A rail maintenance company set up by Metro to monopolise project work in Melbourne could be put out of business by the Andrews government due to concerns about a lack of probity.
The labour hire company has been awarded contracts by its owner, Metro, without going to tender, on an expanding range of projects such as track repairs and graffiti removal.
Companies previously contracted by Metro to maintain Melbourne's rail network have been denied the opportunity to bid and some have since laid off staff.
Metro formed the company, called Sunstone, with the co-operation of Public Transport Victoria, which granted Metro an exemption from a clause in its government contract prohibiting the creation of a subsidiary.
A Metro policy document seen by The Age
states that Sunstone is to be Metro's "tier-one contractor" and the exclusive provider of a multitude of essential rail services.
"PTV has agreed that the purpose of SR [Sunstone Resources] is to increase MTM's [Metro's] control of key services involving the franchise business, including greater management and control from a safety and quality perspective," the document, from October, states.
The document lists almost 50 services which "MTM must engage SR to perform .. unless otherwise dictated by project alliance requirements".
But the agreement has alarmed the Andrews government, which began a review of Sunstone's operations last month. It has also banned the company from taking on any new work while the review takes place.
Professional services firm KPMG has been hired to complete the review, which will determine whether or not Sunstone's permission to operate is revoked or amended.
Public Transport Minister Jacinta Allan said no decision regarding Sunstone would be made until KPMG finished its review.
Electrical Trades Union organiser Gerry Glover said Metro never should have been allowed to award work to its own subsidiary without going to tender.
"That electrical work used to be shared around, and all of a sudden they are saying it goes to one company that just happens to be connected at the hip with Metro," Mr Glover said.
"All our union wants is a fair process that is open to a number of electrical contractors to quote on a particular job and win it fair and square."
One of several companies that have lost contracts to Sunstone is Notting Hill-based UMS (Urban Maintenance Services), which performed electrical maintenance and graffiti removal for about 13 years.
UMS was told last year when its contracts expired that Sunstone would take over that work. The company has since laid off or reallocated more than 20 staff, a spokesman said.
Sunstone strongly defended its business practices, arguing its creation had stamped out unsafe and shoddy work practices.
"The problems included numerous quality, control and industrial issues," managing director Phillip Walker said. "We suspected malpractice due to close relationships with suppliers, and there were a number of safety issues such as safe-working breaches involving contractors."
Overall, the quality of services provided to Metro had improved under Sunstone and they were being provided at lower cost, Mr Walker said.
"Prior to Sunstone, Metro had long-running contracts with contractors that were static and provided no incentive to improve quality and productivity," he said.