Why committing to the East West Link is a very bad idea

Now that Victorian Labor has supposedly “reneged” on its undertaking to honour any signed contract for the proposed East West Link motorway, the Napthine government’s keystone project for Melbourne looks like a dead duck (e.g. see here, here, here, and here).

The Premier, Denis Napthine, nevertheless insists he’ll still sign the contract for stage one before the caretaker period for the forthcoming election starts; but according to the polls he might not be in office after the 29 November 2014 election to implement it.

The latest Galaxy poll says the government could lose 10 seats; the latest Newspoll suggests it could lose 14. The government is in any case starting from behind due to the 2013 redistribution. On the old boundaries, there needed to be a 1.2% uniform swing for it to be thrown out by voters; now the figure is 0.9%.

Opposition Leader Dan Andrews says he has legal advice that if the current Supreme Court challenge to the project brought by Moreland and Yarra councils succeeds, it will render any signed contract unenforceable.

The Councils are seeking a declaration in the Supreme Court that the decision of the Minister for Planning to approve the eastern section of the East West Link under s77 of the Major Transport Projects Facilitation Act is invalid.

Labor sought advice from two eminent QCs  and a contract law expert. They advise that:

In the event that the Supreme Court holds that the approval decision made by the Minister for Planning on 30 June 2014 is invalid, there is no power to enter into contracts for the Project and any contract entered into will be beyond power and unenforceable.

The councils’ action is due to be heard after the election, on 12 December. Mr Andrews says an incoming Labor government would not defend the challenge; the presumption is that would increase the likelihood the councils would win, with the knock on effect that any signed contract would consequently be invalid (although the government might still be liable to compensate the winning contractor if it cancelled the project).

But there are a couple of reasons to be cautious about assuming the East West Link is dead in the water.

First, the government might get back. The election campaign still has to be played out and it’s common for Governments to reduce the gap in the polls by election day.

Further, voters are reluctant to throw out governments after only one term. As Antony Green notes, a first term government has never been defeated in Victoria since 1955. In fact there’ve only ever been three one-term governments in mainland Australia in the last 40 years. (1)

The last one was Qld’s Borbidge government, which was in office from 1996 to 1998. The circumstances though were peculiar – the new One Nation party was a key problem for the government; the joint Federal-State gun buyback was made law; John Howard was pushing the GST; and the Opposition was led by the charismatic Peter Beattie. (2)

Second, even if it were to win the election, Labor’s presumption that the councils will automatically win in the Supreme Court if the government of the day doesn’t defend the case is open to question.

Crikey’s Guy Rundle argued last week he’d seen legal advice establishing that recent Supreme Court cases show “that the mere lack of defence does not guarantee the suit will fail”. Nor does Labor’s legal advice say anything about the strength of the councils’ case.

There is still scope, he says, for third parties to take up the defence of the case:

Such a third party could be one of the contracting parties such as East West Link, or one of the contractors engaged to build the link. Alternatively, it could be an interested body such as the RACV or the Australian Motoring Enthusiasts Party, or an individual.

The public focus on what Labor might do if it were to win the election has deflected attention away from where the key responsibility lies: with the Napthine government. It’s insistence on signing is the source of the problem.

Back in July, I set out a number of reasons why Mr Andrews, were he to win the election, should reject any signed contract (Should Labor repudiate Melbourne’s East West Link?). These reasons apply even more forcefully to Mr Napthine; he shouldn’t sign the contract before the election because:

• There’s only a month and a half until the caretaker period starts. There’s no practical or technical need to “rush it”; in fact it’s the reverse.

• This is a huge contract involving billions of dollars of public funds, so it will have major ramifications for the spending program of whoever wins the reins of power over 2014-18.

• The East West Link wasn’t taken to the 2010 election so there’s no plausible argument the Government has a specific “mandate” for it. (3)

• There are very serious and, importantly, credible doubts about the economic viability of the motorway. It’s reasonable on the basis of what we now know to doubt the Government has been frank in the claims it’s made about the project.

• The legal challenge by the councils makes it harder for the winning contractor to raise finance. It could render “the transaction unbankable; and without secured finance the contracts can’t be executed”. The prudent course of action for any government would be to wait until the case is heard in December.

There are political risks too. If Mr Napthine insists on signing the contract now, there’s a possibility the government will be seen as financially irresponsible.

Given what the polls are saying, the government could also be seen as going well out of its way to deliver what could be a substantial windfall in compensation payments to the winning tenderer if, as the polls suggest it might, Labor were to win the election and subsequently cancel the contract.

As I’ve mentioned before, delaying the contract until after the election would give the Government a point of difference with the Opposition i.e. “you only get the road if you vote for us”.

It’s time for the Victorian government to act responsibly and realistically; it should indicate it will not sign contracts for the East West Link before the election.

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1. These were the Tonkin Labor government in Western Australia 1971-74; Tonkin Liberal government in South Australia 1979-82; Borbidge Coalition government in Queensland 1996-98. There’ve been two one-term governments in Tasmania over this period (Bethune Liberal government 1969-72; Field Labor government 1989-92), but Tasmania uses “proportional representation to elect the lower house of government, the House of Assembly, and single member electorates to elect its upper house, the Legislative Council”.

2. The Liberal-National Government was punished in metropolitan seats that had previously voted for the government for not preferencing One Nation last.

3. I don’t buy the argument that the government needs a mandate before it can build the East West Link, but its case would of course be much stronger if it had taken the project to the 2010 election.