Lend Lease holds Vic to ransom over East West Link

September 26, 2014

The Ron Tandberg cartoon in the Age on September 24 sums up what a rort the East West Link is. In it, one person asks someone from the East West Connect consortium: “Are you concerned that Labor might stop the project?” They answer: “Either way we'll make a killing.”

The cartoon is referring to the announcement by Labor opposition leader Daniel Andrews on September 11 that Labor would not build the East West Link if the Moreland and Yarra councils win legal action against the project in December.

But the Coalition state government and the consortium are racing to sign the contracts by a self-imposed deadline of October 1, eight weeks before the state election.

From the point of view of the consortium, which is led by construction giant Lend Lease and includes Capella Capital, Bouygues and Acciona, there is a huge amount of money to gain by signing contracts before the election.

The Age reported the consortium has incurred $40 million of costs from preparing its bid for the East West Link. That is all that an incoming government would be liable to pay the consortium if it cancelled the project.

However, that would escalate dramatically if the contracts were signed before the election.

The consortium has put in an ambit claim for a clause in the contract of a $500 million kill fee to compensate it for lost profit in the event of the contract not being honoured by an incoming government. The consortium is also asking for an “uncertainty component” of more than $50 million.

If the state government acquiesces to the consortium's demands, an incoming Labor government would be required to pay $600 million to the consortium.

However, even if an incoming government was forced to pay $600 million to break any signed contract, that would still be far cheaper than going ahead with the project.

The $18 billion East West Link is one of the largest infrastructure projects in the world, costing $1 billion per kilometre. In addition, the government is likely to include clauses in the contract that prevent it from building rival roads or public transport infrastructure that would result in less cars using the East West Link.

And, the contract is likely to include a clause whereby the state government underwrites any losses resulting from less vehicles using the road than projected. This is a real worry given that the government has kept the business case for the road secret.

Given that other state governments have had to underwrite road companies' losses, this is a serious worry.

Many of the activists in the campaign against the East West Link are heartened by the ALP's announcement that it would not build the road.

However, the ALP's announcement hinges on the legal challenge being brought by the Moreland and Yarra councils against the project. The assumption by some commentators is that the councils' legal challenge would automatically succeed if an incoming Labor government supported the councils' case.

There is still a chance that the East West Link could be built by an incoming Labor government, according to legal advice seen by Crikey.

Crikey journalist Guy Rundle wrote on September 17 that “the mere lack of defence does not guarantee the suit will fail, and recent cases before the Supreme Court establish that principle. There is also scope for third parties to take up the defence of the case, rather than wait for the contracts to be found against, and then seek restitution.”

Such a third party could be the East West Connect consortium.

Sean Brocklehurst, the Socialist Alliance candidate for the state seat of Pascoe Vale and participant in Moreland Community against the East West Tunnel, called on Labor to state definitively that it will not build the East West Link, regardless of the outcome of the court case.

“The Labor party needs to guarantee that it will not build the East West Link … The East West Link is a disastrous project economically, socially and environmentally.

“The construction companies know the score. They know the public don't want this road. They know the public want a chance to vote on the East West Link in a few weeks time. There is no justification for any state government agreeing to pay out hundreds of millions of dollars to these construction companies for a dodgy project.

“We also have to wonder how genuine the ALP is when the federal ALP voted with the Liberal/National Party, the Palmer United Party and the cross bench senators against a motion by The Greens senator Janet Rice to redirect the $3 billion Commonwealth contribution for East West Link to public transport instead,” said Brocklehurst.

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