Axe hovers over main Dunedin hospital contractor

Many of the piles are in at the new Dunedin hospital site, between Castle and Cumberland Sts in...
Many of the piles are in at the new Dunedin hospital site, between Castle and Cumberland Sts in central Dunedin. PHOTO: STEPHEN JAQUIERY
The massive Australasian construction company building the new Dunedin hospital's inpatient block could be dumped from the project, the Otago Daily Times has learned.

A government briefing obtained by the ODT said Health New Zealand Te Whatu Ora (HNZ) was "reconsidering whether to continue" with Australasian firm CPB Contractors.

An experienced construction industry figure said if the government did dump CPB it would inevitably lead to further delays for the already over-budget project.

HNZ did not answer questions about why it was reconsidering CPB as the main contractor, but did confirm negotiations were ongoing.

The company, which has already carried out earthworks and design on the inpatient building, has a fraught history when it comes to delivering government projects.

Former Naylor Love chief executive Rick Herd said there were two or three companies in New Zealand that would be capable of taking over the project, but re-engaging with the market would be "problematic".

No-one would have resources immediately available, and getting people on the ground - even if some CPB workers stayed on under another organisation - would take time.

"It would be a process that would take months, not days or weeks."

Further redesigns in a bid to save costs were also possible.

Last year it emerged the completion date of the inpatient building was pushed back from 2028 to 2029.

The delay of nearly 12 months was caused by the previous government's controversial redesign aimed at cutting costs by $90million to rein in a $200m budget blowout.

Mr Herd said while another contractor might simply carry on with current plans, budget issues were the only reason he could imagine for the government dropping CPB.

It was unusual, although not unheard of, for a client to change contractors in a situation where the contract allowed it but the contractors had already carried out the early work.

However, another contractor was not going to suddenly "wave a magic wand" and make everything cheaper.

"If they're pulling out because it's over price, over budget, they're not going to be able to turn around and find somebody who's going to do it any cheaper in a hurry.

"So it would probably require a scope change of redesign."

Funding for the new Dunedin hospital currently sits at $1.8b - which includes $225m set aside for a digital upgrade - and appears set to climb further.

It recently emerged HNZ is warning the government ballooning costs meant the project needs another cash injection if it is to be completed on time and within scope.

The uncertainty over CPB continuing as the main contractor was revealed in a January Treasury briefing on health spending to finance minister Nicola Willis obtained by the ODT.

Treasury and government infrastructure adviser Te Waihanga was supporting HNZ in reconsidering the contract, the briefing said.

Cost information was redacted.

HNZ chief infrastructure and investment officer Jeremy Holman said CPB was the preferred contractor for the construction of the inpatient building.

"CPB currently holds an early contractor engagement contract for the inpatient building, including earthworks and design," Mr Holman said.

"Health NZ has been working with and negotiating with CPB on the next stage, the above-ground construction contract for the inpatients building."

When negotiating a contract of this magnitude, due diligence was normally undertaken before entering into the contract, he said.

The building was due to be completed in 2029.

HNZ did not answer questioning on if another redesign was expected if the build was passed to another contractor.

It did not say why it was reconsidering its contractor or if this was in any way based on CPB’s prior government projects coming in late and over budget.

Its previous contracts with the government include North Island’s Transmission Gully motorway, which was two years late and $400m over budget when it opened in April 2022 at a cost of $1.25b.

The Christchurch Hospital Waipapa acute services building was set to be completed by December 2017 at a cost of $445m, but was pushed out to July 2020 at a cost of $548m.

Another Christchurch project, the Parakiore Recreation and Sport Centre, is still under way after CPB’s bid to terminate the contract was shot down by the High Court last year.

The centre was to be completed by October 2021, but work is now set to finish in 2025.

The initial contract price was $220 million, but was later estimated by CPB to be $696m.

CPB did not respond to multiple requests by the ODT to comment.

The Treasury, Te Waihanga and Health Minister Shane Reti declined to provide details when questioned about the situation.


Government CPB projects

• Christchurch Hospital Waipapa: Was set to be completed by December 2017 at a cost of $445million, but was pushed out to July 2020 at a cost of $548m.

• Transmission Gully motorway: Was two years late and $400m over budget when it opened in April 20022 at a cost of $1.25billion. 

• Parakiore Recreation and Sport Centre: Was to be completed by October 2021, but work is now set to finish in 2025. The initial contract price was $220m, but the total cost was later estimated by CPB to be $696m.