct.
The report found there was not one experienced independent PPP adviser on the Waka Kotahi Board to help make decisions.
"But instead relied on briefings from Waka Kotahi management, senior project team representatives and experienced Project team advisers."
It noted key players were often not invited to the right meetings where the key decisions were made.
The recommendations
The independent review by Australian assurance expert Steve Richards made 12 recommendations for the Transport Agency to consider.
The recommendations suggest the Infrastructure Commission: Te Waihanga creates guidance for PPPs and the level of governance needed to set the budget.
And the Transport Agency should consider appointing an experienced PPP adviser who would report directly to the board.
Transport Minister Michael Wood said Waka Kotahi was committed to learning lessons from Transmission Gully.
"[It's] actively applying lessons to other projects. It will report back to the Ministry of Transport and myself on how it's implementing the recommendations of the review," he said.
Robertson said there would be a second report into the project once the road is complete.
"There have also been other issues and cost overruns during Transmission Gully's construction and Wellingtonians deserve answers."
