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A battle over multi billion dollar blowouts at the Snowy Hydro 2.0 project has descended into acrimony as the federal government-owned energy operator and its Italian chief contractor traded barbs over who was to blame for runaway costs and missed deadlines.

Webuild, the builder behind the pumped-hydro expansion, blames the Snowy Mountains’ unique geology, massive cost escalations in the construction sector, and a demanding government client for blowing the budget on the bloated scheme.

While Snowy Hydro also pointed to the engineering complexity of the project for the mega-bill, the government-owned company also puts the blame on “productivity underperformance” by its contractors.

The revelations come from submissions to a Parliamentary inquiry into Snowy 2.0, sparked by a damning Auditor General’s review of the project, released in June.

Renewed tensions between Snowy Hydro and Webuild are being closely scrutinised ahead of a detailed cost review being handed to the federal government.

The Commonwealth demanded the probe over fears the budget had spiralled out of control at a crucial junction for Australia’s energy transition.

The Snowy 2.0 project has suffered delays from stuck tunnel boring machines, rising offshore supply chain bills for the underground power station and paying over the odds to workers.

Snowy Hydro has spiralled so far beyond its brief that Energy Minister Chris Bowen doesn’t even know what it costs. That’s because a line by line cost review is still sitting with the organisation months after contractor Webuild submitted its report for the purpose of producing a new budget estimate.

Webuild, through its Future Generation Joint Venture, claimed in its submission the key driver of cost escalation is “variations and continuing scope, design and quantity adjustment” – partly due to the complex geology of the region, such as the need to introduce a fourth boring machine to help complete a major tunnel for water.

“Adverse geological conditions and scope development necessarily extend delivery periods, increasing exposure to labour, material, equipment and subcontract escalation,” Webuild’s submission says.

“Since the reset … the project has experienced multiple challenges that have led to cost escalation greater than that anticipated by the parties at the reset. In accordance with its contractual obligations, FGJV has notified and discussed these matters with Snowy Hydro.”

The submissions also reveal an ongoing dispute between Snowy and Webuild about how costs are allocated within the project – the source of key criticism by the Auditor General in its June report.

After a much-vaunted reset of the original Webuild contract in 2023, Snowy agreed to an “incentivised target cost model” – essentially cost-plus-margin payments, but including bonuses for beating targets and “pain thresholds” beyond which Webuild forfeits a share of its margins.

The Auditor General’s report said Webuild had been accused of misallocating invoices between categories that are automatically reimbursable, and those that contributed to total project costs – and therefore the contract’s “pain thresholds”.

Webuild denied this in its submission, but revealed an ongoing dispute with Snowy Hydro over project accounting.

“The cost allocation methodology prepared and used by Snowy Hydro in or about the second half of 2025 has not been agreed by FGJV,” the submission says.

“FGJV continues to allocate costs in accordance with the previously agreed methodology. FGJV has acted consistently with its contractual rights to properly characterise its claimed costs.”

Both submissions accept that Snowy 2.0 is an unusually complex and difficult project, that post-Covid inflation for materials such as concrete and construction have helped blow out costs, and that a much-vaunted 2023 reset of Webuild’s contract added additional complexity to the way construction is managed.

But they diverge on who is responsible for the budget blowouts.

Webuild told the committee the 2023 contract reset gave Snowy Hydro “full visibility of project performance, costs and risks”.

Webuild managed to negotiate its multi-billion dollar contract to a cost-plus model where Snowy Hydro covers some of its contractor’s cost inflation on the massive pumped hydro expansion while paying an agreed profit margin on top.

Snowy Hydro has copped criticism and pressure from the Commonwealth over the change and conceded the move “while far from perfect”, was the best of the realistically available options.

The contract was “not simply a cost-plus contract, which is a misleading and oversimplified description that ignores the important protections available in the contract to hold the Future Generation Joint Venture to account for its performance and productivity,” Snowy Hydro said in its submission.

“This contract provides Snowy Hydro with full access to the contractor’s costs and the ability for Snowy Hydro to intervene. This occurred in October 2025 when Snowy Hydro directed FGJV to undertake a comprehensive reassessment of its costs to deliver the project due to escalating cost pressures.”

That report was delivered to Snowy Hydro in June, but is yet to be made public.

Snowy Hydro chief operating officer Maia Schweizer said on Tuesday the cost review was close.

“We have been working on it for a while and it is imminent,” she told a Financial Review energy conference. “It is coming to the tail end of it.”

The executive also expressed alarm at a plan by Victorian Opposition Leader Jess Wilson to scrap VNI West if the Coalition prevailed at the polling booth in November. The transmission line is a major cog linking Victoria and NSW and critical to the Snowy 2.0 expansion.

The project “is designed to be the last resort, and so to cut access to that has potentially really severe implications for resilience and reliability of the system,” Ms Schweizer said.