Secret $888m sweetener: Leaked letter exposes Labor’s massive Metro payout offer

The Allan government has offered the companies building the already-delayed and over-budget Metro Tunnel subway “additional payments” worth up to $888 million, as it tries to ensure passengers can catch a train on the new rail line by the end of 2025.

A leaked legal letter, obtained by The Age, outlines a series of financial incentives to the Cross Yarra Partnership construction consortium to secure the completion of the train line under central Melbourne.

The legal document, with each page marked “strictly confidential”, is dated June 22 this year. That was two days after an auditor-general’s report tabled in state parliament found the Metro project was running over budget and behind its originally contracted opening date of September 2024.

The Metro Tunnel is a nine-kilometre underground project that will transform Melbourne’s rail network, with five new stations allowing train access to Parkville for the first time, and linking South Yarra to North Melbourne in just 11 minutes.

It will also free up crucial space in the City Loop to allow more trains to run on other lines.

In 2017, the government signed a contract with the Cross Yarra Partnership to build the tunnel for $11 billion. In 2019, the builders downed tools when the project began to cost far more than expected. Labor negotiated a new financial deal and the tunnel is now set to cost about $14 billion.

Premier Jacinta Allan and Transport Infrastructure Minister Danny Pearson said repeatedly last week that the new rail line would open next year – despite a document leaked to The Age showing several major problems remain with the project.

In the latest legal document obtained by The Age, a “state settlement offer” shows the government has offered the companies building the tunnel “up to $745 million of additional payments attached to the completion of milestones”.

The letter also offers an additional $143.5 million if the companies achieve “Day One Train Operations” – the first day passengers can ride the new line – by June 29, 2025.

Labor also offered to waive future legal action against the companies building the tunnel if they can resolve all outstanding issues next year.

The project has run into a series of difficulties, including dealing with disruption to sensitive medical equipment at nearby hospitals, which is an issue that is still unresolved.

A series of disputes over elements of the project have arisen since the new contract was negotiated after the 2019 walk-off by the builders. The legal offer is an attempt, the government’s letter says, “to minimise uncertainty in the agreement of the parties”.

The document is also an attempt, it says, by the state and its contractors, “on a confidential, without prejudice and good faith basis to reach alignment on project issues”.

The letter says it is the government’s response to a “proposed commercial settlement” offered by the Cross Yarra Partnership in March.

The government’s June letter says it “represents the state’s counter-offer to settle the project issues”.

Along with the specific construction payments, the letter offers an incentive to get the rail line open by next June.

“The state will pay the full $100 million if Day One Train Operation is achieved by the revised date,” it says, and an additional “final acceptance” payment would be made.

“The state will pay a single lump sum of $43.5 million upon the achievement of final acceptance,” the document says.

The letter also demands the builders and the government reach an agreement before the companies can talk publicly about any new financial settlement.

Under a section titled “public statements”, the letter says that the government and the builders would “agree [to] any public statement that Cross Yarra Partnership consortium members intend to make in relation to these settlement arrangements”.

And it says the letter of counter-offer to the builders should give the Victorian government “certainty that a further process of this nature will not and cannot be conducted in the future” should there be further claims for money.

At a press conference last Friday, The Age asked Pearson if he, as the minister in charge of the project, had signed a new contract with the companies building the Metro Tunnel. Pearson said: “We’re still working very closely with our construction partners. There are some things I can say. There’s some things I can’t say.”

Opposition Leader John Pesutto said the letter of offer “highlights the total lack of financial transparency surrounding major projects” in Victoria.

“[The premier should] explain why this secret deal was offered, why it has been kept from Victorians and what the true cost of the Metro Tunnel now is,” Pesutto said.

Infrastructure expert Marion Terrill, who spent years at think tank the Grattan Institute analysing the trend for enormous cost overruns on mega-projects, said the legal letter attempted to set aside any future legal disputes over the Metro Tunnel.

“If there is a legitimate legal liability that the state has incurred, it cannot wish it away with such a condition – and if there is no such legitimate legal liability, why is the state government prepared to pay an extra $888 million of taxpayer money for this project?” Terrill said.

The Cross Yarra Partnership consortium directed queries to the government.

The Age asked the government why the project’s financial situation was not public, and for confirmation of the project’s current estimated end cost, as well as why a further legal settlement was needed.

A government spokesman did not directly respond to these questions and instead said in a statement: “We are at the most complex phase of the Metro Tunnel Project – we are building two stations directly below Melbourne’s CBD while rolling out new technology which will require thorough testing.

“Major projects across Australia and around the world have faced unprecedented challenges in recent years following the one-in-100-year pandemic including shortages of materials and skills.”

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