Victorian Auditor-General's Office
Search
 Auditing in the Public Interest
Home About Us Index Feedback Contact Us Image
Image
  Reports & Publications
Image

Results of special audits and other investigations, August 2006

2. DELIVERING REGIONAL FAST RAIL SERVICES

2.1 Audit conclusion

The delivery of more frequent fast rail services in the Geelong, Ballarat, Bendigo corridors by the agreed dates was not achieved. The Latrobe Valley corridor fast rail services are planned to commence in September 2006.

Delivering regional fast rail services required the coordination of several related activities. These activities included upgrading the rail infrastructure; providing new, faster trains; installing a fibre optic cable network as the backbone of an upgraded signalling system; designing a new timetable; and improving connecting regional bus services.

The delivery of fast rail services was progressed in 3 phases:

• Feasibility phase: the Department of Infrastructure (DoI) assessed the economic viability to inform the government’s decision to proceed.

• Development phase: the Rail Projects Group (RPG) was formed under the joint governance of the Department of Treasury and Finance (DTF) and DoI. It developed a commercial and legal framework, culminating in the acceptance of contracts to design and construct the rail infrastructure upgrade.

• Delivery phase: DoI implemented the infrastructure upgrade and the other activities needed to deliver fast rail services.

2.1.1 Fast rail initiative costs

In December 2004, DoI estimated the cost of delivering the rail infrastructure upgrade to be $750.5 million, some $194.5 million greater than the original estimate of $556 million (actual expenditure to April 2006 was $696.3 million).

The costs for other components necessary to deliver fast rail services (not forming part of the above estimates) included:

• $46.6 million to upgrade the 29 slower, 2-car trains ordered under the 1999 V/Line Passenger franchise agreement

• $33 million to extend the new train safety system on the fast rail corridors

• the additional $16.1 million cost of the fibre optic cable used for fast rail signal communications (this is an estimate of the share of the total cost of $21.5 million)

• the additional $72.5 million over 7 years that V/Line Passenger would need to operate fast rail services.

The RPG did not adequately develop the rail infrastructure upgrade budget and most of the budget increase is directly attributable to the inadequate design specifications. Both the RPG, during the development phase and DoI, during the delivery phase, incorrectly left out additional costs that were directly linked to the delivery of fast rail services.

2.1.2 Timelines

Up until June 2006, V/Line Passenger was aiming to introduce the fast rail timetable in July 2006 on 3 corridors, and at a later date on the Latrobe Valley corridor. DoI has not finalised the timetable for the 4 corridors, and the introduction of fast rail services will be delayed beyond the end of July 2006.

In terms of the timelines, the rail infrastructure upgrade completion dates are between 9 and 19 months behind schedule. The timelines set for the completion of the infrastructure upgrade, at the time that the contracts were signed, were clearly unrealistic and this should have been understood at the time. Accordingly, DoI was unable to manage the infrastructure upgrade to the agreed timelines.

2.1.3 Feasibility studies report and the recommendation to proceed

DoI’s advice to government in September 2000 recommending approval and funding of the rail infrastructure upgrade was incomplete and contributed to some of the delays in timing and cost overruns that emerged during construction. The cost-benefit analysis included in the project feasibility studies report overestimated the benefits and underestimated the costs of the upgrade.

While the cost-benefit analysis was substantially consistent with DoI guidelines in place at the time, in our view the analysis made a number of incorrect assumptions and calculations. A number of the components of the guidelines used at the time have now been changed.

2.1.4 Infrastructure upgrade contracts

The primary cause of the time delays and additional costs was the lack of proper planning, and failure to reach agreement on key design issues with stakeholders, including Freight Australia Limited (FAL) and the Director of Public Transport Safety (DPTS) before the construction contracts were awarded.

The state awarded fixed-fee contracts requiring the development of final, accredited infrastructure designs, and construction of the infrastructure in accordance with the final accredited design. A fixed-fee contract, incorporating a design component, was inherently high risk in the circumstances where the design at the time was only conceptual and other stakeholders were able to enforce changes to the scope and amend previously agreed design decisions.

Most of the delays and cost increases can be directly linked to scope changes that mostly arose from legitimate stakeholder concerns about the ability of the design to meet passenger needs and safety requirements.

The accreditation process included in the alliance agreement was not an adequate mechanism to manage the volume of scope and design changes generated by the stakeholders, including the independent DPTS.

2.1.5 Absence of an integrated approach to planning and delivering regional fast rail services

To achieve the faster and more frequent train services to the communities along the 4 corridors, a number of dependent activities were required:

• new, faster trains and improved infrastructure, together providing the potential for train services to achieve faster, more frequent journey times

• timetables through which this potential is translated into services that best meet passengers’ needs and expectations.

In November 2001, the government announced the planned purchase of 29, 2-car high-speed trains for the delivery of the first trains from the end of 2004 with final delivery in late 2006. Had the completion dates for the rail infrastructure works of between March 2004 and June 2005 been achieved, the new trains would not have been available. The acquisition of new rolling stock was a requirement of the franchise agreement entered into by the previous government for V/Line Passenger services in 1999.

Up until the infrastructure contracts were awarded in June 2002, DoI, during the feasibility phase, and the RPG, during the development phase, had done little to develop a proposed timetable. The timetable development was not well-integrated with other aspects of the fast rail initiative, and for a considerable time focus was on the infrastructure upgrade before DoI gained a full understanding of the market’s needs. The timetable development should, in our view, have occurred in parallel and informed the infrastructure upgrade decisions.

2.1.6 Outcomes for passengers

The objective of the infrastructure upgrades was to achieve journey times across the country sections of the fast rail corridors which meant that an express train service could be scheduled to meet the government’s journey time targets. Timed, non-stop journeys on the Ballarat, Bendigo and Geelong corridors confirmed that the combination of the upgraded infrastructure and new trains could deliver these target journey times. The proving of this capability for the Latrobe Valley corridor is set to take place in August 2006.

The infrastructure upgrades deliver the capability to achieve the government’s targets if the trains run express with very few stops. The actual outcomes for passengers depend on how these capabilities are translated into timetabled services.

We compared the draft fast rail timetables of July 2006 with the last timetables where services were unaffected by the project (July 2004). The final timetables may be different from these draft timetables as DoI continues to refine the fast rail services before they commence operation. The July 2006 draft timetables were not available for the Latrobe Valley corridor, and we used the previous drafts publicly released by the government in December 2004.

The draft timetables deliver a significant increase in the number of weekday and weekend train services between the regional centres of Ballarat, Bendigo, Geelong and Traralgon and Melbourne. The timetables also extend the hours during which services run on these corridors.

The timetables also deliver the government’s express journey times on all the fast rail corridors. However, the average journey time improvements between the regional centres and Melbourne are more modest because in all cases less than 7 per cent of trains achieve these target, express times.

We looked at the impacts of the draft timetables on the travel outcomes for intermediate stations along the 4 corridors for travel to Melbourne in the morning peak period. For those using these intermediate stations, most of the benefits come in the form of an extra one or 2 peak train services, although not all stations will receive extra services. The journey time savings for these travellers will be at best modest and in most cases negligible.

In total, the journey time outcomes will be more modest than we would have expected with only a minority of travellers likely to benefit from significant journey time improvements. These outcomes occur because giving some passengers full express services means bypassing often large numbers of passengers at intermediate stations along the corridors.

On all the corridors, the majority of passengers using fast rail services do not travel to the ends of the fast rail corridors. So, in terms of meeting the needs of all passengers, it is likely that only a handful of trains will run as full express services and achieve the government’s journey time targets.

While the draft and final timetables are likely to increase the number of train services at most stations, average journey time savings for all passengers using these services are likely to be more modest than implied by the government’s target journey times.

2.1.7 DoI initiatives to improve its management capability

This audit examined DoI’s development, planning and management of this project between 2000 and 2006. An external review of transport planning, project development and delivery within DoI in late 2001 concluded that it did not have sufficient resources to undertake adequate project development work.

In response, DoI continues to take action to address this weakness and improve its project management capability. These include establishing:

Project managing at DoI, a project to set up protocols, guidelines and supporting systems for project management by DoI

• the Project Review Committee which aims to ensure greater rigour in the planning, development and costing of all major infrastructure projects

• the Capital Subcommittee, which monitors all capital projects following approval by the Project Review Committee and, in particular, those projects involving major capital expenditure or major risk

• the Project Governance and Review Group, which monitors and reviews all DoI projects from initial selection to the implementation and achievement of project outcomes

• guidelines for estimating costs, evaluating risks and the assembly of a business case.

These initiatives should, over time, enhance DoI’s capability to plan, develop and deliver major capital works projects.

    RESPONSE provided by the Acting Secretary, DoI

    DoI appreciates the opportunity to provide comment on the Auditor-General’s review of the Regional Fast Rail (RFR) project.

    Context

    When the current government was elected in late 1999, there was a major policy shift with regards to the rail sector. The new government made a number of policy commitments during the election period, including the delivery of fast rail services to Geelong, Ballarat, Bendigo and the Latrobe Valley (this project), and the examination of other rail initiatives.

    This was in contrast to the previous decade or more, during which there had been progressive institutional and structural change in the rail sector – with no comparable major rail infrastructure projects being undertaken and against a background of limited financial resources. This period culminated during 1999 in the selection of private franchisees to operate the metropolitan and regional train services, and the metropolitan tram services.

    It is thus not surprising that there were limited resources and expertise – in both the public and the private sectors – to utilise in the early development of this project. The report acknowledges in part 2.1.7 the actions taken by DoI to increase its project management capability since 2002.

    Feasibility studies

    The audit report provides considerable details regarding the feasibility work undertaken by DoI, recognising in part 2.3.4 that “In August 2000, DoI advised government that the feasibility studies report estimates were preliminary and required a substantial amount of additional technical investigation to firm up the costs and related travel times.”

    The 2000 feasibility work was completed using accepted cost-benefit methodology in accordance with the prevailing project evaluation standards of that time. The Auditor-General’s report recognises that the work was substantially consistent with guidelines in place at that time, and also that a number of the guideline components have now been changed.

    Therefore, it is erroneous for the Auditor-General to conclude that the studies provided an inadequate basis for a recommendation to government to approve the project and allocate the funding, particularly when the government had already committed to the project and it was only one of several inputs into the decision.

    Safety

    Bidders for the RFR project were required to propose a safety system to ensure that the rail system was “no less safe” with the increased speed proposed under RFR. Both successful bidders proposed implementing the Train Protection Warning System (TPWS) on the sections of track approved for speeds in excess of 130 kph and on the new rolling stock.

    A review of the TPWS by the Public Transport Safety Regulator in late 2003, after the 2001 Waterfall accident in NSW and other incidents in Australia and overseas, resulted in the Regulator issuing a draft TPWS policy. Under this draft policy, implementation of TPWS was extended to apply to all passenger trains and to significantly extended areas of track. The changes required as a result of the draft TPWS policy could not have been foreseen (as they were the consequence of incidents that occurred after the initial scoping of the RFR project) and came at a critical stage of the project. The required retro-fitting created significant cost and time impacts through redesign, additional signalling work by the contractors and in delay costs as recognised in part 2.5.2 of the report. Accordingly, a higher level of train protection will operate when fast services commence, than was envisaged in 2000.

    Additional work required

    Once the contractors commenced detailed site surveys, it was clear that the infrastructure was in a substantially more degraded state than originally understood. Extensive works were required to rectify and improve the condition of the regional rail infrastructure.

    An Alliance Agreement with Freight Australia, the track lessee, was entered into in recognition of the project complexities and the contractual obligations as specified in the Primary Infrastructure Lease (PIL).

    Notwithstanding the agreement, Freight Australia was able to expand the scope of the project to secure other enhancements which created cost and time impacts for the infrastructure works.

    Timetable development

    The audit report is critical that the development of a timetable for the new services did not occur earlier. DoI has a different view. Over the life of particular rail infrastructure, there will be many different timetables, in response to changing community requirements and patronage numbers. It would be a major mistake to tailor the infrastructure to a particular timetable; the infrastructure needs to be designed and constructed to be able to cater for a range of timetables over time.

    In addition, the audit report overlooks the extensive customer research and community consultation with some 10 000 regional customers that underpins the new timetable. The timetable responds to customer and community needs for more services at more convenient times and over more hours of the day, both during the week and on weekends. Although not a part of the project scope, many of the new stopping services will also achieve reduced travel times from intermediate stations. The new timetable has delivered 401 additional rail services, an increase of 41 per cent in services to major regional centres.

    Outcome for passengers

    The original concept of the Regional Fast Rail project in 1999 was to provide a limited number of express higher-speed rail services between Victoria’s 4 main regional centres (Geelong, Ballarat, Bendigo and the Latrobe Valley) and Melbourne to promote regional and social development.

    The audit report notes in part 2.1.6 that DoI has delivered the capability to achieve the target travel times set by the government for point-to-point travel between Melbourne and each of the 4 regional centres, thus achieving the original aim of the project.

    The audit report mentions in passing another major benefit of the project – the major increase in the number of rail services – but in considering the outcome for passengers, concentrates almost exclusively on travel times. The new regional timetables announced by the government early this month (August 2006) include an additional 401 services per week to regional centres (305 of these services are to the Regional Fast Rail centres), which will become operational from September 2006. These additional services include weekday and weekend services. For weekdays, the additional services include additional peak hour services, additional early morning, day time and evening services, including later evening services, and for the Ballarat and Bendigo corridors, new earlier counter peak services.

    This enhanced rail capacity now allows regional passengers to continue their end-to-end journey anywhere within zone 1 in Melbourne at no extra cost.

    Given the maintenance backlog that became evident as the RFR work proceeded, without this project, the future of ongoing regional passenger rail services over the next decade or so would have been in doubt. Again, the audit report does not reflect this in considering the benefits to passengers. The delivery of RFR services has provided additional benefits to the Victorian community greater than was previously envisaged at the time the project was initiated. It represents an inter-generational upgrade for an essential part of Victoria’s rail network. It has delivered a world class rail service, incorporating the latest safety and communications technologies, modern, comfortable and fast trains and a historic increase in the frequency of services across the regional network.

2.2 Background

2.2.1 Introduction

Reliable and efficient transport services are vital to linking Melbourne and regional Victoria.

Nearly 6 million passengers are carried each year on the Bendigo, Ballarat, Geelong and Latrobe Valley rail corridors. Communities in these regions have a combined population of more than half a million people and represent 40 per cent of Victoria’s rural and regional population. Their travel opportunities are limited by ageing rolling stock and by rail infrastructure that could not support fast rail operation. The objective of the fast rail initiative was to improve rail services to help overcome many of the obstacles to growth in regional Victoria, and provide a major boost to its economy, population, employment and quality of life1.

Delivering regional fast rail services required the coordination of several related activities. These activities included upgrading the rail infrastructure: providing new, faster trains; installing a fibre optic cable network as the backbone of an upgraded signalling system; designing a new timetable; and improving connecting regional bus services. Throughout this report, we use the term “fast rail initiative” to describe the whole set of related activities required to deliver fast rail services to the travelling public. Otherwise, we specify the part of the overall initiative we are dealing with at any point within the report.

2.2.2 Government policy and decisions on regional fast rail initiative

Government policy and project objectives

In the run-up to the 1999 election, the current government undertook to “kick start the development of more frequent, competitively priced, fast rail to regional centres”, [through the] ”consideration of the feasibility of more frequent, competitively priced, fast rail”2.

The government’s Linking Victoria initiative, launched in February 2000, stated that:

• ”Labor will complete the $550 million fast rail program to provide substantial improvements to rail services in the Geelong, Ballarat, Bendigo and Latrobe Valley corridors

• higher frequency services will be introduced in the peak and off-peak periods on all the corridors. This will include counter-peak, early morning services to Bendigo and Ballarat

• Labor has commenced an extensive program of community consultations to develop new timetables and related additional services

• the new timetable will ensure all population centres benefit from the fast rail project by delivering a mix of express, semi-express and stopping all stations service patterns”3.

The government’s 2001 Growing Victoria Together statement reiterated its commitment to regional fast rail as part of its work towards ensuring a fast, reliable and efficient transport infrastructure4.

On 16 December 1999, the government announced an $80 million commitment to the initiative and the start of feasibility studies as the first step in delivering on this commitment.

Following completion of the feasibility studies, the government announced, in August 2000, its intention to contribute $550 million of the projected $810 million that would be required to achieve the preferred target express journey times. To deliver this option, the state would need to seek private sector involvement to fund the additional $260 million.

Figure 2A outlines the estimated costs of the infrastructure upgrade component of the fast rail initiative in each of the corridors: either achieving the target express travel times (costing $810 million); or achieving reduced express travel times (costing $550 million).

FIGURE 2A: FAST RAIL INFRASTRUCTURE UPGRADE OPTIONS

It became clear by 2001 that the private sector would not fund the additional $260 million to achieve the target express journey times. In June 2002, the government committed $556 million to the delivery of the reduced express journey times after awarding contracts to upgrade the rail infrastructure.

The government’s objectives for the fast rail infrastructure upgrade were:

• Journey times: to secure the delivery of a fast rail service between Melbourne and Geelong, Ballarat, Bendigo and the Latrobe Valley that would achieve shorter express rail journey times and the best value-for-money, within the context of the state’s financial commitment to the project

• Quality: to ensure that the faster rail service provides safe, convenient, comfortable and affordable rail services for the travelling public

• Patronage: to achieve a substantial and sustained increase in rail patronage on the 4 rail lines

• Cost: to minimise the long-term costs to the taxpayer of the upgrading, maintenance and operation of the upgraded rail network

• Risk transfer: to transfer risk to the private sector where it is appropriate to do so

• Timeliness: to secure the delivery of the infrastructure upgrade in a timely fashion, in accordance with target dates and deadlines set by the state

• Accountability: to manage the infrastructure upgrade in a transparent and accountable way, in consultation with stakeholders and in accordance with the highest standards of probity5.

Figure 2B shows the transport corridors for the fast rail services between Melbourne and Ballarat (119 kms), Bendigo (162 kms), Geelong (73 kms) and the Latrobe Valley (158 kms).

FIGURE 2B: TRANSPORT CORRIDORS FOR THE REGIONAL FAST RAIL SERVICES

Source: Department of Infrastructure.

The fast rail initiative included 5 key components:

• Upgrading rail infrastructure: construction works would be undertaken to upgrade rail infrastructure to allow trains to travel safely at speeds of up to 160 km/h on the country sections of the corridors

• New fast trains: a total of 29 new velocity trains were to be purchased

• Installation of fibre optic cable: a new fibre optic cable network was to be installed as part of the upgraded rail signalling and communications systems

• New timetable: a revised 2006 V/Line timetable would be developed, incorporating some faster and several additional train services

• Interconnecting bus services: a package of improvements to connecting bus services to the fast rail regional centres.

A new Velocity train for use on the fast rail corridors.

2.2.3 Governance arrangements

A review of DoI’s records indicated that the delivery of fast rail services had 3 phases:

• Feasibility phase: assessment of the fast rail initiative’s economic viability to inform the government’s decision to proceed

• Development phase: developing a commercial and legal framework for implementation, culminating in the acceptance of contracts to design and construct the rail infrastructure upgrade

• Delivery phase: implementing the infrastructure upgrade and the delivery of the other activities needed to deliver fast rail services.

Each of these phases was subject to separate governance arrangements.

Feasibility phase managed by the Department of Infrastructure

DoI was responsible for development of the fast rail initiative feasibility studies and the final feasibility studies report supporting the decision by the government, in August 2000, to proceed.

Development phase managed by the Rail Projects Group

Figure 2C shows the governance structure for the development phase and we explain the roles of the various groups and committees below.

FIGURE 2C: DEVELOPMENT PHASE GOVERNANCE STRUCTURE

Source: Victorian Auditor-General’s Office.

In September 2000, Cabinet established:

• the Rail Projects Cabinet Committee comprising the Premier, the Treasurer and the Ministers for Finance and Transport to oversee regional fast rail, the Spencer Street Station redevelopment and the Airport Transit Link

• the Rail Projects Steering Committee comprising the secretaries of the Departments of Premier and Cabinet, Treasury and Finance and DoI and the executive director and deputy executive director of the yet to be established RPG.

The steering committee had the following distinct responsibilities during the development and delivery phases:

• Development phase: during this period, the steering committee was chaired by the secretary of the Department of Treasury and Finance (DTF) because of the importance of commercial and legal disciplines in establishing contracts to deliver the infrastructure upgrade. This phase focused on refinement of the feasibility study content to a level of detail and reliability which could form a solid basis for entering into design and construct contracts. This included developing a viable delivery strategy, gaining a better understanding of the infrastructure upgrade costs and risks, and the development and delivery of contracts for the infrastructure upgrade and variations to the order for new trains so these met the needs of the fast rail initiative.

• Delivery phase: during this period the steering committee was chaired by the secretary of DoI. In this phase, DoI focused on: making sure that the infrastructure upgrade was delivered according to the contractual agreements; and coordinating the delivery of the other components of the fast rail initiative, such as the new rolling stock and the revised timetable.

Approval of $40 million of additional funding was provided to DoI to set up the RPG to directly manage these responsibilities during the development phase.

In December 2000, the RPG was formed as a “joint venture” between DTF and DoI. This group reported to the Rail Projects Cabinet Committee which, in turn, reported to Cabinet with input from 2 other permanent Cabinet subcommittees.

While the RPG was part of DoI, it reported to the senior management of both DoI and DTF. During the development phase, DTF took the lead with the focus on commercial and legal issues, with DoI assuming this role once contracts had been established and the focus moved to the delivery of agreed engineering solutions.

Delivery phase managed by the Department of Infrastructure

Delivering the rail infrastructure upgrade

The governance arrangements for the delivery of the rail infrastructure upgrade are shown in Figure 2D.

FIGURE 2D: RAIL INFRASTRUCTURE UPGRADE: GOVERNANCE 2006

Source: Victorian Auditor-General’s Office.

In 2002, the Regional Fast Rail Division (RFRD) was established to manage the infrastructure upgrade contracts and to ensure the delivery of the contract outcomes on time and within budget.

The RFRD monitors progress and reports to DoI’s:

• infrastructure upgrade Project Control Group through monthly briefings. This group includes an independent chair, representatives external to government and officers from the Department of the Premier and Cabinet, DTF, and DoI. Reports are detailed and cover major issues related to capital works across the 4 fast rail corridors, project costs, and potential project exposures

• Capital Subcommittee which reviews projects above $10 million

• Capital Planning and Review Division (CPRD). The CPRD submitted quarterly briefings on the infrastructure project to the Expenditure Review Committee of Cabinet on costs, risks and timescales.

Delivering other components

Since 2001, responsibility for managing the delivery of the other components of the project has been allocated to the following public agencies:

• V/Line Passenger and the Public Transport Division (PTD) of DoI for timetable development

• DoI for the purchase of the fast rail rolling stock

• VicTrack for the fibre optic cable network used to carry signal communications on the fast rail corridors

• PTD for the development of interconnecting bus services to the fast rail regional centres.

PTD has the overall responsibility for making sure that all these components come together to deliver the fast rail initiative outcomes.

2.2.4 Fast rail initiative context

Planning for the fast rail initiative took place from 2000, when DoI was also working on 2 other major rail projects: the restoration of country passenger rail services, and the rail gauge standardisation project. This required careful planning and coordination of project schedules to minimise the possibility of disruptions to delivery schedules. This was particularly so for the proposed gauge standardisation of the north-western rail corridor, as part of the rail gauge standardisation project, which could have impacted on the fast rail initiative if it proceeded at the planned time.

A further challenge arose from the rail privatisation arrangements introduced by the previous government. In 1999, the Victorian country intrastate (largely broad gauge) rail infrastructure was leased for 15 years (with options for 2 further 15-year lease extensions) to a private operator, Freight Australia Limited (FAL), now Pacific National (PN). The Primary Infrastructure Lease was transferred to PN in September 2004. FAL and then PN:

• controlled access to the regional broad gauge infrastructure for the purpose of upgrading or changing the infrastructure for the operation of fast trains

• was responsible for rail system safety and was required to submit material change documentation to the Director of Public Transport Safety whenever there was a change in the infrastructure which might affect safety risks.

This arrangement impacted on the state’s ability to deliver major rail projects, including the fast rail initiative, and meant that the lease with FAL was critical for the successful delivery of the initiative. The fast rail initiative, and particularly the required upgrade of the rail infrastructure, could not proceed until DoI reached agreement with FAL on the access arrangements and the proposed scope.

2.2.5 Objective of the audit

The objective of the audit was to review the adequacy of the management of the fast rail initiative to deliver fast rail services.

The audit examined the adequacy of:

• the feasibility studies to properly inform the government’s decision to proceed

• the development phase to put in place contracts which provided a sound basis for the delivery of the agreed infrastructure upgrade outcomes within the agreed timelines and budgets

• the delivery phase to manage all the fast rail components to deliver the planned improvements within the planned time lines and budgets.

The infrastructure upgrade has been subject to 4 previous reports by our Office. Where appropriate these reports are discussed in this part of the report6.

2.3 Feasibility phase: Adequacy of the information provided to government

2.3.1 Introduction

Comprehensive planning in the initial stages is essential to provide a sound basis for the government to decide whether it should make good its initial commitment and proceed with the fast rail initiative. The feasibility work was captured in a number of volumes on various aspects of the fast rail initiative and summarised in the feasibility studies final report published in March 2000.

Feasibility studies are a critical part of effective capital planning. A feasibility study should include:

• an explanation of the objectives and how they align with the government’s strategic aims

• the scope and cost of options to achieve the objectives

• an analysis of the option impacts and benefits

• the identification and analysis of risks and any differences in this respect between options

• the comparative appraisal of the options in terms of their costs, benefits and risks to provide the basis for deciding which, if any, option to pursue.

Following the government’s December 1999 announcement of its ($80 million) commitment towards the fast rail initiative, DoI commenced a number of feasibility studies. The feasibility studies examined options for reducing travel times using fast trains between Melbourne and Ballarat, Bendigo, Latrobe Valley and Geelong. The studies:

• considered 3 options for fast train services (partial delivery of government journey time targets, full delivery of government targets and delivery of faster journey times preferred by local councils along the 4 corridors)

• scoped and costed the engineering solutions to deliver these alternative journey times

• estimated increases in demand for fast rail services and the associated fare revenues for the government’s full journey time targets

• estimated costs of rail infrastructure upgrade and benefits from the government’s target journey times, and the ratio of benefits to costs as a measure of the economic viability7.

2.3.2 The Auditor-General’s previous review

The Auditor-General’s October 2002 report on the Finances of the State of Victoria, 2001-02, reported on the results of a review of the early stages of the rail infrastructure upgrade. In respect of the feasibility studies report, we concluded that:

“The Department of Infrastructure advised that the journey times for trains that stop at some or all stations along the corridor will not be known until the final design for the entire track corridors is completed in March 2003.

Given that the majority of current timetabled train services for these rail lines are not express, in particular peak hour services, the concentration of the feasibility analysis of the costs and benefits of the project predominantly as express journey times could be considered narrowly focused - not providing a meaningful analysis of the time savings potentially available to many of the passengers utilising the rail services in these corridors”8.

In response to the above conclusion, the Minister for Finance advised that:

“Regional centres presently have a mix of express, semi-express and ‘stopping all stations’ services. A primary objective of the Fast Rail Project is to reduce the current express travel time, and for comparative purposes the greatest benefits flow when express travel times are reduced. That is, access to the metropolitan areas from regional country areas, is generally enhanced through the faster travel times. The Auditor-General has not acknowledged that the improved travel times flow to the semi-express and ‘stopping all stations’ services as well. Consequently, the project provides similar benefits to commuters along the fast rail corridors. It is incorrect to assert that the analysis was ‘narrowly focused’ ”9.

In the light of this response, as part of this audit, we undertook a further review of the feasibility studies report.

2.3.3 Adequacy of the feasibility studies

Risk management

An important part of project planning is the identification and classification of risks according to likelihood and severity. These should be addressed in a feasibility study. The types of risks typically dealt with include:

• commercial risks with business relationships (the risk that the contractor fails)

• operational risks with business activities (such as key people leaving)

• technical risks with assets (such as equipment failure)

• financial risks with financial controls and systems (such as budgets being overspent)

• compliance risks with meeting regulatory obligations (such as actions not complying with requirements).

We would have expected the feasibility studies to have included at least a preliminary risk management plan. However, a preliminary risk management plan was not part of the feasibility studies. We understand that the addition of a 30 per cent plus or minus onto the estimated costs of the rail infrastructure upgrade represented the initial estimation of the cost of the likely risks. Notwithstanding the above, it is not unreasonable to expect that the feasibility studies report would have addressed the typical risks for a project of this nature.

Further comment on risk management is addressed in section 2.5.2 of this report - Upgrading the rail infrastructure.

Feasibility studies final report - Review of costs and benefits

The feasibility studies final report10 of March 2000, estimated the economic costs and benefits of delivering fast rail services achieving the government’s preferred travel time targets. For this option, the feasibility studies report included the “most likely” estimate of the ratio of benefits to costs and the basis for these estimates. These are shown in Figure 2E.

FIGURE 2E: ORIGINAL RATIO OF BENEFITS TO COSTS11

These remain the only estimates of the economic benefits expected to be delivered through the introduction of fast rail services and are based on the estimated cost of $810 million, They have not been adjusted to reflect the revised government investment of $556 million and should have been.

The government relied on the feasibility studies estimates to indicate that “… the Government’s decision to proceed with the Fast Rail Links Project followed detailed feasibility studies into each route. The studies confirmed that there is significant economic benefit associated with reducing travel times between Melbourne and the four provincial centres”12. Given their importance to the government’s decision-making process, we expected that these estimates were based on a rigorous cost-benefit analysis with robust, supporting assumptions.

We determined the reliability of the economic analysis by examining:

• the feasibility studies final report and its supporting documentation

• DoI’s guidelines for assessing capital projects13

the supporting documentation used to calculate the costs and the benefits for the Bendigo corridor (DoI provided these calculations only for the Bendigo corridor).

DoI’s capital assessment guidelines provided general guidance on the principles for the appraisal of capital projects and some specific guidance for transport projects. We found the following inconsistencies between the fast rail appraisals and the guidelines. The guidelines required:

• the use of a 30-year appraisal period14, while the feasibility studies report assumed a 20-year period. Using the longer appraisal period would have led to a small increase in the benefit to cost ratio. The use of a lower discount rate inflates the benefit cost ratio

• ”… that, as a minimum, consideration be given to a base case, and to existing asset, non-asset and new asset options”15. The guidelines acknowledge that ”… for some projects a full evaluation will not be appropriate for all of the option categories [e.g. a non-asset option may not be feasible] … However, reasons for excluding apparently feasible options prior to full evaluation should be stated”16. The feasibility studies did not evaluate an option to use the existing commitment to new 145 km/h rolling stock to improve passenger services. This would have clearly illustrated the value-for-money by comparing the benefits and costs of the fast rail initiative against the benefits of simply making best use of the committed trains.

We also found that the feasibility studies report overstated the quantifiable economic returns expected from the delivery of fast rail services because:

• the assumptions used to calculate the projected travel time benefits for existing rail users were unrealistic

• the costs included for the proposed new fast trains were underestimated

• the range of the other benefits included and the methods used to calculate some of these benefits were optimistic.

Each of these is addressed below.

Assumptions about travel time benefits for existing rail users

The travel time benefits to rail users are the direct impacts flowing from the improved fast rail services. The remaining economic impacts are correlated with, and dependent on, these direct impacts. There are 2 reasons why we consider the travel time benefits included in the feasibility studies report were optimistic:

• the calculation of time savings was based on the $810 million option when, subsequently, the government only approved funding for $556 million with reduced travel time targets

• the time savings for all rail travellers throughout the fast rail corridors were calculated as if they would benefit from using express fast rail services when only a small percentage of the services would be express.

The government’s approved $556 million only provided for reduced travel time targets. This meant that the feasibility studies report overstated the express journey travel savings by about 10 per cent for the Ballarat, Bendigo and Latrobe Valley corridors.

Applying savings consistent with express journey times to every passenger on the fast rail corridors was overly optimistic. These services are designed to run express from the towns at the regional end of the corridor to Melbourne with a small number of stops in between. Achieving the journey time targets is dependent on the use of upgraded, faster sections of the track and only having limited stops on the journey.

It is not realistic to apply express savings to all passengers on the corridor because:

• the need to serve passengers at intermediate corridor stations means that it is unlikely that all services from the Bendigo, Ballarat, Latrobe Valley and Geelong will run as express services

• the express services that do run will need to bypass many intermediate stations, meaning that these passengers will travel for the most part on stopping or semi-express services

• most of the infrastructure upgrades are on the country sections of the corridors so the potential for journey time improvements is greatest for longer journeys and diminishes for journeys closer to metropolitan Melbourne.

This finding is best illustrated for the Bendigo corridor where DoI provided us with the detailed benefit calculations. The time savings in the feasibility studies report were calculated as follows:

• the journey time from Bendigo was assumed to fall from 110 minutes to 77 minutes assuming express trains running at speeds of up to 180 km/h

• the 30 per cent reduction in journey times was applied to the average journey time for all trips on the corridor (80 minutes) to give a saving per trip of 24 minutes

• the time benefits were calculated assuming that every trip saved 24 minutes.

Table 5.2 in the feasibility studies final report17 lists the passenger boardings and alightings for services from Spencer Street Station (now Southern Cross Station) on a weekday in February. This shows that: 54 per cent of passengers travel no further than Sunbury, just beyond the metropolitan boundary; a further 15 per cent travel to and from Bendigo; and the remainder use the 10 stations between Sunbury and Bendigo. So most travel is to destinations within or near to Melbourne.

Figure 6.2 in the feasibility studies final report18 shows that fast rail will reduce express journey times by 22 minutes on the country section of the corridor and by 3 minutes across the metropolitan section. The 54 per cent of passengers travelling between Sunbury and Melbourne will, therefore, save a maximum of 10 minutes because of the infrastructure upgrades and faster trains. This potential saving falls to 3 minutes for the 19 per cent of passengers using other metropolitan stations on the corridor. For these passengers, assuming that they will save 24 minutes on average journey times of 40 minutes or less is a significant overestimate.

Indeed Figure 6.2 shows that a 24-minute journey time saving is only achieved for the 15 per cent of passengers travelling between Bendigo and Melbourne. In this case, the express journey time falls by 25 minutes and the average journey time by 30 minutes.

The use of these assumptions significantly overestimated the travel time benefits of the fast rail option tested.

Assumptions about costs – New trains

The previous government committed to purchase 29 new, 2-car trains at a cost of $169 million through its franchise agreement with the regional rail operator, National Express. These trains would be capable of running services at speeds up to 145 km/h compared with the existing sprinter and locomotive-hauled fleet which could operate at 130 km/h and 115 km/h, respectively. The current government accepted this commitment when it came to office.

Delivering the government’s preferred travel time targets needed trains that could sustain maximum speeds of 180 km/h on the Bendigo corridor, 160 km/h on the Ballarat and Latrobe Valley corridors, and 130 km/h on the Geelong corridor.

We raise the following concerns about the train costs used in the economic appraisal:

• there is a mismatch between the train-related costs and benefits included in the appraisal

• the additional fast rail upgrade costs incorrectly assumed that the trains ordered by National Express could practically operate services at speeds of up to 160 km/h.

Properly matching train costs and benefits in the economic appraisal

The purpose of the cost-benefit analysis was to inform the decision to upgrade the infrastructure and the trains to achieve the government’s journey time targets. To do this, the economic appraisal should compare the additional costs beyond existing commitments with the benefits that flow from this additional investment.

The preferred option appraisal included the total time saving benefits flowing from the combination of the committed $169 million train purchase and the further upgrades needed to deliver fast rail, but only the additional fast rail costs.

This results in a mismatch between the costs and the benefits. The introduction of trains capable of 145 km/h operation may have allowed some journey time savings. For example, where a new train replaced a locomotive-hauled service, then for some sections the new train could travel at 130 km/h, rather than the maximum speed of the locomotive service (115 km/h). The purchase of these trains would have also allowed the government to increase service frequencies. The benefits attributable to this investment should have been excluded from benefits included in the government’s preferred option.

This would have been clear had DoI compared the preferred option with the base case including the costs and potential benefits of this commitment. DoI did not consider what could be achieved using the committed spending to purchase new trains capable of 145 km/h operation. DoI’s capital guidelines required the testing of an “existing asset” option19.

Costs of upgrading trains to fast rail standards

The 1999 V/Line franchise agreement specified that new trains were to be capable of speeds of up to 160 km/h with sustained operation at 145 km/h. The trains’ engine needed to have the capacity to go faster than 145 km/h to make sure it could accelerate to its sustained operating speed. These trains would not have been suitable for running timetabled passenger services reaching speeds in excess of 145 km/h.

Table 3 in the feasibility studies final report20 includes the maximum train speeds required to achieve the government’s preferred travel time targets. Trains would need to be capable of operating at speeds up to: 180 km/h on the Bendigo corridor; 160 km/h on the Ballarat and Latrobe Valley corridors and 130 km/h on the Geelong corridor.

Our review of the detailed cost-benefit calculations for the Bendigo corridor and the background material supporting the final report shows that the feasibility studies incorrectly assumed that the committed rolling stock could deliver 160 km/h operating speeds21. As a result, the economic appraisal underestimates the costs of upgrading the trains for fast rail operation.

The background feasibility material calculates the costs of upgrading trains above the 1999 franchise commitment and purchasing new trains in the future as passenger demand outgrows the existing fleet.

Figure 2F shows our estimate of the amended train upgrade costs. This adds an additional $48.2 million to the feasibility studies costs.

FIGURE 2F: FAST RAIL TRAIN UPGRADE COSTS

Reliability of the benefit calculations

Figure 2G summarises the feasibility studies report cost-benefit analysis and outlines the costs, benefits and the ratio of benefits to costs.

FIGURE 2G: FAST RAIL COST, BENEFIT AND RATIOS

The overall ratio of benefits to costs for the 4 corridors combined is 2.2, with discounted project costs of $907 million and discounted benefits of $2.029 billion. Benefits are around double the costs for the Ballarat, Bendigo and the Latrobe Valley corridors, and are nearly 5 times the costs for the Geelong corridor.

Figure 2G breaks down the benefits into 8 components and shows the percentage each contributes to the total benefit. These 8 components represent:

• the estimates of the direct traveller benefit (rows 1 to 3 of the benefits)

• the secondary benefit of recirculating the capital spending through the economy (row 4 of the benefits)

• the benefits based on forecast population changes (rows 5 to 8 of the benefits).

Each of these is commented on below.

Direct traveller benefits

The most important and measurable source of direct economic impact are the direct travel-related benefits to:

• existing public transport users

• those travellers who are attracted to the improved public transport services

• remaining road users who experience lower congestion levels and accident risks because some road travellers have moved to public transport. This decongestion may also provide some environmental benefits to the wider community through lower vehicle emissions.

Figure 2G shows that the direct travel benefits accounted for 36 per cent of the total benefits made up of 11 per cent for existing rail travellers, 17 per cent for travellers attracted to rail and 8 per cent to remaining road travellers.

Figure 2G also shows that the benefits to new train travellers switching their journey from car were 51 per cent higher than those for existing train travellers (we added the travel time savings and reduced vehicle operating costs for new train travellers ($346 million), and this compared with the benefits to existing rail travellers of $229 million). The feasibility studies forecast a 26 per cent increase in patronage as previous car travellers are attracted to use rail22.

It is an economic convention to value the net benefit of a transport improvement to a traveller who changes their mode of travel as half the benefit of an existing traveller on the improved mode (this is known as “the rule of a half”)23. However, the feasibility studies report indicates that the total benefits to existing rail users ($229 million) are smaller than the benefits to car users that switch to rail (over $300 million). These new users are less than 30 per cent of the existing rail market and this implies that the benefits per new user greatly exceed those accruing to existing rail users.

We found the explanation for this by reviewing the detailed benefit calculations for the Bendigo corridor. DoI did apply the “rule of a half” to estimate the time saving benefits to former car users and these were of the right relative magnitude (under 10 per cent of the existing rail user benefits). However, DoI then calculated the vehicle operating costs saved by these former drivers and added them to these time-related benefits. This practice, while consistent with DoI’s guidelines24, overestimates the net economic benefits25.

When these vehicle operating costs are included, the benefit per trip by a former car user is about 10 times the benefit per trip for an existing public transport user.

Correctly calculating these benefits will reduce the benefits by about 17 per cent of the total.

Secondary benefits of recirculating the capital spending through the economy

Figure 2G includes as a benefit, the effects of the capital spending on the economy. This makes up 8 per cent of the total benefits. This assumes that the money spent on the project will be recirculated through the local economy purchasing further goods and services.

The inclusion of these “multiplier effects” in a cost-benefit analysis is no longer included in DoI’s guidelines as these multiplier effects are difficult to measure26.

A cost-benefit analysis is prepared to assist decision-makers allocate scarce resources between projects. The inclusion of the “multiplier effect” inflates the performance relative to other projects.

Forecasting population and wider economic impacts

Figure 2G indicates that 56 per cent of the benefits arise because of population and business growth. These include:

• a net growth in the state’s economy because more people are attracted to live in the state (21 per cent)

• the benefits of lower congestion because those people who move to regional areas reduce the level of traffic on Melbourne’s more congested roads (7 per cent)

• the benefits of lower congestion because those people in regional areas substitute local trips to more extensive and varied regional facilities for trips to more distant equivalents (24 per cent)

• some house building will be transferred from Melbourne’s outer suburbs to regional towns where infrastructure costs for houses and utilities is lower (4 per cent)27.

All of these benefits are based on the assumption that improving regional rail services to and from Melbourne will lead people to relocate to regional Victoria, and to the growth of business activity in these regions. These are secondary impacts resulting from the direct travel time improvements and may well double-count the direct traveller benefits. Because of this and the difficulty in their measurement, they are normally excluded from the cost-benefit analysis28.

DoI’s latest cost-benefit analysis guidelines exclude the economic and distributional impacts from the cost-benefit analysis and recommends that they are assessed as part of a separate regional economic impact analysis29. This was not the case in 200030. Even if it was appropriate to include “secondary benefits” in 2000, the greater unreliability of these estimates and the risk of double-counting the direct traveller benefits should have been known and flagged.

The feasibility studies final report acknowledged the difficulties in calculating reliable estimates of these benefits stating that: “There is a well accepted method for measuring transport user benefits, for example. However, many of the potential effects are contingent on a wide variety of other influences (underlying rates of population and economic growth, entrepreneurial activity etc). The impact of improved rail services on population and business growth can only be estimated within relatively wide confidence levels. Some of the potential effects can only be described and perhaps given an order of magnitude value. Nevertheless, estimates of these impacts can be made based on the best available information and within the time constraints for the project”31.

When reviewing the international evidence on the impacts of very high-speed trains on population growth, the final report noted that “… it is not clear to what extent high-speed rail projects are the primary cause of growth in the regions researched”.

The feasibility studies estimated the population change for the 4 fast rail options using 3 methods32:

• by interviewing 400 Melbourne workers to find out the likelihood that they would move to regional Victoria if their daily commute to work took no longer than their present journey

• by comparing past population growth rates by travel time to Melbourne and applying higher rates to areas further from Melbourne where fast rail would significantly reduce the travel times

• by looking at the relationship between travel time to Melbourne and forecast population growth.

In determining the final forecasts used to generate benefits, the studies discarded the market research estimates and took the average of the forecasts based on past growth rates and future growth. The consultants that completed the detailed work made it clear that many things drive population change and improved rail services are only of moderate importance. Indeed the market research respondents rated “good road access to Melbourne” and “good local employment opportunities” well above “rapid train service to Melbourne”33.

The consultant’s report stated their belief that the rail upgrade would increase the rate of population growth in the 3 corridors. They stated that “We believe the main forecast to be logical and plausible. However, we caution that the actual population outcome resulting from the train project will depend on a host of factors, and that the real result could fall within a wide range”34.

The feasibility studies used this main forecast as the basis for estimating that 21 per cent of the benefits are due to additional state economic growth. The report “… assumed that the net (state) growth will be 10 per cent of the total additional growth expected under each of the travel time scenarios”35. There is no evidential basis for this assumption provided in the report. The report uses this figure to calculate the number of additional households and their spending as a measure of the fast rail-related net growth in the state economy.

While the report acknowledges the net addition to the population of Victoria is difficult to predict with certainty36, it is of concern that this significant secondary impact was included without evidence to support its calculation. In addition, this measure of net economic growth does not equate to a net economic benefit because it makes no allowance for the costs additional residents impose on the state.

In our view, these benefits should not have been part of the cost-benefit analysis. These benefits are not calculated with the same level of rigour and confidence as the direct transport benefits and to combine them in a single measure of economic value obscures this very important fact. At the very least, they should have been subject to sensitivity testing to illustrate the extent to which the robust economic outcomes reported relied on the wider and less certain economic benefits.

Conclusion

From our review of DoI’s cost-benefit analysis, we concluded that:

• the cost of upgrading trains to achieve the government’s preferred travel time targets was underestimated by $48.2 million

• the benefits to existing rail users were significantly overestimated because it assumed that all passengers along the corridor would benefit from the fastest express services

• the benefits to travellers transferring from road to rail were also significantly overestimated because the appraisal incorrectly calculated these benefits

• the wider economic benefits were much more difficult to measure, were based on insufficient evidence and were out of all reasonable proportion when compared with the direct traveller benefits.

While the cost-benefit analysis was substantially consistent with the DoI guidelines in place at the time, the analysis made a number of incorrect assumptions and calculations. A number of the components of the guidelines used at the time have now been changed.

The cost-benefit analysis used to support the recommendation to government to proceed with the fast rail project significantly overestimated the benefits and also underestimated the costs of the project.

In these circumstances, the feasibility studies report did not provide an adequate basis for the recommendation to government to approve the upgrade and allocate the funding.

2.3.4 Government approval

The feasibility studies report indicated that:

• the government’s travel time targets could be achieved in full in each of the 4 corridors at a total estimated cost of $810 million

• partial delivery of the travel time targets, to the lesser requirements investigated in the report, would reduce costs to an estimated $500 million

• delivery on the higher travel time targets preferred by the regions would increase costs to an estimated $1.750 billion37.

Figure 2H summarises the options.

FIGURE 2H: FAST RAIL UPGRADE OPTIONS

Detailed train scheduling did not form part of the feasibility studies report because the proposed works in the metropolitan area may be sensitive to detailed timetabling issues and, therefore, needed to be known before being taken to the design stage. Cost estimates were prepared to a +/-30 per cent level of accuracy and included an allowance for project management and contingencies.

The feasibility studies report proposed that the following major tasks were required so that the rail infrastructure works could proceed:

• investigate the potential for Public Private Partnership (PPP) delivering the upgrades

• engaging the existing franchisee, infrastructure lessee and other private sector bodies in determining the most effective means of achieving all fast rail objectives

• resolving engineering and technical policies and standards relating to the track, signalling requirements, level crossings and fencing

• further scoping of works to refine the feasibility study cost estimates

• assessment of property acquisition requirements

• undertake environmental effects statements where required.

The feasibility studies report indicated that the minimum realistic time period to upgrade all lines would be around 5 years. However, implementation could be staged to allow progressive improvements in travel times.

In August 2000, DoI advised government that the feasibility studies report estimates were preliminary and required a substantial amount of additional technical investigation to firm up the costs and related travel times.

In August 2000, the government approved funding of up to $550 million to facilitate the upgrade of rail infrastructure on the fast rail corridors, with the intention of attracting private funding of $260 million to achieve its target express journey times. In announcing the decision, the Premier indicated that the government’s decision to proceed followed detailed feasibility studies which confirmed that: “… there is significant economic benefits associated reducing travel times between Melbourne and the four provincial centres …”38.

In April 2001, the government endorsed the following (Figure 2I) reduced deliverables, which were subject to further refinement, based on total infrastructure works funding of $550 million. The government went to the market on this basis and awarded contracts in June 2002 committed to delivering the upgraded rail infrastructure to facilitate fast rail services with reduced express times for $556 million.

FIGURE 2I: FAST RAIL INFRASTRUCTURE UPGRADE DELIVERABLES –
APRIL 2001

This decision was made without:

• information on all risks relevant to the rail infrastructure upgrade delivery and appropriate mitigation strategies. Risk management did not become a focus for DoI until June 2002

• consideration that the benefits in the feasibility studies report may have been overstated. The August 2000 advice to government had already noted that the benefits may have been overstated

• confirmation that critical agreement with the infrastructure lessee on access arrangements to the track had yet to be secured. The August 2000 advice to government noted that the lack of control over access placed a serious limitation on the ability to implement not only infrastructure works, but the whole fast rail initiative

• recognition that the infrastructure lessee would need to approve any new works, as would the DPTS. Reference to the critical importance of the role of the DPTS was included in the Primary Infrastructure Lease between the Director of Public Transport and FAL signed in April 1999, and the Alliance Agreement between DoI and FAL signed in December 2001

• detailed information on the scope and cost of the rail infrastructure upgrade. The development of the expression of interest documentation proposed in May 2001 was the first occasion when an early indication of the scope of rail infrastructure works was available.

Conclusion

DoI’s advice to government in August 2000, recommending approval and funding for the upgrade of the rail infrastructure on the fast rail corridors was incomplete and, as a result, contributed to some of the delays in timing and cost overruns that emerged during the construction of the rail infrastructure.

In addition, the advice to government did not provide an adequate basis for the recommendation to government to approve the rail infrastructure upgrade and allocate funds because critical operational issues had not been resolved. These included the agreement with FAL on access arrangements and arrangements to approve the contractors’ infrastructure designs with both FAL and the DPTS. Risk management mitigation strategies also had not been developed.

Decisions on the rail infrastructure upgrade, in the absence of resolution of these issues, were premature and presented a significant risk to successful delivery.

2.4 Development phase (December 2000 to June 2002)

2.4.1 Introduction

In September 2000, the government established the Rail Project Committee of Cabinet and the Rail Projects Steering Committee. In December 2000, DoI and DTF formed the RPG as a “joint venture” between the 2 departments. We described the roles and activities of each of these groups in section 2.2.3 earlier in this report.

The RPG was responsible for the agreement of contracts for the design and construction of the rail infrastructure upgrade.

2.4.2 Feasibility studies refinement

The feasibility studies final report indicated that several major tasks needed to be completed before the rail infrastructure upgrade could proceed. These included:

• investigation of the potential for PPPs delivering the upgrades

• engaging the existing franchisee, infrastructure lessee and other private sector bodies in determining the most effective means of achieving all fast rail objectives

• resolving engineering and technical policies and standards relating to track, signalling requirements, level crossings and fencing

• further scoping works to refine the feasibility study cost estimates

• assessment of property acquisition requirements39.

When the RPG was established, its focus was on taking the feasibility work forward to the point where the state could decide on the awarding of contracts for the design and construction of the infrastructure upgrade. We note below how the RPG responded to the feasibility study recommendations between its establishment (in December 2000) and the signing of the infrastructure upgrade contracts (in June 2002).

The RPG investigated the potential for delivering the upgrade as a PPP. It found that the private sector was not willing to invest and concluded that the infrastructure upgrade was not viable as a PPP.

The RPG consulted with the key stakeholders during this period by setting up working groups with some including representatives from the passenger operator and the lessee. However, it is clear from the subsequent difficulties in accrediting the fast rail designs that this consultation did not adequately “determine the most effective means of achieving all fast rail objectives”. Many scope changes described in section 2.5.2 of this report, can be linked to the level of design detail available when the contracts were signed in June 2002.

In a similar way, the RPG was not successful in resolving issues relating to engineering, technical policies and standards. This also led to some of the contract scope changes and variations described in section 2.5.2 of this report.

The RPG, however, further refined the feasibility studies works and cost estimates. Specifically, the RPG recommended:

• keeping both lines open on the country sections of the Bendigo corridor but only upgrading one for high-speed operation, with the second line used for low-speed freight traffic and as a passing loop to allow express services to overtake non-express services. The impact of this decision is addressed in section 2.5.2 of this report

• upgrading only one of the 2 lines to fast rail standards (the feasibility studies recommended upgrading both lines) because this would save $23 million and would still meet passenger requirements for the foreseeable future. The outcome of this decision is addressed in section 2.5.4 of this report.

The RPG also estimated the cost of land acquisitions as part of the overall infrastructure upgrade budget. We show in section 2.5.2 of this report how the scope of these estimates was inadequate and led to a significant underestimate of the actual costs.

Conclusion

The work of the RPG did not adequately complete the tasks identified in the feasibility studies final report as an essential precursor to the delivery of the infrastructure upgrade. Most importantly, the RPG did not obtain agreement from the key stakeholders on the most effective means of delivering all fast rails objectives, and it did not resolve the issues about engineering, technical policies and standards.

The absence of agreement on detailed design issues led to many of the scope changes described in section 2.5.2 of this report.

2.4.3 Rail infrastructure lease and the regional fast rail Alliance Agreement

Role of the infrastructure lessee

As indicated previously, in 1999 the Victorian country intrastate (largely broad gauge) rail infrastructure was leased for 15 years (with options for 2 further 15-year lease extensions) to a private operator, Freight Australia Limited (FAL) now Pacific National (PN). The Primary Infrastructure Lease was transferred to PN in September 2004. FAL and then PN, were responsible for managing the infrastructure so it was fit for the purpose of safely running freight and passenger train services.

In discharging this responsibility, the lessee:

• controlled access to the infrastructure by third parties

• had to be accredited under the safety accreditation regime administered by DoI’s Safety and Technical Services Branch (STSB), now the Director of Public Transport Safety (DPTS). While DPTS sat within DoI, it had to fulfil its statutory duties in regard to rail safety independently from DoI.

Importance of these functions to the delivery of fast rail infrastructure

Section 5 of the lease gives the Director of Public Transport rights to gain access to the infrastructure to carry out new infrastructure works. However, in practical terms, DoI understood that it would be difficult to access the rail infrastructure to build the rail infrastructure without the cooperation of the lessee.

In Victoria, managers of rail infrastructure and operators of rolling stock must be accredited under the rail safety accreditation regime established by Victorian legislation. To achieve accreditation, a company must demonstrate: its competency and capacity to manage infrastructure or rolling stock safety; its financial capacity to meet potential liabilities; and the use of an appropriate safety management system.

If an accredited rail operator makes or agrees to a material change40 to the rail infrastructure, rolling stock or train operations that affects its safety management system, it must submit a material change application to the DPTS for approval to demonstrate how increased risks are mitigated. The application must describe the change in risk and the updated safety management system, and controls proposed to keep the risk as low or lower than the current level of risk. The applicant must also show how the change will not increase the risk for interfacing rail activities.

As with the government’s Rail Gauge Standardisation Project, DoI recognised from the early planning stage that the cooperation of the lessee was critical to the successful implementation of fast rail services. To manage the lessee’s primary roles in approving access to the rail infrastructure and applying for revised infrastructure accreditation, DoI entered into an “Alliance Agreement” with FAL in December 2001.

DoI’s Alliance Agreement with FAL

The Alliance Agreement acknowledged the state’s and FAL’s rights and obligations under the lease in relation to the completion of new works. It established a cooperative framework to work together to facilitate the rail infrastructure upgrade in a manner which met the objectives of both parties. Among other things, the agreement set a framework and guidelines for the provision of access to the infrastructure and the accreditation of the upgraded rail infrastructure.

The agreement included protocols and a process for FAL to provide access to the rail infrastructure. The contractors must produce track occupation plans and pay FAL agreed rates for these occupations. FAL must facilitate these planned occupations and manage their safe implementation.

The agreement also set out the stages during the design and construction process where FAL would need to apply to the DPTS on issues regarding its accreditation. These included:

• 3 stages in the design process covering the contractors’ concept design, preliminary design and final design proposals for the upgrade of the rail infrastructure

• several post-design stages covering the testing and commissioning of the upgraded infrastructure.

The agreement was clear in stating that contractors would not be allowed to start work within a corridor “… until FAL has received written confirmation from the DPTS that DPTS has no objection to the accreditation documentation which relates to the final design”41.

The agreement specified the maximum times FAL had to review design and accreditation material, and to pass complete and reviewed material to the DPTS. Having reviewed the draft accreditation material, FAL had 3 options when reviewing the contractors’ accreditation submissions:

• to pass this on to the DPTS within 15 days of receiving the information

• to request further information from DoI within 10 days (and DoI had to provide this information within 5 days)

• to flag issues not complying with FAL’s accreditation requirements within 15 days. DoI would either instruct the contractors to change the documentation if it thought the change was justified or, negotiate a resolution with FAL, or put the issue to binding arbitration.

The Alliance Agreement did not specify how long the DPTS should take to confirm accreditation.

Conclusion

The Alliance Agreement was an attempt to manage the risks associated with FAL’s key access and accreditation roles. Its successful operation still relied on a high level of cooperation from FAL because:

• there were clear and legitimate avenues for delaying accreditation by requesting information or identifying, what FAL considered were, inadequacies in the contractors’ accreditation applications

• there were no clear sanctions in the agreement if the parties to the agreement did not comply with its requirements.

2.4.4 Design and construction

Our October 2002 Report on the Finances of the State of Victoria, 2001-02, reported on the results of a review of the design and construction process. In respect of the process, we reported that:

“The successful contractors are to design and construct the upgraded rail infrastructure in accordance with the requirements of a contract and proposal brief. The design stage of the contract requires submissions by the contractors to the Department of Infrastructure for the preliminary corridor design, the final corridor design and the deferred design packages, to be completed within specified time frames from the date of the signing of the contract”42.

In June 2002, the state awarded fixed-fee contracts which included the requirements to:

• develop final, accredited infrastructure designs from the concept designs submitted in the successful bids

• construct infrastructure in accordance with the final (accredited) designs to deliver the contract outcomes.

This type of contract places the responsibility for delivering infrastructure that achieves the contract outcomes with the contractors. For example, if the implemented design does not work because of a miscalculation or poor construction, then the contractors must remedy this at their own cost.

However, a fixed-fee design and construct contract is less effective in allocating certain risks to the contractors where other stakeholders are also able to enforce changes to the project scope and amend previously agreed design decisions. Under these circumstances, the state may bear the time and money impacts of scope changes as commercial contractors seek to vary the contract.

The risks of design and scope changes are lessened where stakeholders have been effectively consulted on detailed designs before the state has committed to these designs.

Conclusion

We consider that the use of fixed-fee design and construct contracts, based on a conceptual design, increased the risk of failing to deliver the rail infrastructure upgrade on time and within budget. From the information available at the time of awarding the contracts, the RPG should have realised that the risk to the projected timelines and budget was substantial and needed to be effectively mitigated.

2.4.5 Tender evaluation and selection process

When the RPG was established, its responsibilities included putting together the tender documentation, the evaluation of tenders and the selection process.

Our October 2002 Report on the Finances of the State of Victoria, 2001-02, reported on the tender evaluation and selection process. In respect of that process, we reported that:

• In May 2001, the RPG sought expressions of interest for the design, construction and delivery of metropolitan and country infrastructure works packages. For each country infrastructure works package, the private sector participants were provided with the flexibility to develop and bid for a scope of works that would provide the best journey time estimates and optimal value-for-money within the specified standards.

• In September 2001, the secretary of DoI approved the recommendation of the RPG in relation to the short-listed selection process.

• Three tenders, in response to a Request for Tender, were received in February 2002 and the initial evaluation process revealed a number of strengths and shortcomings in all tenders.

• In May 2002, the best 2 tenderers for each corridor were invited to submit revised tenders.

• In June 2002, the government endorsed the RPG’s recommendation of the preferred tenderers for each of the country works infrastructure packages with an estimated project cost of $556 million43.

2.4.6 New trains

When the RPG was established, its responsibilities included putting in place the contracts and contract variations for rolling stock.

The previous government announced in June 1999 the purchase of 29 high-speed trains for country rail passenger services as part of its V/Line franchising arrangements with National Express44.

The feasibility studies report indicated that the base demand for rail services in all corridors had been increasing over the last 5 years and expectations were for growth in the future. As a consequence of this increased demand, peak capacity issues were likely to be exacerbated. The feasibility studies report indicated that the new trains acquired by National Express would provide adequate capacity in the short-term45.

The franchise agreement required National Express to introduce 29 new double unit sprinter-style trains into service by June 2003. In recognition of the need to improve the speed of country trains in the future, the agreement specified that the trains were to be capable of speeds of up to 160 km/h with sustained operation at 145 km/h. In practical terms, this meant the trains could run services at speeds of up to 145 km/h. The train engine needed to have the capacity for higher speeds than this to make sure it could accelerate to its sustained operating speed.

In February 2001, the RPG advised the government that the purchase of these trains would compromise the delivery of travel time targets because they were only capable of operating at 145 km/h. The travel targets would be missed by 6 minutes on all corridors unless the government funded additional, costly rail infrastructure works. The RPG recommended that the government purchase trains capable of sustained operation at 160 km/h. In February 2001, the government endorsed this recommendation and the negotiations to amend the rolling stock started with the supplier.

In November 2001, the government announced that 29 high-speed trains would be built to run regional fast rail services46.

In June 2002, DoI advised the government that additional trains were needed to provide capacity to deliver rail services to Mildura and South Gippsland by December 2004, and to sustain the Warrnambool service after 2006. There was no surplus capacity within the V/Line Passenger fleet to meet these service requirements. The existing arrangement used to purchase the 29 fast trains included an option to purchase additional trains. DoI recommended that this option be exercised to purchase an additional 9 trains.

The option would secure new trains capable of operating at 160 km/h. These would be used for the most part on the fast rail corridors, allowing older rolling stock to be cascaded to the other routes.

The 38 new fast trains were to be progressively delivered from the end of 2004, with final delivery in late 2006. The first trains started testing in early 2005 and have since been progressively introduced to run existing passenger services.

The V/Line franchise agreement dated 1999 and the amended agreement dated 2003 contain the costs of the original and amended train orders. We summarise the costs as follows:

• the 29 new 2-car sets capable of operating at 145 km/h would have cost $169 million

• the 29 new, 2-car sets capable of operating at 160 km/h cost $215.6 million (an added cost of $46.6 million)

• the extra 9 new, 2-car sets capable of operating at 160 km/h cost $66 million

• the contract maintenance costs remained unchanged

• the total cost of upgrading the trains and extending the order for regional fast rail was $46.6 million.

This cost of the 29 new, 2-car sets is directly attributable to the fast rail initiative.

Conclusion

It is evident that the new trains are available for the planned commencement of the fast rail passenger services in mid-2006. However, this would not have been the case had the original infrastructure completion dates for the rail infrastructure works of between March 2004 and June 2005 been achieved.

The total costs of the fast rail initiative should include the $46.6 million cost of upgrading the original order for 29 trains to operate at speeds of up to 160 km/h.

2.5 Delivery phase (June 2002 to the present)

2.5.1 Introduction

To deliver the faster and more frequent train services to the communities along the 4 corridors required:

• upgraded rail infrastructure on the country sections of the corridors to allow trains to travel safely at speeds of up to 160 km/h

• 29 new velocity trains (addressed in section 2.4.6 of this report)

• installation of a new fibre optic network as part of the upgraded rail signalling and communications systems

• a revised 2006 V/Line timetable incorporating some faster and several additional train services

• a package of improvements to connecting regional bus services.

Collectively, these 5 components formed the fast rail initiative.

We expected DoI to plan and manage each of these elements to contribute to the outcomes on time and within budget.

In addition, there are clear dependencies between some of these elements, for example:

• The new, faster trains and improved infrastructure together provide the potential for train services to achieve faster and more frequent journey times. We expected that the infrastructure design would take account of the new trains’ characteristics and that both these elements would be managed so that they were ready at the same time.

• The timetable is the mechanism through which the enhanced train service potential is translated into better customer services. We expected the infrastructure design would take account of the likely pattern of timetabled services.

• We expected that regional bus services would be realigned to maximise the benefits of the investment.

Each of these components of the project is addressed in the following pages.

2.5.2 Upgrading the rail infrastructure

Introduction

On 25 June 2002, the government awarded contracts47 to design and construct the fast rail infrastructure upgrades to the:

• John Holland and Transfield joint venture for the Latrobe Valley and Bendigo corridors

• Thiess-Alstom consortium for the Ballarat and Geelong corridors.

The contract deliverables are shown below in Figure 2J.

FIGURE 2J: INFRASTRUCTURE CONTRACT DELIVERABLES

In addition to the contract costs, the state allowed for further project costs of $58.6 million (net) making a total budgeted cost of $556.1 million. This included a reserve for contingencies ($21.4 million) and capital risks ($12.3 million) totalling $33.7 million or 6 per cent of the total.

In committing to these costs and timelines, we expected DoI to have understood the rail infrastructure upgrade risks and put in place contractual arrangements and other measures to manage these risks.

Design and construct contracts

Once the construction contracts were signed, DoI understood that there remained a significant amount of work to develop the contractors’ concept designs to final designs. Indeed, the concept designs and the following preliminary designs had insufficient detail to form the basis for the submission of any meaningful accreditation documentation to the DPTS. It was not until the final design that the level of design detail allowed stakeholders to carry out a comprehensive review of the implications. While key stakeholders were consulted soon after the contracts were awarded in June 2002, the minimal level of design detail prevented a full review for some considerable time.

Risk management

Section 2.3.1 of this report indicated that a preliminary risk assessment was not prepared as part of the feasibilities studies report, although +/- 30 per cent was noted in the report.

At the time the contracts were awarded, the RPG had completed an initial assessment identifying the main risks that later materialised to delay the rail infrastructure upgrade. The RPG’s initial risk management assessment was deficient because this exercise happened in the absence of:

• a formal process for identifying and assessing risks

• clear accountabilities for risk management

• mitigation plans for the risks identified

• a mechanism to review and update the project risks.

The total value attributed to these risks in June 2002 was $8.95 million or 1.6 per cent of the total infrastructure costs of $556 million. In the original approved budget for the rail infrastructure upgrade, a total of $33.7 million, or 6 per cent of the total cost, was allocated for capital risks or contingency.

In January 2003 (7 months after the contracts were awarded), DoI applied an improved risk management framework to assess the infrastructure-related risks. This identified and more fully described a wide range of risks. The potential exposures (totalling $89 million) included:

• contract scope changes and variations

• claims for delays caused by scope changes

• higher land acquisition and compensation costs

• compensation to the access provider for disruption to business.

DoI used this improved assessment as the basis for its risk management going forward.

The RPG’s early assessment of the likely risks was incomplete up to the awarding of the infrastructure contracts in June 2002. The RPG did not adequately inform government of the significant risks inherent in the awarding of fixed-fee contracts based on a conceptual design and without effective prior consultation with the key stakeholders. We considered that the use of fixed price and design construction contracts and the Alliance Agreement with FAL would not have been able to protect the state from the risks identified by DoI.

Contract variations

In March 2006, the total cost of the infrastructure upgrade contracts was $608 million, $124 million more than the June 2002 budget of $497.5 million. DoI’s current forecast of the total cost of these contracts has not been included because of the current negotiations between DoI and the contractors. DoI also expected construction work to begin on all corridors in November 2002 after the acceptance of final designs; some 4 to 5 months after the announcement of the successful tenderers. Depending on the corridor, construction actually started between 9 months and 16 months after this target.

It became clear to DoI from a very early stage that it was going to be much more difficult to achieve an accredited final design than had been planned because:

• the accreditation process included in the Alliance Agreement was proving complex

• the infrastructure lessee, the train operator, the safety regulator, the train drivers’ union and DoI all raised significant scope and design issues.

In this section of the report we examine the reasons for the contract variations to date.

Design and accreditation process

In DoI’s view, the main reason for the delays in starting construction was the time taken to gain approval of the contractors’ designs and accreditation documents. DoI’s documentation records a history of concerns that FAL was:

• not completing document reviews and submissions in accordance with the Alliance Agreement

• not able to easily assess the accreditation documentation because it did not have a defined risk profile to use as a basis to assess the impact of the designs on its safety accreditation

• not providing the contractors with access to its safety management system which was important to properly frame their accreditation documentation.

DoI reported in March 2003, some 4 months after the planned commencement of construction, that there were 71 accreditation issues under active consideration, resulting in delays in the commencement of construction. Given the volume of design and scope issues and accreditation process difficulties, it became clear that it was going to take much longer to provide documentation that met the accreditation requirements.

DoI broke with the agreed process in the Alliance Agreement in an attempt to start construction works by using external consultants to help navigate specific interim works packages through the accreditation process.

The consultants were experienced in the accreditation process from overseas and interstate railways. They worked with DoI and FAL, assisting with the collection and preparation of data to use in its material change applications. However, the process was still slow and labour intensive.

The accreditation process in the Alliance Agreement, which provided for up to 300 days to arrive at a final design, was unlikely to deliver within DoI’s time frame of 4 to 5 months unless there was positive cooperation from all the parties involved. This included both FAL and the DPTS.

The extent and the scope and design changes are referred to in the following section.

Scope changes

The stakeholders (including FAL and the DPTS) raised a wide range of scope issues which resulted in significant changes to the contract costs and time lines to complete the construction. Figure 2K details these scope variations by corridor and the actual payments made to April 2006. The contractors have made further variations and claims totalling $24.96 million, and DoI has yet to negotiate a settlement amount.

FIGURE 2K: INFRASTRUCTURE CONTRACTS SCOPE VARIATIONS – ACTUAL PAYMENTS TO APRIL 2006 ($MILLION)

Below we describe the reasons for these variations.

Global agreements for track works and time-related claims

Global agreements were struck with the 2 contractors across the 4 corridors, to settle contractual issues, including claims for extension of time and additional infrastructure works, and payments to April 2006 totalled $32.13 million.

By the third quarter of 2003, the contractor on the Ballarat and Geelong corridors had lodged notices for delays experienced in the consideration of the contractors’ infrastructure proposals during the design phase, and other claims related to the interpretation of the contract. After a significant period of negotiations, these claims were resolved for $14.35 million for the Ballarat corridor and $7.05 million for the Geelong corridor.

Similar global agreements for the Bendigo and Latrobe Valley corridors were executed in November 2003 and totalled $6.63 million and $4.1 million, respectively.

Diverge signalling

The extensions to the safety stopping system for the operation of fast rail services, as recommended by the DPTS, to areas where trains transition from low to high-speed track (speeds of between 130 km/h and 160 km/h), led to significant reworking of the contractors’ signalling designs. Approved variation payments for this purpose across the Bendigo and Latrobe Valley corridors are currently $19.51 million. The Train Protection and Warning System (TPWS) is discussed in further detail below.

Changes to signal spacing and sight distances

The Signal Sighting Committee (SSC)48 recommended changes to the signal design agreed between DoI and the contractors. This included the minimum spacing of signals and the minimum distance from which a train driver could see a signal.

The SSC also wanted pathways constructed next to where tracks cross. These pathways allow improved and safer access when drivers needed to manually change the points controlling the train’s path through these crossing points.

The SSC insisted on these changes. While these requirements were in excess of current operational and standard practices, DoI’s approved scope changes to avoid further delays. To April 2006, this has cost $14.67 million.

Changing the project scope for the Bendigo corridor

DoI agreed to a design and construction contract which had a single track with 3 short passing loops replacing the existing double track between Kyneton and Kangaroo Flat near Bendigo. This proposal was deemed by government to lower the cost and risk of the project because it limited the necessary works on the many heritage bridges and tunnels on the Bendigo line.

At the time, DoI thought this approach would deliver the additional services and minimum journey times set out for the corridor.

Following the signing of the contracts in June 2002, DoI:

• reviewed the contractors’ design proposals (between late 2002 and early 2003)

• started community consultation to determine the form of the fast rail timetable.

DoI’s review found that the target travel times and additional train services could not be delivered under the single track configuration with 3 short passing loops agreed to in the design contract.

Subsequently, DoI required the contractor to redesign and extend the passing loops. The cost of this change in scope was $10.27 million.

We found that the evaluation of the contractor’s tender design which was undertaken at the tender, preliminary and final design stages was inadequate because this issue should have been identified. In saying this, it is also evident that the review of designs was focused more on construction issues than outcomes associated with delivery of fast rail services.

Further, early timetable development would have assisted DoI to establish whether the infrastructure solutions would achieve the outcomes, and may have highlighted this issue earlier.

Concrete sleepers

The contractor’s final design proposals for the Latrobe Valley corridor developed in January 2003 were based upon the use of a resilient rail-fastening system for timber sleepers that would avoid the higher cost alternative of replacing existing sleeper plates. These fastenings were not the type approved for use on FAL’s network and FAL objected to their use.

DoI identified that maintenance costs associated with timber-sleepered track were almost 3 times those for concrete-sleepered track at fast rail operations of 160 km/h. Hence, the use of concrete sleepers would result in savings on maintenance costs over time. On this basis, the higher capital cost of constructing a new concrete-sleepered track was justified by DoI from a “whole-of-life cost savings” basis, and the fact that the state was liable for any change to the maintenance costs of FAL as a result of the rail infrastructure upgrade.

Upgraded rail infrastructure on a fast rail corridor.

In November 2003, the contractor was directed to substitute timber sleepers with concrete sleepers for the fast track upgrade on the Latrobe corridor, and in December 2003, the Minister for Transport approved this decision. To the end of April 2006, the cost of this scope change was $9 million.

Given that the final infrastructure design for the Latrobe Valley corridor was submitted by the contractors in January 2003, a substantial period of 11 months elapsed before a decision was taken regarding the use of concrete sleepers. Again, this highlights the issues that could have been identified and considered had corridor designs been subject to better consultation earlier in the initiation phase.

Latrobe Valley corridor overhead infrastructure

To allow the contractor to complete works on the Latrobe Valley corridor, VicTrack was supposed to remove the electrical overhead infrastructure upgrade between Pakenham to Warragul before work started on the rail infrastructure. Although tenders were called in March 2002, the work did not proceed.

The contractor and DoI looked at an alternative to removal of the overhead infrastructure. This work delayed the project and led to some cost variations. To prevent further delays, DoI approved a variation for the contractor to remove and subsequently replace the electrical overhead infrastructure. To date, payments of $6.74 million have been made for this variation.

Turnouts on the Ballarat and Geelong corridors

The contractor for the Ballarat and Geelong corridors designed turnouts49 around March 2003 and May 2003, respectively. These designs were to the existing standard, which included the use of reconditioned turnouts as part of the upgrading of the fast rail corridors. However, FAL requested that only new turnouts be used. In January 2004, DoI decided that the turnouts to be used would be upgraded to 60 kg rail-on-concrete bearers, which were the type that were already approved for operation on the FAL network. This was done at a cost of $4.7 million.

Other scope variations

Payments for a multitude of other contractual variations across all 4 corridors, as at April 2006, totalled $26.99 million: $11.7 for the Bendigo corridor; $7.84 million for the Ballarat corridor; $3.75 million for the Geelong corridor and $3.7 million for the Latrobe Valley corridor. These variations were for bridge strengthening and level crossing works, contamination management, vegetation removal, fencing, extended track occupations, and other track and signalling works.

Changing the scope of the train safety system

The infrastructure contracts recognised the need to provide an upgraded safety system for running new trains at speeds of up to 160 km/h. Previously, the fastest trains on the network had a top speed of 130 km/h. The contracts included the costs of installing the TPWS. The TPWS had been used in the United Kingdom to provide additional protection to a train when it incorrectly passed a stop signal and ran the risk of derailment or collision with other trains.

The TPWS comprises equipment fitted to the track and inside the train driver’s cabin. The trackside equipment detects excessive speeds and triggers the cabin mounted equipment to stop the train. The contracts included funding to fit trackside equipment and cabin units to 29 of the new fast trains. The cost of the purchase and fitting of the TPWS in cabin units was $3.8 million. Trackside units were only fitted on sections where the infrastructure would allow trains to reach speeds of 160 km/h. The costs of this equipment were not separately identified in the bids.

After reviewing the contractors’ design proposals, the passenger rail operator (V/Line) and infrastructure lessee (FAL) questioned the scope and application of TPWS. The Director of Public Transport Safety (DPTS) then independently reviewed the proposals and concluded that TPWS was the most cost-effective approach to safety for the 4 corridors. The DPTS also developed a draft policy based on its review that required a broader application of TPWS than was included in the contracts. The development of the draft policy was influenced by DPTS’s involvement in the Special Commission of Inquiry into the Waterfall accident in New South Wales. This was one of several factors prompting a review of the application of TPWS in Victoria50.

Specifically, the policy applied to the installation of TPWS on:

• Victorian country broad gauge lines used for country passenger train services, excluding electrified suburban lines

• all trains accredited to run on these lines.

The draft policy stated that TPWS line-side equipment be fitted to stop signals protecting passenger lines within a designated train protection area where:

• the line speed on the approach to the signal is greater than 130 km/h (so this now applied to parts of the fast rail corridors where trains travelled at speeds in excess of 130 km/h)

• the signal is assessed as requiring this equipment as a result of applying the risk assessment process set out in the policy

• directed by the safety regulator.

The extension of TPWS on the 4 corridors to cover areas where trains travel between 130 km/h and 160 km/h is directly attributable to the fast rail initiative. DoI agreed a common approach to the extension of TPWS across the 4 corridors and issued variation orders to install the additional units at an estimated cost of $33 million. The adoption of a common TPWS approach required the substantial redesign of the signal system on 2 corridors at a further cost of $19.51 million, as at April 2006, which is described earlier within this section under “Diverge signalling”.

The funding for the extension of TPWS was requested and provided for in DoI’s separate Country Train Safety System (CTSS) project. Total funding approved under this DoI initiative is $91.5 million51, including the $33 million directly attributable to the fast rail initiative.

Conclusion

The contractual arrangements for the design and construction and the RPG’s failure to properly assess, value and manage key risks resulted in a substantial number of contract variations which impacted on the time to complete the rail infrastructure upgrade and its cost. DoI put in place an improved risk management framework in January 2003.

In our view, the primary cause of the time delays and additional costs incurred under the infrastructure contracts were due to a lack of proper planning and consultation by the RPG before the contracts were awarded. The practical problems with the accreditation process and the actions of some of the participants exacerbated, but did not cause, these time delays and additional costs. Most of the additional delays and costs can be directly linked to scope changes that mostly arose from legitimate stakeholder concerns.

The need to reconsider the suitability of TPWS by FAL and the DPTS led to additional costs for the redesign of signal systems on 2 corridors and significant, unplanned time delays on all corridors.

We also consider that the $33 million cost of TPWS is directly attributable to the fast rail initiative.

Other cost variations

As at April 2006, total other infrastructure-related costs were $88.3 million, $37.39 million more than the original June 2002 budget of $50.91 million. Figure 2L details the other cost variations to the regional fast rail project.

FIGURE 2L: OTHER COST VARIATIONS ($MILLION)

In the following paragraphs we examine the reasons for these variations.

State administration costs

The budget for administration costs rose by $20.47 million from the June 2002 estimate of $29.63 million to an April 2006 actual of $50.10 million.

The reasons for this increase were:

• additional contractor and DoI staff costs to manage the material change issues raised by FAL, help with the infrastructure accreditation process, and review the contractors’ activities on-site

• additional accommodation and support charges associated with this extra labour.

This higher budget reflected the complexity of the rail infrastructure upgrade, and DoI’s need to secure external expertise to manage a range of issues that were beyond its resource capacity.

Higher insurance premiums

The state provided insurance for the 2 infrastructure contractors to cover liabilities arising from their activities which may have affected firms using or managing the infrastructure or the general public. It made this decision on the basis that the state was best able to manage these risks. In early 2002, insurance brokers estimated the cost of this insurance at $2.1 million.

In August 2002, the Victorian Managed Insurance Authority (VMIA)52 was appointed as the rail infrastructure upgrade insurance adviser. The VMIA advised that the cost of this insurance would be significantly greater than the original $2.1 million estimate because of:

• the impact on insurance capacity and premiums arising from the September 2000 terrorist strikes in the USA

• rising public liability premiums for rail-related activities due to a number of rail crashes worldwide.

The insurance costs has risen from an estimated $2.1 million in June 2002 to $12.5 million in April 2006, an increase of $10.4 million. Most of this change is associated with the changes in the global insurance market.

Land acquisition costs

The feasibilities studies report indicated that one “major task” to be completed was the assessment of property acquisition requirements.

The June 2002 project budget included an estimate for land acquisitions of $7.57 million. This was based on an assessment of the value of land and properties likely to be acquired for the project. This underestimated the costs of compensating property owners for disruption and loss of business, and legal and surveying services. At the time that this estimate was developed, the conceptual design (an early overview of the nature of works required) was being used and, as a result, a better estimate of the likely land required and its acquisition cost was not available.

The cost of land acquisitions (including compensation to land owners) at April 2006, was $10.8 million, $3.23 million above the original budget estimate.

FAL costs and compensation claims

The infrastructure lessee (FAL and then PN from September 2004) was responsible for managing the regional, broad gauge rail infrastructure. The lessee is entitled to:

• payment for its fast rail-related costs, including the time involved in reviewing designs, completing the accreditation and commissioning of new infrastructure, attending meetings, providing the contractors with access to the infrastructure

• compensation for any fast rail-related disruption to its existing freight business.

In the June 2002 budget, the lessee’s cost estimates were budgeted at $3.73 million. By April 2006, payments in regard of these costs was $14.9 million, an $11.17 million increase.

In addition, the June 2002 budget did not include provision for FAL compensation. This is despite the fact that the RPG had made provision for compensating FAL in the December 2001 Alliance Agreement with FAL.

The absence of any recognition in the budget to cover FAL’s compensation costs is of concern given the awareness within DoI that the project would substantially disrupt FAL’s commercial activities. By April 2006, compensation costs amounted to $2.9 million.

Conclusion

We found that the most important reason for the overrun in costs was DoI’s underestimation of the resources needed to administer the rail infrastructure upgrade and negotiate the safety accreditation requirements.

2.5.3 Fibre optic cable

When contracts for the rail infrastructure upgrade were signed in June 2002, $4.1 million was allocated towards the cost of connecting the fibre optic cable network (FOC) into the fast rail signal systems on the Bendigo, Ballarat and Latrobe Valley corridors. No budget allocation was made towards these costs for the Geelong corridor. The original infrastructure upgrade budget made no allowance for the actual purchase and installation of the trunk FOC along the fast rail corridors, as this cost was yet to be determined.

In October 2001, VicTrack advised the government that the installation of the FOC was necessary to provide rail signalling and communications infrastructure to deliver fast rail services. The FOC was being developed separately to capture any value from commercialising the spare capacity available in the FOC.

The initial $810 million project estimate included a $15 million allowance for the installation of the FOC along the 4 fast rail corridors. At this time, the private sector was expected to fund the installation of the FOC so it could sell the excess capacity to generate a commercial return.

However, the bidders for the installation of the FOC network indicated that there were limited opportunities to commercialise the spare capacity in the FOC, citing the poor investment climate in the telecommunications industry. The government agreed to a revised budget of $550 million with the estimated $15 million cost of the FOC removed. The government was advised that that any funding required to install the FOC would be additional to the committed sum of $550 million.

In June 2002, the government was advised that the estimated cost of meeting the fast rail upgrade minimum FOC requirements was $13.9 million. This covered the installation of the FOC so that it had sufficient capacity for regional fast rail’s needs. The cost of providing additional capacity for other commercial uses was estimated at $4.6 million. This gave a total estimated cost of $18.5 million, with 75 per cent directly attributed to the rail infrastructure upgrade. The material we reviewed made it clear that these costs were not covered in the project’s existing budget.

In June 2002, the government endorsed VicTrack providing the full capital funding required for the installation of the FOC along the fast rail corridors. Any fast rail budget savings or unspent contingency would be used to contribute to the cost of installing the FOC.

In August 2002, the government announced that VicTrack had signed a $21.5 million contract with a private sector company to design, build and maintain for 25 years a new 500 kilometre FOC network for regional Victoria along the fast rail corridors.

The FOC’s primary purpose is to form a critical part of the fast rail signalling and communications systems. Although fast rail will only use 20 per cent of the FOC’s capacity, the project remains the key reason for the installation of the FOC. The commercial opportunities appear limited as is evidenced by the failure to attract private finance to fund the installation.

Installation of the network was scheduled to commence by December 2002, and was to be completed by early 2004. The installation of the cable was not, however, completed until the middle of 2005.

Conclusion

It is our view that the fast rail initiative should bear its share of the costs of creating the FOC, consistent with it being the key driver for installation. Following the advice given to the government in June 2002, we have estimated this cost as 75 per cent of the total cost of $21.5 million, or $16.1 million. This is in addition to the $4.1 million allocated to connect the completed FOC to the fast rail signalling and communication systems on the Bendigo, Ballarat and Latrobe Valley corridors. We note that funding for this activity was omitted for the Geelong corridor.

2.5.4 Developing the new fast rail timetables

In this section we compare the new draft (July 2006) fast rail timetables with those operating in July 2004 to understand:

• how the new timetable makes use of the enhanced rail infrastructure to provide faster express journey times and additional services for travellers between Melbourne and the stations at the ends of the fast rail corridors (Ballarat, Bendigo, Geelong and Traralgon)

• the extent to which the fast rail initiative benefits other rail travellers using intermediate stations within the corridors.

We compared the draft fast rail timetables of July 2006 with the last timetables where services were unaffected by the project (July 2004). The final timetables may be different from these draft timetables as DoI continues to refine the fast rail services before they commence operation. The July 2006 draft timetables were not available for the Latrobe Valley corridor, and we used the previous drafts publicly released by the government in December 2004.

Definitions

The peak direction is towards Melbourne in the morning commuter peak and away from Melbourne in the afternoon commuter peak.

We have defined peak and off-peak time periods based on the time train services arrive at, or depart from, Southern Cross Station as follows:

• morning peak: 6.30 am and 9.00 am

• afternoon peak: 4 .00 pm and 6.30 pm

• the inter-peak: 9.00 am to 4.00 pm

• evening: after 6.30 pm

• early morning: before 6.30 am.

Impacts on rail travel between Melbourne and the 4 regional fast rail centres

Figure 2M compares the number of weekday services and journey times for services running the full length of the 4 fast rail corridors.

FIGURE 2M: IMPACTS ON SERVICES BETWEEN MELBOURNE AND BALLARAT, BENDIGO, GEELONG AND LATROBE VALLEY (SERVICES ON A TYPICAL WEEKDAY)

We note that for weekday travel, the draft timetables deliver:

• a significant increase in the number of services between Melbourne and Ballarat (65 per cent), Bendigo (64 per cent), Geelong (10 per cent) and Traralgon (46 per cent)

• modest reductions in average journey times between Melbourne and these regional centres range from 4 per cent for Traralgon to 14 per cent for Ballarat

• the government’s target journey times for all the fast rail corridors but only on a small number of services. There are significant reductions in the lowest journey times between Melbourne and Ballarat (22 per cent), Traralgon (19 per cent), Bendigo (17 per cent) and Geelong (12 per cent). However, these only apply to a small percentage of the train services travelling between these regional centres and Melbourne (less than one per cent for Traralgon and up to 6 per cent for Bendigo and Ballarat).

In addition, the draft timetables:

• double the number of weekend services between Melbourne and Ballarat, Bendigo and Traralgon

• provide earlier morning services to Melbourne and the regional centres

• provide later services on weekdays and at weekends.

We conclude that the draft timetables deliver the government’s minimum journey time requirements on all of the fast rail corridors. The small number of services achieving this target means that there is a significant difference between the maximum and the average journey time savings. The draft timetables increase the number of trains connecting Melbourne and the regional centres and extend the hours of service both for weekday and weekend travel.

Impacts on rail travel for all stations in the fast rail corridors

In the following pages we illustrate the impacts of the draft timetables for all rail travellers in the 4 corridors (not just those using services to and from the fast rail regional centres). For each corridor, we compare average journey times and the number of services from each station on the corridor to Melbourne in the morning peak period.

Some of the stations on each corridor are also served by metropolitan rail services. We identify these stations for each of the corridors.

Ballarat

Figure 2N compares the Ballarat corridor journey times (July 2006) with those in the July 2004 timetable.

FIGURE 2N: COMPARING AVERAGE JOURNEY TIMES AND NUMBER OF TRAIN SERVICES FOR MORNING PEAK PERIOD TRAVEL, BALLARAT TO MELBOURNE

Note: Sunshine, Footscray and North Melbourne stations are also served by metropolitan rail services.

Source: Victorian Auditor-General’s Office, using the July 2004 country timetable and the draft July 2006 timetable.

Figure 2N shows for the Ballarat corridor that:

• the most significant journey time gains are confined to Ballarat, with smaller gains for Ballan, Bacchus Marsh and Melton, and negligible changes for other stations closer to Melbourne

• all stations receive an extra 2 services except for Ballan, Deer Park and Ardeer, which gain an extra peak period service.

Bendigo

Figure 2O compares the Bendigo corridor journey times (July 2006) with those in the July 2004 timetable.

FIGURE 2O: COMPARING AVERAGE JOURNEY TIMES AND NUMBER OF TRAIN SERVICES FOR MORNING PEAK PERIOD TRAVEL, BENDIGO TO MELBOURNE

Note: Watergardens, St Albans, Sunshine, Footscray and North Melbourne stations are also served by metropolitan rail services.

Source: Victorian Auditor-General’s Office, using the July 2004 country timetable and the draft July 2006 timetable.

Figure 2O shows for the Bendigo corridor that:

• the significant journey time gains are confined to Bendigo and Castlemaine, with negligible reductions for the remaining stations on the corridor

• 8 stations receive one or 2 extra services; 2 stations, at Watergardens and Sunshine, lose a single existing service; and the number of services at the remaining 8 stations remains unchanged.

Geelong

Figure 2P compares the Geelong corridor journey times (July 2006) with those in the July 2004 timetable.

FIGURE 2P: COMPARING AVERAGE JOURNEY TIMES AND NUMBER OF TRAIN SERVICES FOR MORNING PEAK PERIOD TRAVEL, GEELONG TO MELBOURNE

Note: Werribee, Newport, Footscray and North Melbourne stations are also served by metropolitan rail services.

Source: Victorian Auditor-General’s Office, using the July 2004 country timetable and the draft July 2006 timetable.

Figure 2P shows for the Geelong corridor that:

• the journey time gains are greatest for Geelong, South Geelong and Marshall stations, and taper off to very modest gains for stations between Geelong and the Melbourne terminus

• there is an extra service for stations between Marshall and North Geelong, and between Footscray and North Melbourne. Other stations have the same number of services, except Newport where 2 fewer trains stop.

Latrobe Valley

The July 2006 draft timetable for the Latrobe Valley corridor was not available, so our analysis is based on the December 2004 draft timetable. Figure 2Q compares the Latrobe Valley corridor journey times (December 2004) with those in the July 2004 timetable.

FIGURE 2Q: COMPARING AVERAGE JOURNEY TIMES AND TRAIN SERVICES FOR MORNING PEAK PERIOD TRAVEL, LATROBE VALLEY TO MELBOURNE

Note: Pakenham, Dandenong, Clayton, Caulfield and Richmond stations are also served by metropolitan rail services.

Source: Victorian Auditor-General’s Office, using the July 2004 country timetable and the draft July 2006 timetable.

Figure 2Q shows for the Latrobe Valley corridor that:

• the journey time gains are greatest for Traralgon, Morwell and Moe, and modest for stations beyond this point

• travellers using Traralgon, Morwell, Moe, Warragul, Pakenham, Dandenong and Caulfield receive up to 3 additional services. Services now also stop at Richmond.

Conclusion

The draft July 2006 timetables deliver a significant increase in the number of end-to-end, weekday and weekend train services on the regional fast rail corridors. It also delivers the government’s express journey times for the Ballarat, Bendigo, Geelong and Latrobe Valley corridors. The average, weekday journey time improvements between the regional centres at the end of these corridors and Melbourne are much more modest because so few of these services (less than 7 per cent in all cases) achieve the government’s target express times.

When we looked in detail at the morning peak changes for travel to Melbourne, it is clear that the journey time savings for most of the stations between the main regional centres and Melbourne are modest or negligible.

These journey time outcomes are more modest than we would have expected. Only those travellers at the end of these corridors benefit from significant journey time improvements. For those at intermediate stations, most of the benefits come in the form of additional train services. For example, on the Bendigo corridor for peak services to Melbourne, only Bendigo and Castlemaine passengers gain significant, average journey time savings of up to 13 per cent. These passengers make up only 23 per cent of the rail passengers on this corridor.

Given the size of the average journey time savings, we conclude that a large portion of the potential project benefits have not been achieved.

2.5.5 Integrated regional bus services

As part of its 1999 election platform, the current government stated, “… to ensure the benefits of the [regional fast rail] project are maximised for residents who live in nearby towns, Labor will also ensure that connecting bus services are coordinated with train timetables on the upgraded service”53.

In November 2005, the government announced that new bus services are being introduced throughout regional Victoria as part its commitment to improve regional transport connections detailed in its Moving Forward strategy. DoI advises that new bus links will be established to connect patrons from smaller communities to regional centres so that they are able to access fast rail services54.

The development of better integrated services (timetables) is currently in progress.

2.5.6 Fast rail infrastructure upgrade expenditure

Figure 2R summarises DoI’s original and revised project budgets, and the actual expenditure to April 2006.

Based on DoI’s budget, expected costs have increased by $194.5 million (35 per cent) from $556 million in June 2002 to a forecast $750.5 million in December 2004. No further budget changes have occurred. The overall increase may be summarised as follows:

• November 2003: a $60.8 million increase to $616.8 million

• March 2004: a further $68 million increase to $684.8 million

• December 2004: a further $65.7 million increase to $750.5 million.

To April 2006, actual infrastructure costs had increased by $140.3 million over the original estimate (25.2 per cent), with the cost of the design and construct contracts increasing by $110.5 million (22.2 per cent) and a $37.4 million (73.4 per cent) increase in other costs giving a total increase of $147.9 million. However, netting-off the June 2002 risk and contingency allocation of $33.7 million and recognising that expected maintenance savings of $26.1 million did not materialise, reduces this to the total net change of $140.3 million. At this time, contractors had made further variation claims totalling $24.96 million, which were yet to be settled by DoI.

FIGURE 2R: REGIONAL FAST RAIL PROJECT ELEMENTS

Capital budget of $556 million was net of expected maintenance savings of $26.1 million which did not materialise.

(a) These amounts have been allocated as actual payments to contractors for works undertaken across the fast rail corridors.

Source: Victorian Auditor-General’s Office based on Department of Infrastructure records.

2.5.7 Fast rail initiative expenditure

In this report we have referred to a number of costs associated with the delivery of fast rail services to the community. In addition, ongoing operating costs have been affected by the infrastructure upgrade. This is detailed below.

Revision of recurrent costs

The original budget in June 2002 included an assumption that there would be savings in the costs of maintaining the upgraded rail infrastructure of $26.1 million over the period 2003-04 to 2009-10. DoI advised the government in March 2003 that these maintenance savings were at risk. The budget was revised to exclude these potential maintenance savings.

In addition, the June 2002 budget did not include an allowance for additional train operation costs. DoI assumed that fast rail services could be delivered without additional V/Line costs.

In April 2003, DoI estimated that it would cost V/Line $72.5 million in operational costs to provide fast rail services. This higher operating cost included a more complete allowance for labour costs, insurance, driver training and track access costs. Figure 2S shows the impact of these changes on recurrent costs.

FIGURE 2S: ESTIMATED OPERATING COSTS FOR THE REGIONAL FAST RAIL ($MILLION)

From Figure 2S it is evident that, instead of a saving $26.1 million, there was a requirement for an additional $72.5 million resulting in a budget extension of $98.6 million. The budget was revised to include the change in maintenance saving, but did not include any provision for the additional operating costs of $72.5 million.

DoI wasp willing to balance potential maintenance savings against its costs and amended the budget when it realised these savings would not materialise. However, it has not included in the project budget (and costs) the net increase in operating costs and, for consistency, should do so.

These costs are directly attributable to the fast rail initiative.

2.5.8 Summary of fast rail initiative expenditure

In this report we have referred to a number of costs associated with the delivery of fast rail services to the community. These were:

• the forecast cost of delivering the rail infrastructure of $750.5 million

• the $46.6 million spent to upgrade the 29 slower trains ordered under the 1999 V/Line franchise agreement

• the $33 million needed to extend the new train safety system on the fast rail corridors

• the additional $16.1 million cost of the fibre optic cable used for fast rail signal communications (this is an estimate of the share of the total cost of $21.5 million)

• the additional $72.5 million over 7 years that V/Line Passenger would need to operate fast rail services.

Conclusion

DoI failed to adequately develop the budget for the rail infrastructure upgrade. The increase in the estimates for the design and construction component of the budget is directly attributable to the inadequate initial work on the design by the RPG. Little change in the budget was required as a result of poor estimating by the contractors engaged to construct the rail infrastructure. DoI did not do the preparatory work required to set a reasonable budget with contingency tailored to the contracts’ risk profile.

The rail infrastructure upgrade is forecast to cost $750.5 million. The other components of the fast rail initiative cost $95.7 million, with additional ongoing operating costs over 7 years of $72.5 million.

2.5.9 Rail infrastructure upgrade timelines

Figure 2T summarises the infrastructure upgrade’s original and revised time lines for completion of the corridor works, together with the number of days lost between planned and actual completion.

FIGURE 2T: RFR PLANNED AND REVISED TIMELINES

Figure 2T shows:

• the planned and revised start of construction works and the number of days between these (for example, works started on the Ballarat corridor 304 days after the planned start date)

• similar information for the planned and revised completion of the infrastructure upgrade (for example, the Ballarat upgrade is expected to be completed 273 days after the planned completion date).

The infrastructure completion dates are between 9 months (for Ballarat) and 19 months (Latrobe Valley) behind schedule. For the Ballarat, Bendigo and Geelong corridors, this delay is explained by the initial delay in starting construction works.

For all the corridors, the major causes of delay were:

• the scope issues raised by stakeholders at an early stage of the contract which delayed the start of construction as detailed in section 2.5.2 of this report

• issues which started in this period, but took longer to fully resolve. The most important example of this is the expanded scope of the train protection warning system and the consequent signalling redesign work.

Conclusion

DoI failed to effectively manage the delivery of the rail infrastructure upgrade to the planned timelines. Taking account of the risks and the level of planning and preparation, we conclude that the completion timelines set in mid-2002 were unachievable.

1 Regional Fast Rail, Invitation for Expression of Interest, Rail Projects Group, Department of Infrastructure, May 2001, p. 1.

2 The Australian Labor Party, 1999, Rebuilding the transport network, A better transport network for all Victorians, Fast rail links to regional Victoria.

3 The Australian Labor Party, 2000, Linking Victoria, Labor’s plan for safe, efficient and reliable transport, p. 13.

4 Government of Victoria, 2001, Growing Victoria Together, p. 16.

5 Regional Fast Rail, Invitation for Expression of Interest, Rail Projects Group, Department of Infrastructure, May 2001, p. 2.

6 Reports on the Finances of the State of Victoria, 2001-02 - October 2002; 2002-03 – November 2003; 2004-05 – November 2005, Victorian Government Printer, Melbourne, Victorian Auditor-General’s Office, Results of 30 June 2005 financial statement and other audits – December 2005.

7 Work begins on fast rail projects, Media release, Melbourne, Office of the Premier and Treasurer, 16 December 1999.

8 Victorian Auditor-General’s Office, October 2002, Report on the Finances of the State of Victoria, 2001-02, Victorian Government Printer, Melbourne, p. 102.

9 Ibid, p. 106.

10 Department of Infrastructure, March 2000, Fast rail links to regional centres, Feasibility Studies: Final Report.

11 An economic cost-benefit analysis calculates the cost and benefit impacts on society over an extended period and discounts these to a present day value to compare them as a ratio of benefits to costs. Costs typically include the infrastructure, operating and maintenance costs needed to deliver upgraded services. Benefits usually include impacts on the existing and new public transport travellers of the improvement and any secondary impacts on other travellers (for example where road travellers experience less congestion when more some travellers move to train).

12 Office of the Premier, media release, Melbourne, Historic boost to revive Victoria’s rail network, 5 September 2000.

13 Department of Infrastructure, Capital Project Priority and Program Process Guidelines for 1998-99, Melbourne, June 1997.

14 Ibid., p. 10.

15 Ibid., p. 11.

16 Ibid., p. 11.

17 Department of infrastructure, Fast rail links to regional centres, Feasibility Studies: Final Report, Linking Victoria, Victorian Government, March 2000, p. 108.

18 Ibid., p. 182.

19 Ibid., p. 11.

20 Ibid., p. xvii.

21 Department of Infrastructure, High Speed Passenger Services to Bendigo Infrastructure Review, Volume 1 of 2, Section 7.5, pp. 33-5.

22 Ibid., Table 5.14, p. 122.

23 There is a clear economic rationale for the benefits to existing public travellers exceeding those calculated for new public transport users. If an improvement lowers public transport journey times by 20 minutes we reasonably assume existing rail users benefit by the full amount. We assume that new travellers did not use rail before the improvement because another form of travel was, in their perception preferable, taking into account the relative costs and convenience. For those travellers who switch to rail, some would have been prepared to change with a much smaller reduction in journey costs while others would just be persuaded to change by the full 20 minute improvement. This difference is based on the varying perceptions of the relative costs. When comparing the new and old costs of travel, new travellers’ perception of the benefits would range from the full 20 minutes to a very small amount where someone was just persuaded to change travel mode. Economists, therefore, value the average change per new traveller as half the benefit accruing to an existing rail traveller. This is a measure of the net economic benefit taking account of the fact that they no longer have to run a car but do have to pay public transport fares. It is, therefore, incorrect to add in as a benefit the vehicle operating costs avoided by changing to rail. The following document explains this and provides further references. <http://www.aeat.co.uk/com/webtag/webdocuments/3_Expert/5_Economy_Objective/3.5.3.pdf,part 2>.

24 Department of Infrastructure, 1997, Capital Project Priority and Program Process Guidelines for 1998/99, Victorian Government, p. 14.

25 PW Blackshaw, The Treatment of Cross Modal Effects in Transport Evaluation in Transport Economics and Operational Analysis, No.1, Bureau of Transport Economics, Canberra, March 1975, pp. 34-44.

26 DoI’s latest cost-benefit analysis guidelines specifically excludes these effects (Department of Infrastructure, 2005, Guidelines on economic, social and environmental cost benefit analysis, Melbourne, p. 24).

27 Department of Infrastructure, 2001, Fast rail links to regional centres, Feasibility Studies: Final Report, Linking Victoria, Victorian Government.

28 The most extensive examination of the relationship between transport and economic growth was in the UK. The Standing Advisory Committee on Trunk Road Assessment (SACTRA) concluded that the cost-benefit analysis (of the direct transport impacts) might over or underestimate the economic benefits where markets were not operating competitively. Because of the unpredictability of these impacts and the difficulty in measuring them, SACTRA recommended that these should be separately considered from the cost-benefit analysis. The UK Government partly accepted this recommendation by preparing a separate report on the wider economic impacts if their geographical distribution is a key policy outcome of a specific infrastructure investment (Reference: <http://www.webtag.org.uk/webdocuments/2_Project_Manager/8_Economic_Impact/2.8.pdf>.

29 Department of Infrastructure, 2005, Guidelines on economic, social and environmental cost benefit analysis, Melbourne, p. 25.

30 Department of Infrastructure, June 1997, Capital Project Priorities and Program Process Guidelines for 1998/99, Melbourne, p. 12.

31 Department of Infrastructure, 2001, Fast rail links to regional centres, Feasibility Studies: Final Report, Linking Victoria, Victorian Government, p. 58.

32 Essential Economics 2000, Upgrading Regional Train Services – Economic Impacts, pp. 55-72.

33 Ibid., Figure 7, p. 57.

34 Ibid., p. 72.

35 Department of Infrastructure, 2001, Fast rail links to regional centres, Feasibility Studies: Final Report, Linking Victoria, Victorian Government, p. 95.

36 Ibid., p. 70.

37 Ibid., p. xvi.

38 Office of the Premier, Historic boost to revive Victoria’s rail network, Melbourne, 5 September 2000.

39 Department of Infrastructure 2001, Fast rail links to regional centres, Feasibility Studies: Final Report, Linking Victoria, Victorian Government, Melbourne, p. xxii.

40 A material change is one that may negatively alter the risk profile for railway operations.

41 FAL Alliance Agreement, November 2001, p. 17.

42 Victorian Auditor-General’s Office, 2002, Report on the Finances of the State of Victoria, 2001-02, Victorian Government Printer, Melbourne, p. 104.

43 Ibid. p. 103-4.

44 In December 2002, National Express withdrew from the franchise agreement. In October 2003, the state decided to transfer back to state control V/Line passenger services. (Between December 2002 and October 2003, V/Line was in administration and was operated by the government-appointed receiver and manager).

45 National Express was, at the time, the franchisee for V/Line passenger services. FAL was the lessee of the state’s country rail infrastructure. The state retained ownership of the rail infrastructure, except for rolling stock.

46 Media release, Manufacturing jobs boost in $410 million fast train contract, Office of the Premier, November 2001.

47 Office of the Premier and Department of Infrastructure, Media release, Record construction contracts for regional fast rail project to create 5 000 jobs, June 25, 2002.

48 The SSC comprised train drivers and advised DoI on safety and operational issues related to the placement of rail signalling infrastructure.

49 Turnouts are junctions in a train track that enable trains to move between different lines.

50 Department of Infrastructure, Media release, Leading train safety system for regional rail, December 14, 2004.

51 Victorian Government, 2005-06 Budget Paper No. 3 – Service Delivery, Appendix A, Victorian Government Printer, p. 295. The CTSS is described in the budget papers as a separate department initiative to provide for a country train safety system to be fitted to all V/Line passenger trains, and builds on the government’s commitment to improve rail safety in regional Victoria.

52 The Victorian Managed Insurance Authority provides the Victorian Government with risk management and insurance services.

53 The Australian Labor Party 1999, Rebuilding the transport network, A better transport network for all Victorians, Fast rail links to regional Victoria, Melbourne. p. 13.

54 Department of Innovation, Industry and Regional Development, November 2005, Moving Forward: Making Provincial Victoria the Best Place to Live, Work and Invest, Melbourne, p. 55.