AECOM Australia, the Australian subsidiary of the Los Angeles-headquartered infrastructure consultant, has been held accountable for its overly optimistic forecasting work for Brisbane's Clem 7, a 4.8-kilometre M7 motorway tunnel built under the Brisbane River, which went bankrupt in 2011.
The firm received A$2.5 million for its forecasting work in 2006, while the settlement has cost it A$280 million (€177 million; $197 million).
According to press reports, the firm forecasted tunnel traffic of more than 100,000 vehicles per day, while the actual traffic volumes have totaled only 22,000 per day.
Unable to collect enough toll revenue to pay the interest on its A$1.3 billion debt, Brisbane-based tunnel operator RiverCity Motorway went into receivership in 2011.
After that, the toll road was sold for just A$618 million while RiverCity's investors had relied on the projections for their investment of A$2.2 billion. They later launched a class action in 2012.
The settlement is one of the largest related to misleading and deceptive conduct in Australian corporate history, and is the first case in Australia brought by a privately funded operator of a failed toll road.
An AECOM spokesperson said the firm had decided to “no longer provide traffic and revenue forecasting for toll road operators or owners in Australia” after being wrapped up in the costly litigation, according to a report in the Wall Street Journal.
However, AECOM remains committed to expanding its Australian business, primarily engineering and design consultation for the mining and construction sectors.
A spokesman for Australia's infrastructure department said while the settlement wouldn't impact the country's ability to attract investment and expertise to new transport infrastructure projects, the government had also learned lessons from the toll road collapse.
Leighton O'Brien, partner and head of Australian law firm Allens' Infrastructure & Transport Sector, told Infrastructure Investor via email: “The nature of the concession is key. The six roads from 2001 to 2008 were all BOOT [Build-Own-Operate-Transfer] with patronage risk borne by the private sector. The key to success and subsequent failure was the forecasts of the traffic consultants.”
“We may see a return of patronage risk being priced and accepted by debt and equity for certain roads in 2016,” he added.
O'Brien believes that the impact of the case will not be significant. Due to the insolvency of a number of toll roads that started at the end of 2006, patronage hasn't been the cornerstone to investment decisions since, he said.
“If true patronage risk returns, forecasters will be very conservative. I doubt that will lead to projects not proceeding,” said O'Brien. “Government is sophisticated enough to use alternative funding methods to share the risk or bear it initially until traffic ramp up occurs.”
Currently in Australia, other failed projects that became the subject of lawsuits include the A$1.1 billion Lane Cove tunnel in Sydney against two consultancies, Parsons Brinckerhoff and Booz and Company, as well as the A$4.8 billion Airport Link tunnel in Brisbane against Arup, the London-headquartered consulting engineer.