Partnership splits in Perth Jun 2006

Shani Wallis, TunnelTalk
The rail tunnel contract in Perth, Western Australia, is in trouble. The parties to the 'partnership' form of project procurement are not getting on as intended. While in Perth in April, Shani Wallis tried to find out how and why things started to fray.

When Perth announced its decision to adopt a partnership form of contract for its challenging section of twin railway tunnels directly beneath the central business district (CBD), all appeared well-considered, properly agreed, and off to a positive start . Things, however, took a turn for the worst. The situation was so "contractually sensitive" that requests to make a technical visit to the project were denied because, it was said, "a technical visit cannot be accommodated at this time" and that the project "is not a public relations event."

It was evident from local newspaper and television news that the project was heading south. The West Australian newspaper confirmed to TunnelTalk that media access to the tunnel contract project was difficult at best and had reduced to almost non-existent following coverage of a set of industrial-relations strikes and several high-profile statements concerning significant cost increases, time delays, and court battles.

With requests for an interview with the contractor denied and the owner and project engineer forbidden, under the partnership form of contract, to speak to the media without permission of the contractor, TunnelTalk planned a different strategy and secured an interview with the Western Australia State Government's Minister of Planning and Infrastructure, Alannah MacTiernan, and with Kevin Reynolds, Chairman of the Construction Forestry Mining Energy Union (CFMEU) that represents most workers on the tunnel contract.

Transition ramp to the surface tracks at the north end of the underground alignment
Transition ramp to the surface tracks at the north end of the underground alignment

The set up

As one of eight contract packages on the new 72km-long rail line south to satellite city Mandurah, the city tunnel lot comprises one underground station, twin 770m-long tunnels, and connections to the existing rail tracks north of Perth's city centre train station. The lot's contractor is a JV between Australia's giant construction contractor Leighton Holdings and the experienced tunnelling contractor Kumagai Gumi of Japan. The two partners are working together also on tunnel projects in Hong Kong. Client for the fully State Government funded project is the Perth Public Transport Authority.

It was in February 2004 that Leighton¬Kumagi (LKJV) was selected from a group of five competitors and awarded the lump-sum performance criteria-based design-build tunnel contract for a bid price of US$242 million (Aust$324 million), which was also, as it happens, the lowest of the bid prices. In October 2005, the JV launched its 6.9m-diameter Mitsubishi EPBM to excavate the first of four drives, breaking into the mid-point station box on each of the twin tunnel drives. Launch of the machine was later than originally planned due to delayed completion of the launch box excavation at the south end of the drives. This was caused principally by having to deal with contaminated ground in the area. Early contract progress was also held up by the discovery and special handling of asbestos found in the demolition of a building on the site of the station. In addition, several days of production have been lost to industrial strike action.

Technically, excavation, by all accounts, is going very well. The twin EPB tunnels pass beneath a main CBD traffic thoroughfare and adjacent to the foundations and underground parking lots of Perth's tallest buildings. From a worksite in the centre of William Street, Keller is completing grouting to provide pre-excavation stability and protection of vulnerable structures. Once crews had mastered the EPB method of tunnel excavation (one of only few EPBM project applications in Australia), settlement and ground movement, as detected by a comprehensive instrumentation and monitoring program, was said to be well within tolerances. That was the story TunnelTalk wanted but did not get. Instead, interviews with the Minister and the leader of the main trade union provided material for an article not often available to readers of TunnelTalk.

Minister's motives

The interview with Minister MacTiernan was conducted at the State House of Parliament in Perth and just weeks before announcement of the 2006 to 2007 State Budget by Western Australia's Labour Party Government.

Fig 1. Plan of the underground CBD route of the Perth Rail Line
Fig 1. Plan of the underground CBD route of the Perth Rail Line

When asked specifically about warnings from Leighton Holdings chairman Wal King to prepare for major court battles to recover cost overruns of a reported Aust$100 million on its Aust$324 million contract (and of some $200 million on the overall $1.56 billion project), the Minister said that there would be no caving in to legal threats. "The issue is one of risk and who bears it. Under the partnership agreement contract, the public sector accepted the risk of damage to buildings, the managing of unexpected ground conditions, and the risk of meeting unexpected obstacles. The project's contingency fund increased in last year's budget to deal with the contaminated soil encountered at the Esplanade Station TBM launch excavation. There was the potential of hitting foundation stays of the tall buildings on either side of the tunnel route, we have not hit any to date. We have had also no damage at all to buildings so far. The monitoring data shows only minimal movement. The contractor has had technical difficulties and has suffered union action, but under the terms of the fixed-price partnership agreement, we cannot agree to major cost increases. The lump-sum fixed¬-price design-build partnership contract was adopted to pass the risk management of delivering the contract on time and on budget to the contractor. Increasing the build price now would be unfair to the other bidders and also to taxpayers."

Many in the local construction industry warned of a cost-spiralling tunnel undertaking, but Minister MacTiernan was in office and spearheaded the decision to change the route selected by the previous National Party State Government and direct it instead on an alignment up the coast, over the Narrows Bridge across the Swan River, and beneath the CBD. The new alignment saves about 11 minutes over the previous alignment that had Mandurah services joining the existing railway to the city's east. It also added "Aust$150 million to $200 million in real money terms" to the project cost, but for MacTiernan, it "was the right thing to do."

Pre-excavation grouting operation in the middle of William Street near some of Perth
Pre-excavation grouting operation in the middle of William Street near some of Perth's tallest buildings

"Train services directly into the city centre with a station right in the heart of the retail and commercial district and another at the new convention centre will change the face of the city," said MacTiernan, contributing to its sustained growth and development. Sharing headroom on the existing line into Perth City Station would have also restricted services to the line's 16 trains/hr maximum. The dedicated line maximizes capacity on the network and brings services to parts of the city that would otherwise have missed out, including the Western Australia University campus. The city centre route, which connects directly to the railway that serves the north-coast communities - a line that MacTiernan said was approved by the previous Labour State Government - would have remained a missing link until provided at much greater expense further into the future.

"Routing the new line into a bored tunnel under the city was also the right thing to do and a decision that I would promote again. Cut-and-cover was considered as was an elevated structure, but the bored tunnel option has reduced two to three years of construction disruption to a minimum. Few are aware of the major construction work progressing beneath the CBD."

Regarding allegations from Leighton CEO Wal King that the State Labour Government has shown lack of leadership by not intervening to prevent "unlawful" union activity, Minister MacTiernan said, "Government is not the place to resolve industrial disputes. Government has established the Industrial Relations Commission to hear grievances."

Minister MacTiernan did confirm that by early April 2006 completion of the line was running some six months behind the original December 2006 operating date, due largely to problems on the tunnel contract. Work along the full 72km route of the line, running for the most part in the meridian of the Perth-Mandurah freeway, was well underway in April 2006 and track laying had also started. "There have been engineering difficulties [reports tell of derailments of locos, troubles with steering the TBM, and a "blowout of seals" at the start of tunnelling and progress rates as low as 1m/day], but I am impressed with the work that is being achieved by the tunnel crews, and daily rates have, on occasions, been better than the planned 10m/day at up to 15m/day."

When asked if there were more tunnels planned for the transportation network in the State, Minister MacTiernan was vague. It is known that a proposal to depress part of the Freemantle rail line into a cutting and develop the air space above has been cancelled for the moment due to estimates for the rail cut-and-cover replacement coming in much higher than expected. MacTiernan did say that the next five-year plan for developing transportation in the state had just started and that all projects would be publicly funded. There would be "no consideration of private concessions or PPP agreements" - a very hot topic for State politics in Australia following the fiasco of motorists refusing to use the Cross City concession toll tunnel in Sydney and the troubled design-build construction and now maintenance of the Burnley Tunnel on the Transurban toll highway in Melbourne. "There was a private toll bridge over the Narrows across the Swan River back in the 1840s but not a private transportation concession since in Western Australia. The Government's concern is the potential for private concessions to subvert the public interest."

Union stand

The State Labor Government in Western Australia is in power until the next election is called within four years of the last, in January 2005, but they are getting no help towards re-election from one of the most powerful labour unions in the state - the CFMEU. While the union has had major grievances with the LKJV on the tunnel contract, it also lays serious charges at the feet of the Labour State Government.

"Regardless of how many days are claimed as lost time due to industrial action [Leighton claims 50 days to early April 2006, and the CFMEU says the number is 30 days], there are far too many and all could have been avoided had the Government agreed to negotiate a pre-contract rates and terms of condition package for workers to be binding on all bidders," said Kevin Reynolds, State Secretary of the CFMEU. "The Government refused that track. The contract also refused provision for a private arbitrator to hear disputes. Disputes are heard by a shotgun arbitration and the decisions of the arbitrator are binding."

The project is not a closed shop, but Reynolds said "the majority of the 430 workers on the tunnel contract, plus the 230 employed by contract subbies and another 200 working for the LKJV, are happy to be members of, and represented by, the CFMEU," or unions for electricians and metal workers.

"Because there was no pre-contract agreement, terms and conditions are being negotiated as the job unfolds. For example, there was to be little night shift work, but progress began to fall way behind program, and a night shift was started on the cut-and-cover sections, welding in bracing, and tying rebar at night. But there had been no negotiation of adequate remuneration for night work. This resulted in a 14-day pay dispute strike in early 2005. We wanted double time for night work. The JV offered time and a quarter. We settled on time and a half."

Site of the Williams Street underground station
Site of the Williams Street underground station

The JV conceded on other points, it was explained, and "most things were sorted out until tunnelling started in October 2005. There had been no prior notice that the TBM was planned to run 24hr/day, 7 days/week," said Reynolds. "It was said that nonstop production was vital to the stability of the ground and the prevention of surface settlement. Well, we proved them wrong. A shut down for 24hr for a non-union meeting in the interest of safety caused no detrimental effect on ground movement readings. Also, tunnelling operators employed in from Hong Kong and Singapore [there was no knowledgeable experience of boring EPB tunnels in Western Australia] said that 24/7 production was not necessary."

In negotiations, it is understood that the JV wanted to work three gangs on three 8hr shifts/day with few stop days and no swing shift. It also "decided to forego any rostered days off for the tunnelling crews." While the union wanted four stop days plus five rostered days off and a swing shift, what is being worked today is two gangs on two 12hr shifts/day (10hr production and 2hr maintenance) with two stop days and agreed rostered days off. There is no swing shift for a pattern of 14 days on, seven days off.

As well as pay and conditions, there have been numerous disputes over safety, mostly with scaffolding in the cut-and-cover works, with live electric wires and lines overhead in close proximity [there have been no fatalities, major accidents, or significant time-loss injuries on the project to date], as well as a disagreement over Australia's tradition in metropolitan areas to "put the gear away and knock-off" if temperatures reach 37.5°C.

But all were tunnel contract-related grievances. In early 2006, labour relations took on a Federal dimension. Throughout Australia, there has been major resistance and union objection to new Federal laws that basically increase the power of bosses to sack workers and were aimed, many charge, at curbing the power of the unions, attacking primarily their right to strike.

The new laws came into effect in March 2006 and the Perth city tunnel became one of its first test cases when the LKJV sacked a worker and union shop steward for "his refusal to give assurances that he would comply with his contract of employment." The workers went on strike demanding the shop steward's reinstatement. After eight days, workers accepted the JV's offer of compensation, not reinstatement, to the worker (who donated it to charity) and "unhappily" went back to work. The test case is that under the new Federal laws, the union can be fined Aust$110,000/day and each worker fined Aust$22,000/day for every day of 'unlawful' strike action. Also under the new laws, workers and unions have no right to silence in the face of charges. It was said the JV had indicated it intends to press charges and prosecute the strike as unlawful.

In April 2006, the project was an official 150 days behind schedule and there is no doubt that strained relations between the workers and the JV have contributed to the delays and declared cost overruns. The workers are very unhappy, according to Reynolds. The "unfortunate attitude" of the Minister of Planning and Infrastructure (MacTiernan) came in for specific criticism - "we get on fine with the Minister of Labour" - as did the State Labour Government, "there are those who say they are Labour but..."; the National Party Federal Government for, as reported, "trying to swing a Maggie Thatcher-type defeat of trade unionism"; and the LKJV for all sorts of reasons, including a rule that bans alcohol on the project but allows, allegedly, a bar to operate in the supervisors' offices in an old hotel.

When asked if there would be more strike action, the reply was "who knows?" In the meantime, all parties have tooled up with heavy weight lawyers and are preparing for the coming legal battles - the JV against the State Government for more money, and against the union for losing them time and money, and the union and the State Government to defend themselves.

It was anticipated that there would be news of a compromise between the State Government and the JV over cost increases as part of the State's 2006 to 2007 budget in May, but no extra money was allocated specifically to the project. The government did promise that the new railway would be "debt free on completion," saving an estimated "Aust$75 million/year in interest." Minister MacTiernan did confirm that the Government has a contingency fund for the project, but its size was not disclosed. "The amount rises and falls as the fund is expended and more is added to it," said the Minister.

Behind all this, the good news about the technical success, so far, of actually building the tunnel, goes untold. Draft copies of this article were sent to Minister MacTiernan and Secretary Reynolds for comment review, but both declined to do so - and while Leighton refused TunnelTalk access to the project, its right of reply is respected. Correspondence received from any quarter will be published in a future article.


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