Next year’s PCM exam?…
In Melbourne there is currently a situation straight out of Greg Tripp’s PCM exam…
Project Setting:
The West Gate Tunnel Project is an A$6.7 Bn portfolio of projects to improve East-West journeys through Melbourne with a target completion date of 2022. The project is funded by the Victorian Government who has employed a private company (Transurban) to deliver the project. In the project setting Transurban is acting as the Client. The designers are an Aurecon Jacobs JV (AJJV) and the contractor is a CPB and John Holland JV (CPBJH). AECOM and SMEC have formed a JV (ASJV) to fulfill the Proof Engineering role.
The problem:
The tunnel alignment runs through a site that was previously used as the Country Fire Authority’s Fiskville training college. The site was known to contain soil contaminated by PFAS (Per/Poly-Fluoroalkyl Substances) which was used in legacy firefighting foam. The college closed in 2015 partly due to the PFAS contamination risk.
I understand at the time of signing the contract, the Client and Contractor JV were aware of the presence of the PFAS. However, since signing the contract, the Australian Environment Protection (EPA) Agency has classified soil containing PFAS as contaminated material. Despite determining PFAS as contaminated waste, the EPA has not issued a classification for the waste which means it cannot be transported off-site for disposal. Consequently, the TBMs have sat at the bottom of their entry shafts for 6 months and not moved an inch and over 130 staff have been laid-off.
Although I have not seen the contract, the media is reporting that the Victorian Government’s contract with Transurban transfers the risk of soil contamination onto Transurban. As the issue has not been resolved after 6 months CPBJH has notified Transurban they wish to terminate the contract arguing a ‘Force Majeure Termination Event’ (an event beyond the control of both parties has occurred preventing a party from fulfilling their obligations). Despite the commercial dispute works continue on-site and in the design offices.
The Stand-Off:
CPBJH’s intention is to negotiate a new contract for the completion of the remaining works.
Transurban disputes CPBJH’s notification and is arguing the contract remains valid.
The government is arguing that Transurban and CPBJH must resolve the dispute and the project must still be delivered on schedule.
The workers union is putting a lot of pressure on the Victorian Labour Government due to the number of workers affected by the delayed works.
What do you think?
- Who owns the contamination risk?
- Was the contamination foreseeable to the Contractors?
- Does CPBJH have a right to claim a Force Majeure Termination Event?
- Who should bear the cost of building a new contaminated waste disposal facility for the PFAS contaminated waste material?
- Should the EPA bear more responsibility for the impact on-site?
- How involved in the resolution should the Victorian Government be in the resolution?
- Where do the AJJV and ASJV stand if they conduct design and review work after CPBJH has notified Transurban of their intent to terminate the contract?
- Dan you worked on this project. Any inside thoughts?
Government Warned 6 Months Ago
West Gate Tunnel Builders Seek to Terminate
Holdfast Training Services Trial Blog 
This sounds like it will run and run! The lawyers will be licking their lips. As it likely to be a high value complex dispute, it may go the way of SSE V Hochtief. They are arguing about the liability for a hydro electric scheme tunnel collapse. Hochtief won in the High Court and SSE won on appeal. it is due to be heard in the Supreme Court some time in the next 18 months. The project was handed over to SSE in 20009…
Mark you seem to suggest that both the client and contractor were aware of the contamination pre contract. The reclassification of the material post contract is a complication, but you would imagine the client would be quite entitled to say its now in the contractor’s hands,
To resolve this surely pressure needs to be applied to the EPA, a situation where as you say the Government may need to get involved. I wonder what the disposal cost increase would be for the various classification levels. You would have thought someone might have just de-risked the problem by going for the most onerous classification to get things moving.
The effect of a notice to terminate on the consultants work sounds dangerous, I am sure your directors will be getting worried about payments.
Mark, I was going to post a very similar blog to this as I was working on this project (though not in the tunnels).
The PFAS contaminated soil situation was a nightmare, even on my site where there wasn’t too much excavation going on. Like Mark says, the issue was that the EPA didn’t legislate on PFAS contaminated soil until 1 Jan 2018. The head contract was written and signed far before this, and was therefore never priced for. So they knew it was there (it is very well documented in the history of the area – known as Coode Island – lots online about the fire that caused it in the 1990s) but there was no reason to price for it at the time.
Through the grape vine, I have heard that work is still continuing in all other areas, though many of the engineers are a bit nervy about the project coming to a complete stop.
The costs of the PFAS handling, removal, treatment/disposal is huge. The PFAS is generally broken down into three categories, CAT A, B and C, with CAT A being the worst. There is also issues of asbestos in some of these.
To give you an idea of the cost, we were paying A$15 per tonne for dry non contaminated soil and A$37 for wet (leeching required etc.)
In contrast, CAT C PFAS with Asbestos (Dry) was A$175 per tonne and A$210 wet (important as we were pre drilling under the river to install steel piles).
CAT B was increased to A$395 per tonne (Dry).
CAT A is very difficult, as there is no real option to get rid of it. Research found that only one licensed facility could handle this in Victoria, and was very limited as to how much this could take. So the way around this was to treat the CAT A soil on site and re test it to prove it had been downgraded to CAT B or even C, and then remove it to the relevant licensed facilities (normally took two weeks to treat – which took up project real estate).
So in summary, you can see that costs are massively increased, especially when you consider there will be over 4km of bored twin tunnels …
There is also the persistent complication of the unions here, which are not at all happy with workers working with PFAS contaminated soil. Most of the workers are members of unions which have enormous powers in Victoria. This is what has driven the incredibly high wages of tradesmen and traffic controllers (we had a traffic controller earning in excess of A$100 a year, and it was not uncommon for carpenters to be earning in excess of A$200k a year with overtime). The union reps have the power to come on to site if they think there is any ‘unsafe’ practices and will try to stop work (I had this happen to me on a pavement construction job at night, where they walked on to site and claimed there was insufficient lighting – once proved sufficient, they moved on to trip hazards and anything they could find). In short, they appear to be mainly interested in wage increases, not safety ….
Colin I think Dan has done an excellent job at highlighting the costs involved.
Although the contamination was known, I think the issue hinges on whether the reclassification was foreseeable by the Contractor at the time of tendering the work. I understand the construction contract was signed in 2017 so it the contractor may not have known the change was coming. It sounds like the contractor was initially willing to allow the EPA to determine the disposal method however a 6+ month delay and highly skilled workers unable to work has cost them financially. The resolution will take all parties but at the moment all has gone quite as works continue on other aspects of the project.
As for SMEC the structures team leader had meetings with the commercial team to discuss the ‘notice’ the contractor attach to all correspondence – essentially declaring their continued work on the project is not to be viewed as acceptance the current contact terms. Luckily one of our engineers did a double degree in engineering and law so had some useful insights. The outcome is that SMEC’s contact with the Contactor shouldn’t be affected by this dispute. For the moment works continue.
Of interest the delay to the TBMs has made that contractor pull out of tendering for Melbournes next mega project as their tender was based on using the same TBMs. This means the final 3 bids are down to 2 JVs before getting through to the detailed design stage. A bit of a headache considering the government tender rules…
Hi Mark,
I think the first thing to consider is “Is this about contamination risk?” I would argue it is not. The issue was known and has not changed. What has changed is legislation and it is this that has caused the present impasse. The question is should either the client or the contractor have been aware or believed it likely that a change would be implemented. If yes then there is a world of pain but it is not in either parties interests to suggest that there should have been an awareness on the part of the other because to say so suggests that they too should have been aware. Presuming therefore that neither party could have known legislation would change and be incomplete such that work could not progress, both are subject to force majeure. The Government might have transferred contamination risk but they did not transfer risk of unexpected change to legislation rendering works impossible
It is ironic that it is the Government that will need to deal with their regulator before they can re-tender the works with a degree of certainity that will stop the priced risk being prohibitive.
The cost of other works delivered under the contract should be paid because there is an extant contract until termination takes effect and the client is receiving the benefit of those works.
I think post above says most of that though doesn’t it?