Major transport infrastructure projects built in the past 15 years cost $28bn more to build than first promised, a Grattan Institute report has found.
The report, released on Monday, found a 24% mark-up compared to promised cost, largely due to premature announcement of projects before proper cost assessments.
The Grattan Institute’s transport program director, Marion Terrill, investigated all 836 projects valued at $20m or more that were planned and built since 2000, the first comprehensive analysis of all cost overruns in that time.
“Most projects come in reasonably close to their promised cost … the problem is that when projects do exceed their promised costs, the overruns can be spectacular,” the report says.
The 17% of projects that exceed their promised cost by more than half accounted for 90% of the over-budget costs.
Rather than measuring cost overruns from the point that a formal cost-benefit analysis was completed or a funding commitment was made, the report looked at the cost compared to the price tag when government ministers or opposition politicians first announced a project.
It noted that once an elected government announced a project, the public treated that as a commitment.
“We treat a promise to build a particular project for a particular cost as a real promise,” it said.
The worst projects for cost overruns were Western Australia’s Forrest highway between Perth and Bunbury and New South Wales’ Hunter expressway which both cost more than four times the amounts initially promised.
The report found that premature announcement, often in the lead-up to an election, was the biggest culprit in cost overruns. The 32% of projects that were announced early led to 74% of the value of cost overruns, it found.
“It comes as no surprise that ad hoc announcements prior to formal budget commitments tend to be extremely optimistic,” it said.
The report said the pattern of “promising poor quality or under-developed project ideas in election campaigns was troubling because politicians find it very hard to back down from promises” when the true cost of the project is revealed.
The Grattan Institute described as a “myth” the idea that cost overruns were caused by changes to project scope, like extending a road or adding a train station. In fact, only 11% of cost overruns were directly attributable to changes in scope.
The report recommended governments should not be able to commit public money to transport infrastructure until an independent evaluation and the underlying business case had been tabled in parliament.
That would overcome pressure placed on evaluators to overestimate projects’ benefits, it said, citing the Victorian auditor general’s report into the East-West link which offered advice in accordance with the government’s preferred outcome – to build the project.
“Limiting premature announcements could substantially reduce cost overruns,” it said.
The report also recommended that standalone legislation should be required for projects to cost $1bn or more because it would “encourage bipartisanship when risk and complexity are high”.
Such a requirement may have averted the Napthine Coalition government entering contracts for the East-West link only to have the Andrews Labor government scrap it after the November 2015 Victorian election.
The report also recommended that Infrastructure Australia publish information about projects and the Productivity Commission to produce ratings of whether the businesses cases for them had been reliable.
