The Victorian government has agreed to pay Commonwealth Games bodies $380m in compensation after cancelling the 2026 event, in what the premier, Daniel Andrews, is claiming as “the best outcome” the state could get.
Andrews made the shock announcement last month that Victoria would not host the Games as planned due to concerns they would far exceed initial cost expectations.
Following the announcement, mediation was launched between the State of Victoria, the Commonwealth Games Federation (CGF), Commonwealth Games Federation Partnerships (CGFP) and Commonwealth Games Australia (CGA).
Lawyers for the state government travelled to London last month to negotiate what the cost would be for terminating the contract.
Following confidential “good faith” discussions, Victoria agreed to pay the three parties a total of $380m.
“All parties engaged respectfully and made appropriate concessions in order to reach an agreement,” the groups said in a joint statement.
Appointed as mediators in the process were former New Zealand judge Kit Toogood KC and the former chief justice of the Western Australia supreme court Wayne Martin AC KC.
In cancelling the regional Victorian Games on 18 July, Andrews cited a forecast rise in cost from $2.6bn to between $6bn and $7bn.
During mediation the Commonwealth Games parties also agreed that the multi-hub regional model was more expensive to host than the traditional models.
Andrews had repeatedly said he would not spend up to $7bn to host the event and dismissed the idea of moving the Games to Melbourne, which he said would still have cost more than $4bn.
On Saturday morning, Andrews reiterated his view that the “enormous costs” of hosting the games would “far outweigh the benefit”.
He said paying the compensation was the best of three options available to the government, rather than spending billions on hosting the Games or pursuing a prolonged legal fight in foreign courts and the costs associated with that “lawyers’ picnic”.
“The advice I have is that in terms of industry standards and the nature of contract break clauses, this is the best outcome that Victoria could get,” Andrews said.
“This brings to an end this matter, there can be no further appeals, there can be no further action. And that is a good thing.
“The Commonwealth Games authorities can [now] focus on finding a host city for 2026 and indeed hopefully running a successful Games.”
The Victorian treasurer, Tim Pallas, attempted to explain why the estimated costs of the Games had blown out by so much since the contract to host was signed in February 2022.
“The world has changed quite considerably … firstly, a couple of weeks later, Russia invaded Ukraine, and we saw hyperinflation largely around energy and commodity markets affect the world.
“We’ve also seen, as China’s opened up and the supply chain problems that they have encountered from Covid, feeding into inflation and a shortage of supply of vital building materials.
“Finally, of course, 12 interest rate rises that have had an impact upon our building industry.”
A newly released costings document estimated the extra cost pressures at about $2bn, citing compressed timelines, supply constraints, accommodation shortfalls and major sports code displacement costs.
Requirements by the Commonwealth Games Federation for athletes’ villages saw the cost of accommodation alone jump from an estimated $200m to well over $1bn.
“The requirements for housing during the Games, as compared to after the Games, and land not being suitable at this time for permanent housing in Ballarat means that it was necessary to shift to building a high proportion of temporary demountable structures, which significantly reduced any potential private sector interest,” the document stated.
Also putting pressure on the event, according to the new costings, was an estimated general operations price tag of close to $1.5bn, up from an initial $1.1bn.
Transport costs surged from $110m to over $300m, while potential police and security spending ballooned to almost $500m compared with early estimates of $200m.
State and federal inquiries have been set up to investigate the cancellation of the 2026 Games.
