How did Gladys make such heavy work of light rail?

SMH -  Jacob Saulwick  June 29, 2018 — 8.30pm  67  -  View all comments

After news broke in April that the Spanish contractor engaged to build light rail tracks on Australia’s oldest street – on which French trams would run – was launching legal action against the government, the reaction in parts of the city might have best been described in German.

“How’s your light rail build going Andrew?” Labor leader Luke Foley chipped at Transport Minister, Andrew Constance.

“You’ll finish it just before the onset of the next Ice Age,” he added, heavy on the schadenfreude. “It’s a toy,” the former chief executive of Infrastructure NSW, Paul Broad, declared of the tram line he had campaigned against in government. “Imagine the cars it will run over and the people it will run over?”

With nine months before the state election, the light rail line along George Street and to the eastern suburbs should be almost complete. But the best that can be hoped for is a possible end to heavy construction at the end of this year, and a start to services late next.

So how did we get here? How did Gladys Berejiklian’s tram line, born in the optimism of an overhaul to transport services the Premier and former transport minister commenced in 2011, seem to become such a burden? Or is this all overkill – a flush of drama before the trams start running, and delays are long-forgotten?

Legal disputes could drag on for years

The disputes between the Spanish contractor, Acciona, and the state government are running on multiple tracks. On one is a $1.1 billion misleading and deceptive conduct claim. In that matter, which returns to court next week, Acciona alleges that Transport for NSW painted a misleading picture of the work needed to win the agreement of utilities companies prior to moving underground cables along the route. This legal fight could drag on for years.

On another track, however, are claims Acciona has made for extra payments triggered by changes to the project made by the government. Unlike the court case, these disputes are not public. They involve Acciona making claims under the Security of Payments Act against ALTRAC, the consortium of which it is part, and which has been contracted to deliver and operate the line. ALTRAC, which also includes the French rail supplier Alstom, would in turn seek compensation from the government.

A window into Acciona’s claims was provided last month, when, in a conference call in Spain, the company’s chief financial officer, Carlos Arilla, told analysts its claims process was “encouraging”. Reporting on Arilla’s comments, The Australian Financial Review said Acciona recently won 90 per cent of one $37 million claim.

But Acciona is making others. One, for instance, relates to the need identified in 2016 to significantly increase embankment works along a Centennial Park pond. This change, exposed by Greens MP and engineer Mehreen Faruqi, reportedly could amount to a $200 million claim. While this is understood to be one of the larger variations, it underscores that even if the government is successful in the misleading and deceptive conduct case, the total cost of the project will rise beyond the $2.1 billion announced. “As with any project like this there is going to be modifications required,” says Constance.

Light rail back-and-forth

Discussion of the difficulty of reintroducing light rail to Sydney almost invariably nods to the extensive tram network developed in the 19th and early 20th century. “Probably the most heavily patronised tram system, in terms of per capita usage, the world has yet seen,” according to the Bureau of Infrastructure, Transport and Regional Economics. The Cahill Labor government ripped out most of the tram system in the 1950s. But it was another Labor right leader, Kristina Keneally, who promised to start returning trams to the heart of the city in 2010. Keneally’s pitch was a time of weakness – her government had just cancelled a metro line at a cost of about half a billion dollars and was scratching for plausible alternatives. But, along with the consistent advocacy of City of Sydney lord mayor Clover Moore, it helped push the idea of inner city light rail to the political mainstream.

When the Liberal-National Coalition returned to office in 2011, it did so promising to build light rail through the central business district. Within months, it had started work on a strategic plan. But the government also had other priorities – an $8 billion heavy rail line to Sydney’s north-west suburbs, as well as the motorway extensions that would form WestConnex. And there was heavy internal resistance to the tram concept, including from Infrastructure NSW and other ministers. The preferred route for the project was not selected until December 2012. A year later, in November 2013, the business case for the project was released, predicting a $1.6 billion cost for $4 billion in benefits.

But even as the business case was being announced, it was clear to many working on the scheme that delivery prospects looked increasingly difficult. In February 2014 the Herald published a front-page story documenting that a peer review of the business case warned that the government had been overly optimistic in its assumptions. Transport for NSW was particularly ill-informed about the task of relocating the hundreds of underground utilities that lay under George Street, and also about the difficulty of managing the traffic and pedestrian disruptions during construction.

Following this story, an internal review was ordered into the project’s business case. Sources described the review as a Clayton's review - “the review you have when you’re not having a review” -  with little support from the echelons of the transport bureaucracy. The substantive findings of the peer review – that the difficulty of moving utilities and the cost of traffic management were systematically underestimated – were not immediately addressed. In addition, the project’s reference design remained incomplete: there was a risk tenderers would soon be asked to build something substantially different to the project scoped in the business case. But in early 2014 the project’s internal leaders were telling themselves, and others, that risks of this were low, according to comments to the Herald at the time.

In 2018 one does not need leaked documents and anonymous sources to demonstrate that, by mid-2014, things were going seriously awry; events have borne out the warning. One piece of proof emerged in late 2014, when, after consulting with tenderers, the government conceded the cost of the project would rise to more than $2.1 billion.

More complete evidence came in the form of a damning Auditor-General’s report in late 2016. This report showed that even throwing an extra $500 million at the project would not be sufficient to mitigate the problems that had emerged, and which would continue to do so.

When did it all go wrong?

One theory about what went wrong relates to the way in which the project was contracted. Faruqi, who has a doctorate in engineering, has argued extensively there has been a hollowing out of technical know-how in the public service. The end result is more time and money trying to fix design changes. “I am hugely concerned about the deliberate de-engineering and politicisation of the public sector and the immense over-reliance on outsourcing,” says engineer, Mehreen Faruqi. “This has led to a diminished capability to establish accurate scope and cost in the first place, followed by a lack of capacity to properly scrutinise design, procurement and delivery from private contractors and consultants.”

A similar perspective is provided by former director of Professionals Australia, the union representing many transport engineers. “If you don’t have the expertise to get a technical result, you leave it up to the lawyers to resolve,” says Paul Davies. Rather than directly engage contractors to perform specific works, a government wraps up an entire project into one large contract, with risks provided for in the details of that contract. “Hopefully you build contracts that are robust enough to protect the taxpayer, but that’s never going to work entirely, and certainly not in this case.”

The government seems to have adopted these warnings in relation to its latest tram project – the Parramatta light rail line. Unlike the CBD project, the Parramatta tram will not be a public-private partnership, and the government is seeking to directly contract separately to undertake civil engineering, and tram operations.

But not everyone agrees the light rail woes stem from the procurement model. According to one source involved in its procurement, the decision to package the project as one “vertically integrated” contract was informed by problems that had befallen an Edinburgh tram line. In Edinburgh, an early contractor was hired to move the underground utilities, but when another contractor was engaged to put in the tram systems, it turned out the utilities had moved into an area required for more work. In Sydney, the idea was to avoid the risk of this by engaging one consortium to take responsibility for the entire initiative.

Martin Locke, adjunct professor at the Institute of Transport and Logistics Studies at the University of Sydney, says there’s logic to the procurement model chosen by Transport for NSW. “If you have an integrated project you can outsource interface risk to the private sector and the private sector takes the responsibility for working out how to build the project, maintain the project, and operate it,” says Locke.

Sydney once boasted the largest fleet of trams in the world in the 1920s and by 1961 the trams and their tracks were all gone.

On this perspective, the government’s model was not the issue; its competence was. This view also emerges from the state’s Auditor-General, Margaret Crawford, whose bracingly direct condemnation of the project in November 2016 declared that “tight timeframes meant planning was inadequate”.

Between 2011 and 2014, Transport for NSW “did not effectively plan and procure the CSELR project to ensure it maximised value for money”. What’s more, Crawford’s report anticipates the problems that are now coming home to roost in the legal claims made by Acciona. Even by late 2016, the government had not secured agreements with utilities companies, while the design remained incomplete.

‘A transport mode everyone will love’

But will the line nevertheless be worth it? It is worth noting the delivery problems have not validated all the critics. Although Labor’s Foley went to the 2015 election promising to build CBD light rail, soon after he declared the extension along George Street would be a disaster. He said this on the basis that the need to move buses off George Street would clog the rest of the city, while the light rail itself would be a “Berlin Wall” dividing Sydney’s east from west. “The problem with light rail down George Street is not that there will be congestion in the city for three years, it’s that it will be a permanent congestion nightmare,” Foley said.

But this concern has not been borne out. The city did not gridlock when the buses were moved off George Street in late 2015, and, on Transport for NSW’s analysis, traffic management measures taken have improved movements through the CBD.

For his part, Constance acknowledges that there has been “very significant short-term pain”, but points to the long-term outcome. “I think everyone forgets that George Street used to have bus bunching from the Quay to Central,” says the minister. “Even George Street now compared to what it was with the buses – it’s taking shape,” he says. “It’s starting to take shape ... it will be a transport mode everyone will love.”

In fact, there’s a good chance that the trams might be loved too much. Even on the government’s own figures, the light rail vehicles are likely to run full soon after opening. With this in mind, Transport for NSW has already started canvassing extending a heavy metro line to the eastern suburbs. In the long term, the light rail line might just prove the need for something heavier.

Jacob Saulwick is City Editor at The Sydney Morning Herald.