Melbourne Metro Tunnel Project—Phase 1: Early Works

Tabled: 6 June 2019

Audit overview

City Loop refers to the two above ground and three underground stations that surround Melbourne's CBD—Flinders Street, Southern Cross, Flagstaff, Melbourne Central and Parliament.

The aim of the Melbourne Metro Tunnel Project is to free up Melbourne's central rail system by removing three of the city's busiest train lines—Pakenham, Cranbourne and Sunbury—from the City Loop.

The $11 billion transport infrastructure project will construct twin nine-kilometre rail tunnels through the central business district (CBD) from South Kensington to South Yarra and five new underground stations along this route. This is to create capacity to run more trains across the metropolitan rail network and increase service reliability.

This performance audit's objective was to determine whether the planning processes and early works of the Melbourne Metro Tunnel Project have adequately prepared the project for the main tunnel and stations works.

We audited the following agencies and one associated private sector entity:

  • Department of Environment, Land, Water and Planning (DELWP)
  • Department of Premier and Cabinet (DPC)
  • Department of Transport (DoT)
  • Department of Treasury and Finance (DTF)
  • Public Transport Victoria (PTV)
  • VicTrack
  • Yarra Trams (associated entity of PTV).


The planning processes and early works have adequately prepared the Melbourne Metro Tunnel Project for its next phase, although at a greater cost and longer timeframe—mainly at the State Library station precinct—than originally approved and anticipated.

Notwithstanding this, the early works approach has effectively 'de-risked' some key elements of the overall project. In particular, DoT, Rail Projects Victoria (RPV) and contractors effectively delivered land acquisitions, site clearance and demolition, and utility relocations.

The Public Private Partnership is a consortium of corporate entities with responsibilities including design, construction, finance, commercial development, maintenance and overall project management.

The early works approach has also allowed the Public Private Partnership (PPP) consortium, which is contracted to deliver the tunnel and stations project component, to commit to deliver their works earlier than was expected in the 2016 business case. This has avoided some costs to the state and should bring forward expected economic and social benefits from the project.

The delays we observed in early works should not directly affect the contracted target dates for the next phase of the project, which focuses on the excavation and fit-out of the tunnel and stations.

Unexpected cost increases for the early works phase have put some pressure on internal budgets and wider project contingency funds. The heavy use of project-wide contingency funds is an early warning flag for the project, particularly as there are at least five more years of complex and risky construction works ahead.

Due to the early stage and challenging risk profile of this large and complex transport infrastructure program, it is not yet possible for us to make conclusions about overall time and cost outcomes for the whole project.


The agencies we audited showed good practice in their early identification of project risks and made a focused effort to mitigate them. Examples of this include the early relocation of utilities and other services, as well as prompt land acquisitions and site clearances soon after the confirmation of the project's boundaries.

Another area of good practice we found was the effective coordination of the detailed design for the project to achieve environmental assessments and planning approvals before the state had signed contracts with the private sector for the main works.

Areas that could be improved relate to proponent agencies of major projects not showing comprehensive analysis of all realistic options in business cases, and central agencies not giving comparative advice on the costs and benefits of all realistic and sensible options.

Responding to wider rail network changes

Many recent rail project announcements, such as the Suburban Rail Loop, Melbourne Airport Rail Link, and Wyndham Vale and Melton electrification projects, have materially altered the original assumptions and analysis for the project. As a result, many assumptions around patronage demand projections, rail operating concepts, future rail network configurations, and wider project benefits, relate to a network strategy that is no longer correct.

DoT is the client for the project, but it has not yet adjusted its assumptions—considering these material changes to the project's context—about how the tunnels will operate and the benefits that will be delivered after completion.

DoT and the central agencies (DPC and DTF) need to review the underlying assumptions and expected project benefits given this changed rail project landscape. This could occur as part of the business case development for the newly announced rail projects so that DoT can develop a more comprehensive network-wide view, rather than only a project-specific view.

Forecasting and planning to meet demand

We are uncertain about the accuracy of some elements of the models PTV used to forecast passenger demand for the project. The 2016 business case was based on a specific demand forecast output from the Victorian Integrated Transport Model (VITM) and did not make it clear to decision-makers or the public that this figure could vary significantly because predictive models cannot be exact.

It was difficult for us to understand the rationale for many key assumptions used in the models as PTV and DoT did not document these decisions well.

RPV—the entity responsible for delivery of the Melbourne Metro Tunnel Project—and DoT have not explicitly defined potential triggers to bring forward unfunded projects that may be needed if the current patronage forecasts have underestimated demand. This includes the extension of platforms at some 35 stations to allow for an earlier than expected rollout of 10-car High Capacity Metropolitan Trains (HCMT) across the Sunbury/Melton and Pakenham/Cranbourne corridors.

Managing environmental risks

DELWP's identification and management of key environmental risks for this large and complex project, which affects many sensitive locations, has been diligent and effective.

In addition to this good work to date, all project parties will need to maintain high levels of focus to comply with the various environmental management controls now that construction is entering a more intense and complex phase.

Project management outcomes

The early works phase has cost more than the original total budget of $1.257 billion. The final forecast for all activities related to early works is now $1.353 billion, an increase of $95.8 million, or 7.6 per cent. In addition to this, RPV paid $68.3 million to a member of the PPP consortium for an Early Works Services Agreement (EWSA), which it funded from the main works phase budget.

RPV and DoT acquired the land needed for the project in an effective manner. RPV and DoT forecasts show that land acquisitions have been delivered at a cost of $728.1 million, which is $53.1 million, or 6.8 per cent, less than the total approved budget of $781.2 million.

Construction-focused activities in the early works phase have exceeded the original approved budget of $476.6 million, with a final forecast cost of $625.5 million. This 31.2 per cent increase is due to added scope and risks that have materialised for the state of Victoria, as the owner of the project.

Added scope for this project phase included network enhancement projects (NEP) to manage road closures and keep traffic flowing during construction, and an alternative modular strutting solution for the State Library station precinct access shafts. These scope additions should provide time savings for the main works contractor.

The state's desire to bring forward the overall project delivery date from 2026 to 2025—particularly by taking on the risk of constructing deep access shafts in the CBD—has come at an unanticipated extra cost, due to:

  • initial underestimation by RPV of the likely costs and technical challenges of deep access shafts
  • difficult and unforeseen geological conditions
  • requirements by the PPP consortium for the redesign of the strutting system used in the State Library station access shafts after excavation works had already commenced
  • lower productivity of the early works contractor due to:
    • delays triggered by redesigns
    • a more physically constrained construction environment within the State Library station precinct shafts due to the strutting design changes, which reduced the capacity and type of excavation equipment that could be used.

The early construction works had delays ranging from 35 days to 10.5 months across various precincts. RPV has a reasonable amount of time contingency in its overall construction program, and through a negotiated agreement, effectively transferred the risk of any early works construction delays to the PPP consortium. The early works delays have not impacted the main works' critical path, and if project activities are delivered as planned, this should not affect the 2025 completion date announced by the government.

RPV's decision to bring in a member of the PPP consortium as its 'delegate' to help resolve delay and design issues in the State Library station precinct access shafts, as well as other early works, resulted in an unanticipated cost of $68.3 million. This extra cost was due to the EWSA that RPV negotiated with a member of the PPP consortium.

Under this arrangement, the member of the PPP consortium raised an additional $172.8 million of variations, including the redesign of some elements of the deep access shafts. RPV paid for these variations, triggered by the PPP consortium while acting as the state's delegate, from wider project contingency funds.

RPV advises that it believes the state would have incurred these costs regardless of the delegate arrangement. It also asserts that the arrangement with a member of the PPP consortium has effectively mitigated the state's exposure to any more ongoing delay risks and potential future compensation claims by the PPP consortium due to late handover of the deep access shafts by the state. The wider public sector can learn from the interface risks that have realised in this project.

RPV had substantially consumed the project's overall cost contingency at the time of this audit. This raises an early concern about the sufficiency of contingency funds available for the next phase of the project, which includes five years of complex and risky tunnelling and construction.


We recommend that the Department of Premier and Cabinet, and the Department of Treasury and Finance:

1. ensure that project proponents have undertaken sufficient and comprehensive analysis of all sensible and realistic strategic interventions and project options in business cases (see Section 2.2).

We recommend that the Department of Premier and Cabinet, the Department of Treasury and Finance, and the Department of Transport:

2. review the remaining Melbourne Metro Tunnel Project contingency funds, taking into consideration the construction risks experienced to date and the likely time and complexity pressures expected for the remaining works, and advise government on the sufficiency of these funds (see Section 4.3)

3. review and revise the original assumptions contained in the Melbourne Metro Tunnel Project business case, considering the impacts of new rail system projects, and republish the refreshed assumptions in an updated project benefits management plan (see Section 2.4)

4. prior to commencing the next major transport infrastructure project with an early works stage, review the impact of technical interface risks between early and main works packages and, with the Office of Projects Victoria, share with the public sector any lessons learned from the interface issues and risks experienced in the Melbourne Metro Tunnel Project (see Section 4.3).

We recommend that the Department of Transport:

5. improve governance and visibility of the calibration and validation processes used for Victorian transport modelling and do more frequent and timely updates (see Section 2.3)

6. implement the recommended improvements from recently completed strategic modelling reviews for the various transport demand and simulation models used in the transport portfolio, and explore opportunities to better align and integrate transport service demand forecasting approaches with service demand modelling done in other public sector agencies (see Section 2.3)

7. further develop the various transport demand forecasting models so they can include a range of scenarios testing key areas of uncertainty, and provide a high/medium/low-growth range when supporting key investment decisions (see Section 2.3)

8. provide more disclosure and transparency around demand forecasting model assumptions and likely error and uncertainty bands when these modelling outputs are used as evidence by key decision-makers to support an investment decision or are included in public announcements or public communications about projects (see Section 2.3)

9. analyse and explicitly determine passenger load trigger points for the introduction of 10-car High Capacity Metropolitan Trains in the Melbourne Metro Tunnel and allow sufficient timeframes for consequential activities such as any necessary rail network upgrade projects and platform extensions (see Section 3.4)

10. transmit to the Minister for Planning and, if there are no specific legal impediments or restrictions, publish summaries of key findings and recommended actions from past and future Independent Environmental Auditor reports produced for the Melbourne Metro Tunnel Project on the project's official website (see Section 3.5).

We recommend that the Department of Environment, Land, Water and Planning:

11. require proponents of public infrastructure projects subject to an Environment Effects Statement process to publicly publish any environmental audit reports that an independent environmental auditor or equivalent undertakes and delivers as part of the environment management framework for the project (see Section 3.5).

Responses to recommendations

We have consulted with the following agencies, associated entities and departments:

  • DPC
  • DoT
  • DTF
  • PTV
  • VicTrack
  • Yarra Trams (associated entity of PTV).

We considered their views when reaching our audit conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report to those agencies and asked for their submissions or comments.

DELWP, DPC, DoT and DTF all accepted the recommendations directed towards them, while PTV, VicTrack and Yarra Trams also welcomed the report's findings. The full responses are included in Appendix A.

Back to Top