Cost of cancellation on light rail contracts

The political brinkmanship that's developed between the Canberra Liberals and the Barr government over the post-election fate of the light rail contract took a predictable turn this week when Simon Corbell claimed cancellation would cost between $220 million and $280 million, and be "confirmation of the lunacy of the Liberal position".

In February, when the Liberals suggested they would challenge any "extortionate" pay-out fee (without saying what it regarded as "extortionate"), Capital Metro Minister Corbell​ said cancellation would cost anything from "tens of million to hundreds of millions". Two months later (and spurred on, it seems, by the Victorian government's decision to cancel existing contracts for Melbourne's East West Link road project at a cost of more than $300 million) the Liberals said any light rail contract would be "torn up" in the event they won office in October.

In opting to call the Liberals' bluff, Mr Corbell has, interestingly, quoted a dollar figure not far removed from the bill the Andrews government agreed to pay to cancel the East West Link. If the payout figure is correct (and, providentially for Labor and Mr Corbell, there's no way it can be independently confirmed) the Liberals will be forced to justify a potentially extravagant election commitment between now and October.

That's precisely what Labor intends, and it explains why opposition transport spokesman Alistair Coe​ questioned the figure on Tuesday, imploring the electorate to treat it with the suspicion he said it deserved.

Termination for convenience clauses in contracts like this generally involve reimbursement of monies which the lead contractor has outlaid or has committed to outlay at the time of cancellation. The government claims the Pacific Partnership-led consortium is spending, or is due to spend, up to $30 million a month in the five months between contract-signing and election day, and furthermore that any payout has to include debt and finance costs. Signs of serious construction work have yet to appear, which perhaps lends credence to the Liberals' warnings, though it has to be remembered that there are 14 trams on order from a Spanish manufacturer.

Large construction projects generally involve complex costings, work schedules, and payments. However, the cynic might suggest Mr Corbell's alarm over the prospect of cancellation owes more to a desire to wedge the Liberals than it does to concerns that taxpayers' money might be wasted.

Labor sees light rail not just as a transport project but as a city-building project that's vital to Canberra's economic future; in that sense, its desire to lock it in as far as possible is natural. But a government which makes the cancellation of its pet projects as expensive or unpalatable as possible runs a risk of courting voter backlash, especially as incoming governments are under no obligation whatever to continuing their predecessors' policies.

Both parties having now made their position on the light rail contract abundantly clear, it will be up to voters to determine the outcome of this brinkmanship.