The $1.7 billion booby trap in latest Suburban Rail Loop contract

The cost of scrapping the Suburban Rail Loop has risen by $1.7 billion after the Victorian government signed a contract to run and maintain the eastern section of the train line – when it opens in 2035.

The John Holland-led consortium, TransitLinX, was announced in December as the winning bid for a “linewide” contract for SRL East – a $6.7 billion agreement to fit out the tunnels, build the track and install the signalling and other operating systems on the proposed Cheltenham to Box Hill underground railway.

A mid-year financial report, tabled by Treasurer Jaclyn Symes on Friday, revealed the government entered into a second, separate contract with the same consortium to run and maintain the new line between 2035 and 2050.

A government source, unauthorised to publicly discuss the contract details, confirmed the $1.7 billion “franchise agreement”, unlike major works contracts entered into for the SRL, would be owed in full if the project was abandoned.

The previously unreported contract adds to an already substantial cost in breaking the SRL facing the Victorian opposition if it wins the November 28 state election and forms the next government.

Opposition Leader Jess Wilson has promised to “pause and review” the $34.5 billion, first stage of the SRL if the Coalition parties form government after the election.

The cost to back away from the project, which would be subject to negotiation with a multitude of Australian and international construction and engineering companies, would dwarf the $1.1 billion burnt by the Andrews government when it cancelled the East-West Link road project in 2015.

Early works for SRL East have already cost the Labor government $2.5 billion, and the Suburban Connect and Terra Verde consortia are this year due to start tunnelling the 18-kilometre route between Cheltenham and Box Hill.

The franchise agreement brings the total value of SRL contracts already signed to $14.5 billion, and the government is currently negotiating further contracts to build the six underground stations required for the politically contentious project.

The major works contracts are each structured on a cost-plus-profit model, in which consortia are paid on a monthly basis for the work they complete. In the event the SRL is cancelled, the cost to taxpayers would be for work already done, rather than the full value of the contracts.

The franchise agreement, which is for services rather than capital works, creates a financial booby trap.

It will have no impact on the state budget until the SRL becomes operational and the contract will not appear as a liability in the May budget papers as its terms are beyond the forward years on which the treasurer reports. However, it will need to be paid out if the SRL doesn’t go ahead.

The Age provided a series of questions to Symes about the new agreement including why it was not announced when it was signed in December, why the government entered into a contract 10 years before the SRL becomes operational, and what the government’s total, contracted liabilities to the SRL were at December 31, 2025.

In response, a government spokesman said it was “best practice” to have the same companies involved in the design, construction and operations of major transport projects. The government believes this approach reduces the risk of cost overruns arsing from handover difficulties between construction and operating teams.

“It is now considered best practice to ensure that the people who will operate infrastructure are present and involved during the design and construction of the asset itself,” the spokesman said.

“The SRL is on time and on budget. The cost to build the infrastructure of the Suburban Rail Loop and the cost to operate it are two very different things, with the estimated operating cost set to be confirmed at the completion of the project delivery.

“The only plan Jess Wilson’s Liberals have is to cut the Suburban Rail Loop – cutting thousands of jobs and leaving tunnel boring machines to sink into the ground.”

Opposition transport infrastructure spokesman Evan Mulholland said the revelation of the additional contract showed the government had the wrong priorities on infrastructure.

“This is yet another example of the financial recklessness of the Allan Labor government,” he said.

“Whilst communities in our growth areas have been crying out for new infrastructure for decades, Jacinta Allan has instead chosen to build the Cheltenham to Box Hill rail line, which won’t open before 2035.

“A future Liberal and Nationals government will pause and review the Cheltenham to Box Hill rail line to ensure the best interests of Victorian taxpayers are prioritised.”

The mid-year financial report also revealed that the full value of the linewide works contract awarded to TransitLinX was $7.4 billion, rather than the $6.7 billion Premier Jacinta Allan announced three months ago.

The difference is the GST on the project, as budget papers report the cost of capital works excluding GST, while the accounting standards used by Treasury in its quarterly financial statements require it to be included.

However, the cost to Victorian taxpayers will remain at $6.7 billion – as announced by Allan – because the Suburban Rail Loop Authority will be able to claim back the cost of the tax.

The mid-year financial report showed Victoria’s net debt, which is forecast to reach $192.6 billion by 2028-29, topped $160 billion by the end of December. This represents 24.2 per cent of gross state product, a measure predicted to peak at 25.2 per cent in the next financial year.

In the final six months of 2025, the government added $8.4 billion to its total borrowings, largely to cover the cost of its annual, $21.5 billion capital works program.

Symes said she remained on track to deliver an operating surplus in 2025-26, the government’s first in 10 years. Once capital works expenditure is considered, the government is forecast to post a cash deficit of $12.5 billion.

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