Freight outcomes from Regional Rail Upgrades

Tabled: 18 March 2020

3 Project planning, issues and lessons from delivery

Before government approved the rail freight upgrades we examined in this audit, the rail freight network in Victoria had extensive maintenance backlogs. The projects were an opportunity to rectify existing maintenance issues while upgrading the system to operate in a sustainable and fit-for-purpose manner.

In this Part, we examine the planning and delivery of the upgrade projects, and any lessons learnt from works to date.

Our analysis primarily focused on the MBRP and examined:

  • the adequacy of planning, including the assumptions and estimates that DoT and V/Line advised the government of
  • whether project delivery achieved the expected time, cost and scope
  • lessons learnt from delivery to date.

We did not examine the RRR components in scope for this audit, as these projects have not yet begun delivery.

3.1 Conclusion

During delivery of the MBRP, V/Line and DoT faced many project challenges that consumed most of the available budget for planned future stages.

Many of these challenges arose because DoT’s predecessor agencies and V/Line did not fully understand the dilapidated state of the regional rail freight network before the MBRP began. This led to over-optimistic assumptions on project complexity as well as underestimation of time and cost requirements.

V/Line and its contractor (the MMJV) faced many difficulties when attempting to deliver the approved scope, while concurrently dealing with emerging project risks, scope changes and additions, and issues related to the condition of existing rail infrastructure.

The numerous claims and disputes arising from this stage of works contributed to V/Line and the MMJV suspending their contract early during Stage 2 of the five expected stages of the MBRP.

Transport agencies can learn many lessons from these delivery challenges, and V/Line and DoT have commissioned independent reviews to better understand how these problems occurred.

Regional Rail Revival

For the RRR freight components we examined, we found there is no specific governance body with a focus on rail freight issues.

Freight Victoria was created in DoT in 2018 to consult with and adequately consider the freight sector during project scoping and development; however, its functions are mainly focused on policy advice and it has no governance authority.

The lack of a specific governance body risks a disconnection in planning and decisions made between V/Line, Freight Victoria and RPV in terms of broader strategic policy outcomes for rail freight and network engineering decisions.

3.2 Project planning

Advice from DoT and V/Line to government at the planning stages of the MBRP did not support informed decision-making. This was mainly due to:

  • DoT and V/Line’s limited understanding of the dilapidated nature of the network assets when developing the business case and project scope
  • incomplete engagement by DoT and V/Line with key stakeholders and limited analysis of current and future rail freight needs
  • DoT and V/Line’s optimistic assumptions about the project’s cost, time and complexity.

DoT and V/Line’s insufficient planning impacted V/Line’s ability to deliver the project within cost, time and scope expectations.

To compound this, DoT and V/Line’s governance structures changed as the project evolved and moved between agencies, which diluted corporate knowledge and accountability for project outcomes.

Once DoT and V/Line became aware that the project was underperforming, senior officers intensified their attention, and the agencies focused efforts on recovering the project. Appropriate senior oversight is now in place.

Understanding the network condition

Our 2009 audit Buy-back of the Regional Intrastate Rail Network confirmed the dilapidated state of the regional rail freight network. The report found that there was a known maintenance backlog on the network in 1999, when the state leased it to a private company.

Figure 3A describes the rail freight network’s historical condition issues.

Figure 3A
Rail freight network historical condition issues

During the period of private control of the regional rail network from 1999 to 2007, the private sector lessees took a contractually compliant ‘minimum maintenance’ approach to freight-only lines, and effectively allowed some lines to fall out of service. On some sections of track, the lessees restricted speeds to only 20 kilometres per hour.

Due to the ineffective maintenance obligations in the lease, the infrastructure deteriorated further, which compounded the previous maintenance backlog. These allowed parts of the rail freight network to deteriorate to a very poor condition.

This lack of investment in the freight-only network, and resulting poor operational performance, accelerated a shift by freight users from rail to road freight, increasing the potential for adverse environmental, social and economic consequences.

Our 2009 audit observed that closure of the freight-only network could result in at least 100 000 more truck trips on regional roads each year, which could have dramatic implications for road safety and the environment, as well as reduce economic and logistics supply chain efficiency.

The Victorian and Australian governments recognised these problems and jointly funded a Mildura line upgrade project in 2006, allocating $53 million and $20 million respectively.

At the time of funding, they expected the project to upgrade the 525-kilometre broad gauge line between Mildura and Gheringhap (near Geelong) to allow freight trains to run at a line speed of 80 kilometres per hour.

Source: Buy-back of the Regional Intrastate Rail Network, VAGO, 24 June 2009.

A DoT predecessor agency requested a detailed line survey from V/Line in 2012 to help scope a potential re-opening of the Ararat to Maryborough line. This work highlighted serious corridor condition issues, but DoT did not use this document to inform the MBRP planning or procurement process. Figure 3B shows the pre-existing track issues on the Maryborough to Ararat line.

Figure 3B
Pre-existing track issues on the Maryborough to Ararat line

Figure-3B-pre-existing-track-issues-on-the-Maryborough-to-Aarat-line_1.png

Source: Maryborough to Ararat: Proposal to Restore Freight Operations, V/Line, December 2011, page 8, ‘Medium size track washaway’.

DoT, V/Line, and rail operators expected the MBRP to rehabilitate track on sections of the network to restore sustainable operating speeds and improve axle loads. Apart from this 2012 report, we did not see evidence that DoT asked V/Line, as network manager, for formal advice on the condition of the network that the MBRP would upgrade.

Since the government paused the project during Stage 2, RPV has done some work on asset condition on the remaining sections of the Murray Basin freight track, which we assess as useful and high-quality.

This detailed review relied on physical inspection of current track conditions, supported by photographs and analysis of track condition using technical data from vehicle-based inspections. Based on these inspections, the review estimated the track components that would need to be replaced and likely costs, based on the estimated volume of sleepers, rail or ballast required for remediation. This work has helped inform RPV’s cost estimate to complete the original project scope.

It is not clear why DoT and V/Line did not do this type of detailed work during the original project scoping and business case development.

Considering stakeholder views

DoT’s multiple reorganisations over the last five years has contributed to the inconsistent way it identified, engaged, analysed and managed stakeholders for the MBRP.

While DoT did seek stakeholder views at specific project planning points, it did not routinely analyse or seek to understand these views as the project moved from concept to delivery.

Further, DoT’s early stakeholder consultation during the business case development phase is not well documented, partly because responsibility for stakeholder engagement moved between agencies.

The government established a ministerial advisory council during the early stages of the project, but it ceased meeting after DoT and V/Line focused their efforts on recovering the project.

Many stakeholders, including exporters, rail operators, and producers, became frustrated with the lack of responsiveness from official consultation channels and expressed their views on the project through the media and public statements.

Once the contractor ceased work in early 2018, DoT stopped providing direct updates on the project’s activities to the Australian Government, a co-funder and key project stakeholder. In late 2019, DoT re-engaged with the Australian Government on the MBRP.

We consider that many concerns from stakeholders, such as TSRs in place for indefinite periods of time, are legitimate. Due to heavy public and media scrutiny of the project’s challenges, as well as internal management pressures to resolve them, V/Line and DoT found it difficult, at times, to engage with relevant stakeholders in an authoritative or timely manner. V/Line advised us that this was limited to the period when V/Line and DoT were reassessing the project.

Some letters and specific requests from the Deputy Prime Minister to Victoria’s Minister for Transport Infrastructure went unanswered, with DoT not preparing briefings on these letters for the Minister’s office.

Freight Victoria has recently started re-engaging with key rail freight stakeholders. However, its authority and influence over the project is not clear. This lack of clarity is because the project’s planning, decision-making and budget responsibilities operate in separate organisational structures. Within DoT, Freight Victoria is responsible for overall strategic planning and policy development for the sector in the Policy and Innovation area. Project decision making occurs in the Network Integration part of DoT. RPV (part of MTIA) holds the remaining project budget and sits outside the main DoT structure.

V/Line, as the rail freight network maintainer and access provider, and Freight Victoria, the main policy body advising DoT on freight matters, need to coordinate and manage their interactions with industry counterparts to achieve the government’s policy of increasing rail’s share of freight transport.

3.3 Project delivery performance

Project delivery

V/Line’s project management and the MMJV’s delivery of Stage 2 works resulted in Stage 2 of the project not being delivered as expected. Disputes and claims between V/Line and the MMJV resulted in a variance between the scope, time and cost parameters and the achieved outcomes that the business case identified and government approved.

Procurement of design and construct contractor

V/Line received three tender responses in its procurement of a design and construct contractor for Stages 2 to 4 of the MBRP. V/Line prepared a tender evaluation report that identified a number of issues with the feasibility of project delivery:

  • At the time that V/Line tendered for these works, there was uncertainty about the final scope. V/Line also believed that the $240 million budget was insufficient for the expected scope. Despite this, V/Line still proceeded with the tender process.
  • Each of the three tender responses V/Line received exceeded its nominated budget for Stages 2 to 4.
  • Two of the three respondents could not commit to delivering the project scope within V/Line’s timelines. The tender evaluation report attributed this to tight deadlines.

As described in Figure 3C, V/Line accepted risks in the contract it signed, without the capacity to understand their potential cost implications for the wider project. These risks eventuated for V/Line once the contractor exercised the legal rights the contract gave them.

Figure 3C
Excluded risks negotiated by the contractor and V/Line

Prior to signing the design and construct contract, V/Line and the MMJV negotiated the inclusion of certain items in the final agreement. One of these items was a new clause on excluded risks.

In this clause, V/Line agreed that the contractor’s risk would not extend to items of work that could not be reasonably determined from:

  • principal-supplied information provided to the contractor prior to the commencement date
  • any site surveys available to the contractor prior to the commencement date
  • any inspection results provided to the contractor prior to the commencement date.

The items of work included:

  • geotechnical remediation of the existing track bed to meet the 21 TAL criteria
  • existing rail flaw defects
  • the extent of sleeper replacement.

V/Line agreed to insert excluded risks in the final contract agreement so that tenderers would not price unknown risks because the tenderers did not have enough time to undertake extensive site testing during the tender phase.

In internal briefing documents, V/Line justified these excluded risks by stating that although it would have to pay claims if the risks were to eventuate, it would not pay a risk premium for risks that may not occur.

By inserting excluded risks into the contract V/Line also gave itself the ability to direct the MMJV to perform part or all of any additional required work.

However, deficient project planning by DoT’s predecessor agency and deficient asset condition information in the MBRP business case meant that V/Line did not anticipate the extent of the additional work, time and cost that would be needed.

As a result, V/Line bore the risk and cost of works that were not identified in the original scope. Because the MMJV did not bear this risk, it had no obligation to incorporate these works into its specification and program of works.

This also meant that V/Line and the MMJV could not appropriately forecast any cost and time contingency arising from these risks in their planning.

Source: VAGO, based on V/Line documents.

Governance and decision-making arrangements

DoT and V/Line’s governance processes for the MBRP were not always clear and were expressed inconsistently in key MBRP project planning documents in the lead up to project approval and delivery. In addition, V/Line, and DoT used various governance and decision-making approaches that they did not consistently apply and that did not operate in accordance with project plans. This made assessing compliance with processes difficult.

DoT and V/Line introduced their contract management arrangements in the design and construct contract, and further defined them in the contract management plan. As the project evolved and faced setbacks, V/Line did not formally update these contract management arrangements in a timely manner.

The contract management plan aimed to clarify V/Line’s processes to manage the provision of the MMJV contract. Despite having this plan, V/Line did not follow it and their approach to project delays was reactive, dealing with setbacks as they arose.

We also noted unmanaged role conflicts in the governance arrangements. For example, the lessons learnt report states that the contract’s terms assigned the role of Superintendent to the Project Director, despite there being conflicts between the two roles:

  • As Project Director, they were V/Line’s representative on the contract with responsibilities that included proactively responding to risk, reporting to the project steering committee (PSC), and delivering the project.
  • As the Superintendent, they also acted in the role of certifier and valuer of work undertaken by the contractor, with a contractual obligation to act honestly and arrive at a reasonable measure or value of work.

The conflict between these two roles meant that the Project Director could not impartially deliver either set of responsibilities.

Monitoring and reporting

V/Line’s design and construct contract clearly defined the frequency and content of reports required from the MMJV. However, these requirements were diluted in the contract management plan, which did not fully consolidate the contract agreement’s clauses.

For example, the contract management plan only referred to KPI reporting, not wider project reporting and monitoring expectations. Although the contract agreement required the MMJV to submit monthly reports to V/Line, this was not specified in the contract management plan. V/Line also did not specify how contract reports fed into V/Line’s internal project reporting.

Performance expectations

V/Line did not clearly document performance expectations and deliverables for the MMJV.

During our audit, V/Line could not locate a useable version of the contract management plan. Although V/Line noted that it is a live document, key sections of the version that we reviewed were incomplete.

KPIs, in particular, were not well described. In the contract management plan V/Line identified 20 KPIs, but did not describe them in detail, or how it would measure and monitor them. The contract management plan states that these details are specified in the design and construct contract, but the contract also did not cover these expectations in any useable detail. Further, V/Line did not cover them in any subsequent project document.

Although the contract management plan identified the expectations for the content of KPI reports, V/Line did not develop any further guidance on the frequency of this reporting or determine who would be responsible for this monitoring. As a result, there is no evidence that V/Line routinely monitored or tracked these expectations.

Managing contract variations and changes

Although V/Line had a suite of documents detailing change management processes, they did not revisit or update these processes as project expectations changed.

A contract variation refers to an increase or decrease or omission of any part of the contract works, any change in the character or quality of materials or equipment, or any change in the method, sequencing or timing of works.

A project change is anything that transforms or impacts the project, tasks, processes, or structures. This can include changes to project scope, funding, or milestone dates.

Project changes can be significant, which means they may require greater scrutiny by project owners.

During the period that it engaged the contractor, V/Line used a single variation register to capture both contract variations and project changes.

This process was flawed because it meant V/Line did not have a clear process for distinguishing a variation from a project change or detailing how a variation or a project change would be addressed, monitored and reported.

Further, there was no requirement in V/Line’s change management documents to log changes in a register. This suggests a reactive approach to addressing issues arising from project changes. Because there was no set detail for what a change register should cover, V/Line also risked inconsistencies in how it recorded and monitored risk.

Scope, time, cost and quality expectations

Scope, time, cost and quality expectations for the whole MBRP were broad, constantly changing, and not well documented by V/Line. Many of these expectations were unreasonable at the time DoT and V/Line set them. For instance, DoT’s advice to government in 2015 acknowledged that the options identified in the business case would cost more to deliver than the funding available in the budget forward estimates.

V/Line did not effectively mitigate or address these issues prior to project commencement. In our tracking of Stages 1 and 2 cost estimates from government approval through to project planning, it was difficult to see which budget DoT and V/Line were working towards.

MBRP Stage 1 works

DoT engaged V/Line to deliver Stage 1 works on the MBRP. This stage was completed five months after the completion date estimated in the business case. V/Line categorised this stage as a maintenance works project and achieved it within the allocated budget.

Although DoT and V/Line knew that the assets had not been maintained adequately before these works, they did not undertake a quality assurance review to check that completed Stage 1 works were fit for purpose.

MBRP Stage 2 works

In 2016, DoT handed the MBRP to V/Line. Cost expectations for Stage 2 were unclear, making it difficult to assess which figure DoT and V/Line were working towards. In some cases, these cost expectations also appeared to be unreasonable.

DoT and V/Line’s expected cost for Stage 2 ranged from $180 million (in the business case) to $174.9 million (in the project management plan). However, independent advice commissioned by RPV after the MMJV works were suspended estimated the cost to complete Stage 2 works at $335.8 million.

Throughout Stage 2, V/Line’s monthly financial reports to the PSC showed that the project’s forecast and actual spend were exceeding its budget. The PSC’s meeting minutes also indicated that V/Line did not identify actions in a timely way to help the MMJV achieve project deliverables within the expected budget and time frame.

During this stage, V/Line did not respond to risks and issues in a timely manner. Despite receiving notices from the MMJV, V/Line failed to escalate risks to the PSC. DoT advised that the PSC did not receive any copies of the MMJV notices and updated financial statements despite DoT requesting these from V/Line.

V/Line did not address the delays that impacted the MMJV’s ability to deliver the works within the expected time frames in a timely manner. Instead, risks rated ‘red’ stayed on the MMJV’s risk register for the duration of their time on the project and were not addressed by V/Line. V/Line advised that these matters were being monitored and needed to stay ‘red’ as approvals were pending.

MBRP Stages 3 and 4

The MBRP Stages 3 and 4 works have not started, and the remaining budget is not sufficient to complete their original scope. As a result, the expected benefits from these works cannot be achieved in the expected time frames unless the Victorian or Australian governments provide additional funding.

The timing expectations for Stage 3 depend on the timely completion of Stage 2. Despite this, the design and construct contract agreement did not adequately account for the risk of a Stage 2 delay and its impact on subsequent stages.

In their monitoring reports and notices of delay, the MMJV made V/Line aware of this risk. However, V/Line did not address these warnings in a timely manner. For example, the MMJV issued numerous notices of delay about V/Line’s late delivery of rail as required under the contract agreement and the impact of this on the construction program. The MMJV started issuing these notices of delay in July 2017 and continued to issue them through to December 2017. As a result of the delays, the MMJV were unable to meet the expected completion dates for Stage 2.

Once Stage 2 became officially delayed, it was already too late for V/Line to mitigate its impact on the delivery of Stages 3 and 4.

The basis for V/Line’s Stage 3 and 4 cost expectations is not set out in the key project documents. The documented cost expectations for these combined stages vary significantly from $78 million in the project management plan to $244.9 million in the business case.

Project inspection and monitoring arrangements
Quality assurance

The contract and project management plans contained some quality management provisions for V/Line and the MMJV. However, their effectiveness was undermined by the documents’ lack of clarity around frequency of checking and inspections and quality reporting requirements. It was also unclear who these reports would go to.

As required by the contract, the MMJV did have a quality assurance system in place. However, V/Line did not document how it would incorporate this system into its processes to ensure that the MMJV was regularly monitoring and reporting on the quality of its work. V/Line also did not document how it would confirm that the standard of works was fit for purpose.

Rather than documenting the outcomes of project quality checks in formal and regular reports, V/Line sporadically reported on the quality of the MMJV’s work in PSC meeting minutes. This meant that some project-specific quality issues were not addressed in a timely manner to reduce their impact on cost and time targets. Additionally, project and contract documents did not specify who V/Line must report the quality of the MMJV’s works to.

Operational inspection regime

The MMJV inspected their work to certify its quality as the project proceeded. However, following the unplanned cessation of works, V/Line took over responsibility for the project’s delivery. At this point, V/Line assessed the MMJV’s works.

However, V/Line’s assessment was limited because a comprehensive measure of the quality of all contract works was not possible due to time constraints. As a result, V/Line had to make further assurance inspections to enable the safe operation of trains.

After the MMJV’s contract ended, RPV became the lead agency for delivering the future stages of the MBRP (excluding the uncompleted Stage 2 works). It was only after this occurred that RPV completed a detailed dilapidation survey for the unfinished components of the project.

Many components of the MBRP (up to Stage 2) are now operational, so V/Line has moved to a ‘business as usual’ risk-based inspection regime instead of project-specific inspections.

The case study in Figure 3D shows the dilapidated condition of the rail prior to the MBRP and outlines the impact of the lack of regular inspections.

Figure 3D
Maryborough to Ararat case study

The Maryborough to Ararat line consists of 87 kilometres of standard-gauge track and linked freight trains from Dunolly to the Port of Portland. In 1995, the line was standardised from broad-gauge and an unknown number of sleepers were replaced. Since then, there were no major maintenance activities or structural changes on the line. This left many broad-gauge timber sleepers supporting a standard-gauge track. In 2004, Freight Australia closed the line because of unsafe track conditions due to limited maintenance and deterioration of the sleepers.

In 2011, DoT’s predecessor agency requested V/Line to investigate the potential for re-opening the line. DoT sought to resume rail operations at 50 kilometres per hour at Class 4 status with a minimum operational period of six years.

In the 2015 MBRP business case, the scope of Stage 2 included reinstating the line to 21 TAL, upgrading 58 level crossings and the Maryborough junction, and creating a link to the Australian Rail Track Corporation’s standard-gauge line at Ararat. At a P50 estimate, the total cost for this was $64 million.

The line officially re-opened at Avoca in January 2018. The government later announced that the line was operating at 65 kilometres per hour and that the remaining TSRs would be progressively removed before the end of 2018.

Before the MBRP:

Before-the-MBRP.PNG

Source: Rail Revival Alliance, Maryborough, 2017.

After the MBRP:

After-the-MBRP.PNG

Source: Pacific National, 2019.

Since its re-opening, rail operators have expressed concerns about the line. Although the nominal speed limit on the rail line is 65 kilometres per hour, operators note that this applies to only 22 of 87 kilometres of this section of track and only for trains that meet certain technical conditions.

For all operators, V/Line currently limits the rolling stock speed to 40 kilometres per hour. V/Line has placed additional speed restrictions on the line due to level crossing sighting issues, which further reduces the average speed along its entire length. The track loading is limited to 19 TAL for the majority of rail freight operators using the network.

For rail operators, these speed restrictions mean that it is now slower to move freight to port than before the line closed. Other than the line re-opening for scheduled freight trains, the MBRP works have made no overall performance improvements to the Ararat to Maryborough rail section.

Source: VAGO, based on publicly available information.

3.4 Project lessons learnt

Project scrutiny and intervention

DoT and V/Line can learn many lessons from how the MBRP has been delivered. DoT and V/Line have commissioned comprehensive reviews of the issues, processes and decisions that led to the current situation.

When the government paused the MBRP in June 2019, V/Line had not fully completed Stage 2 and a way forward for expected future stages was not clear.

DoT has advised us that it is developing options to recover the project. However, it had not finalised these at the time of this audit.

The HVHR and Gateway scrutiny processes

The government classified the MBRP as a HVHR project. This meant that it required more intensive scrutiny by DTF and for the Gateway review process to be fully applied at each key project lifecycle stage, as shown in Figure 3E.

Figure 3E
DTF’s project lifecycle and HVHR project assurance framework

3E-DTF’s-project-lifecycle-and-HVHR-project-assurance-framework.PNG

Source:  HVHR Project Assurance Framework Fact Sheet, DTF, May 2018.

While V/Line and DoT followed the HVHR processes, they did not effectively detect issues and mitigate the problems that were identified at key review points. Remedial actions that DoT and V/Line took came too late to cause any substantive improvement. However, V/Line has asserted that if they did not intervene with the contractor, the overall position of the project would have been significantly worse.

The Gateway reviews that independent review teams conducted for the MBRP identified issues such as unclear governance arrangements early in the project’s lifecycle. However, corrective actions were neither timely nor effective.

Since its inception, the project has had four SROs (in three agencies). This turnover led to gaps in accountability and patchy corporate knowledge.

The project received red ratings at each Gateway review point. These early warnings were scrutinised by senior officers in relevant agencies, DTF, and portfolio ministers. While these warnings were escalated from March 2018 onwards (once they recognised that the project was underperforming), by this point, the available options for recovery and completion had become limited.

A further complication for this and other HVHR projects is that Gateway review reports are provided solely to SROs, who have discretion about who they share the review findings with and what actions they take on any recommendations. This means that the parent agency of the SRO may not have full visibility of the extent of issues that have been identified for a specific project. The parent agency may therefore not be able to provide a frank and full appraisal of their progress to the relevant minister.

There is some evidence of senior officer scrutiny of the recommended action plans from the three Gateway red ratings. This extra scrutiny was mainly documented via briefings to the minister. However, SROs and their parent agencies did not develop detailed or timely responses to some of the risks and issues identified in the early Gateway reports that have now materialised.

Effectiveness of project intervention

Stage 2 works faced many delivery issues and problems, which culminated in a stop work order before the contractor withdrew from the project work sites.

This prompted the government to intensify its attention on the project, with senior officers from V/Line and DoT closely scrutinising issues and developing responses and advice.

Project stop work notices

On 22 March 2018, ONRSR identified a safety breach during a compliance inspection at an MBRP site. Although ONRSR ultimately did not attribute responsibility for the breach, V/Line immediately ordered the MMJV to cease all works on Work Package 1.

After works ceased, V/Line and the MMJV underwent discussions to recommence works and agree on the role of the MMJV going forward.

On 17 April 2018, V/Line advised the MMJV that it had lifted the cease work order so the MMJV could recommence works. The MMJV did not restart works, and instead agreed with V/Line to demobilise MMJV staff and equipment from various work sites.

The MMJV advised us that they were willing to agree to the demobilisation because they had already incurred significant costs from the numerous delays and changes to the project’s scope.

An independent assessment undertaken in June 2018 noted that Work Package 1 was 93 per cent complete when the MMJV ceased work.

Contract cessation and settlement agreement

By the time the contract ended, the MMJV had made claims totalling $90 million, including provisional sums, and $32 million related to variations.

After third parties verified the works that the MMJV had completed, V/Line negotiated a settlement agreement. This was signed by the MMJV in May 2018 to formally resolve any matters from the ceased contract.

An independent assessment commissioned by V/Line as part of the settlement agreement quantified the sum of completed contract works by the MMJV at $204 million.

Under the terms of the settlement agreement, V/Line released the MMJV from most of its defect rectification obligations and any exposure to liquidated damages for late completion of the project.

V/Line’s final settlement sum for the MMJV was 10.5 per cent of the original contract price. V/Line countersigned the agreement in July 2018 following the receipt of required permissions within government.

Project assurance review by OPV

In April 2018, DoT asked OPV to undertake an independent review and assessment of the MBRP, known as a PAR.

The PAR report OPV delivered in June 2018 found that:

  • All relevant project agencies had an inadequate understanding of the scope required to deliver the MBRP.
  • DoT’s predecessor agencies’ investigation of the existing condition of the Maryborough to Ararat line was inadequate, and the number of welds needed on the re-laid rail track were significantly underestimated. Buried structures and culverts that were not known before construction commenced should have been identifiable from old asset records or site inspections.
  • There was no evidence that V/Line’s MBRP team undertook assessments to make sure the delivery schedule was achievable.
  • Attracting and retaining supervisory and skilled labour at the levels required to meet the ambitious program was a challenge, partly due to the spread of capability across large geographic areas and resource competition with level crossing removal projects.
  • There was a risk that, once complete, the MBRP would not meet stakeholders’ expectations because a ‘client requirements document’ was not prepared and approved by key stakeholders, such as rail operators, freight transporters and DoT.

OPV advised DoT that while this PAR used DTF’s guidance and an independent expert team sourced from the Gateway reviewers’ roster, it was not an official review under the HVHR process. This means that any ‘red’ recommendations were informal and did not need to be followed up by SROs or reported to the Treasurer, which other Gateway reports require.

V/Line’s lessons learnt report

In May 2018, V/Line engaged an external consultant to review what lessons it could learn from the MBRP. V/Line received 25 recommendations from the report.

The report noted that V/Line did not update key project documents after changes were made to the project. This reduced the effectiveness of V/Line’s project management, its monitoring of the contractor’s performance, and the deliverability of the project within the expected time frames.

The report identified that analysis in the business case had missed or underestimated the project’s scope and budget features. While V/Line did not write the business case, DoT’s underestimation impacted V/Line’s ability to deliver the project within the expected parameters. DoT should have consulted extensively with V/Line (as the delivery agent of the project) during the development of the business case.

The report also identified issues with the project’s governance, accountability, and project team management. For example, it highlighted the unusual situation where the project director was also a member of the PSC. The report noted that this was unusual because ‘we would expect that as head of the delivery team, he would report to the PSC rather than be a member of it’.

The report found weaknesses in the project team, such as team members’ lack of clarity about their roles, responsibilities, and accountabilities.

The MBRP deviated from standard project management methodologies to the extent that the report recommended that it ‘take time to reset this project from first principles’. In particular, the report noted that as the key project documents were not sufficiently updated, there were no means to measure performance.

As a result, V/Line could not adequately track earned value or the changes’ impacts on project time and cost.

The report also found that:

  • As the contractor had no time provision in their tendered construction program, any deviation from this would make key deliverables unachievable within the expected timelines.
  • V/Line’s planning was inadequate from the outset of the MBRP because its project team’s performance measurement baselines were based on incomplete assumptions. For example, the performance measurement baseline for Stages 3 and 4 did not include the cost or measurement of work completed to date.

Many of the issues identified in this report are consistent with our audit findings.

Back to Top