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Transmission Gully contractor lodges material claim against NZTA

Friday 7th June 2019

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With less than a year until it’s scheduled to open, the contractor tasked with building and maintaining the 27-kilometre Transmission Gully highway north of Wellington has lodged a claim big enough for the New Zealand Transport Agency to acknowledge it in its quarterly reports.

The Crown entity noted the “material claim” as a contingent liability in its second-quarter performance report, saying it received the notice from Wellington Gateway Partnership in February of this year in relation to the public private partnership. Despite the reference as a potential liability, NZTA assumed there was “no liability in relation to this claim”.

WGP 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 $97.4 million as at June 30, 2018, up from $80.3 million a year earlier.

WGP chief executive Sergio Mejia said he was unable to comment on the matter, while an NZTA spokeswoman said she was unable to provide further comment. The agency refused to release the claim under the Official Information Act, citing the need to protect the commercial position of the person who supplied the information and to enable negotiations without prejudice or disadvantage.

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.

At the same time, WGP has lodged its claim, the contractor s also seeking two material variations to the contract, although neither have been confirmed by NZTA. The first would drop a weigh facility on State Highway 58 from the scope of the project, and the second would add the ConstructSafe competency assessment – a health and safety assessment framework – as a project requirement.

In 2016 NZTA agreed to six variations, five of which were non-material.

Material contract variations are defined as reducing the project’s ability to meet its goals, adversely affecting various stakeholders, or altering what NZTA pays or the agency’s liability.

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.

Construction is on schedule and within budget, NZTA said in its second-quarter update. It valued the PPP assets and liabilities at $649.5 million as at Dec. 31, up from $549.3 million at the end of June last year.

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.

Despite that, the JV this month told Greater Wellington Regional Council it’s still targeting an April 2020 completion, although the April deadline has been removed from signage on the stretch of road.

CPB is no stranger to NZTA, with four of its seven New Zealand projects with the transport agency. The New Zealand branch reported a profit of $13 million in calendar 2018, up from $6.6 million a year earlier. Its revenue climbed to $628.2 million from $434.1 million, and its operating margin widened to 2.8 percent from 1.6 percent.

The Cimic unit’s contract liabilities – where payment has been received before work is performed – jumped to $270.2 million as at Dec. 31 from $38.9 million a year earlier. The branch’s cash balance was $288.8 million, up from $107.6 million.

For HEB, Transmission Gully represents its smallest interest in 10 joint arrangements. HEB reported a profit of $15 million in calendar 2018, up from $6.6 million a year earlier. Revenue more than doubled to $524 million, while its operating margin was largely flat at 3.9 percent.

The company had $25.3 million of positive construction work in progress – being the gross unbilled amount expected to be collected for work completed – at Dec. 31. That was down from $25.9 million a year earlier. Its negative work in progress was $25 million, up from $17.2 million.

In an April/May update, the CPB HEB joint venture said it’s registered more than 6 million work hours and moved more than 8.6 million cubic metres of earth since construction started, with about 2.4 million cubic metres moved in the 2018/19 summer alone.

It initially got resource consent for 6 million m3 in the 2012 board of inquiry, although a year later the WGP proposal indicated 8.4 million m3 would be needed. Consents for an additional 1.8 million m3 of cut and 3.1 million m3 of fill have been sought since then.

In December, the JV told Greater Wellington that a significant proportion of additional fill sites weren’t able to be fully used, and about 557,000 m3 of fill needed to be redistributed. It said it would make a series of applications to meet its needs.

Greater Wellington’s environment committee was told last month that those applications have been lodged and more are expected during the next quarter.

(BusinessDesk)

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