Consultancy costs eat away at hospital savings

Despite multiple assessments Mrs A's cancer went undiagnosed for months. Photo: Getty Images
Photo: Getty Images
The Government’s decision to launch a lengthy cost-cutting exercise for the new Dunedin hospital is expected to cost it $27 million in consultancy fees and rising costs.

Documents released under the Official Information Act reveal it also does not expect to know how much money will actually be saved until December — a year after the figure was put at $90 million.

Early last year former health minister Andrew Little and Finance Minister Grant Robertson gave support to a plan expected to delay the inpatient building by less than three months.

The delay has since blown out to nearly a year, and ministers were alarmed when they were informed the redesign had to make more cuts than anticipated to achieve their savings goal, as reported by the Otago Daily Times yesterday.

Some proposed cuts were heavily criticised by Te Whatu Ora Health New Zealand (HNZ) Southern in its Clinical and Operational Impact Statement last September.

This led to the the approval of the use of contingency funds to create savings while retaining a 32-bed inpatient ward and 12 psychogeriatric beds, the newly released documents show.

Backlash to the cuts nevertheless caused the Government to reinstate $10 million to the project last month, to reinstate an MRI scanner and collaborative workspace, and assure that no further substantial redesigns would take place .

National Dunedin list MP Michael Woodhouse criticised the cost-cutting as "a massive navel-gazing exercise".

The biggest cost pressure on the new hospital was delay, not only due to construction cost inflation but also because of consultancy fees each time a design change was made.

A newly released document written by project management company RCP last September put the expected consultancy fee for the process at $12 million.

This seemed an "extraordinary" amount to spend on savings of $90 million, he said.

"That has to stop — we have to get on with it."

Rising costs were also factored into the RCP report, estimated to be $15 million.

It estimated $117 million would be saved, but consultancy fees and escalation costs were subtracted from this to make the saving $90 million.

"Actual savings achieved will not be confidently known until the design is redeveloped through the preliminary design and developed design phases which are forecast to extend out to December 2023," the document said.

Releasing $9.8 million of contingency funding was also recommended by RCP "to enable fit out of the Level 8 IPU and bring day-one bed capacity to 368".

Another document from later that same month said the project steering group had agreed to reinstate 32 inpatient beds originally proposed to be cut, along with 12 psychogeriatric beds, to be funded by contingencies, although the amount was redacted.

Mr Woodhouse said the contingency was for construction cost increases or variations, and he was concerned with how it was being used.

In a written parliamentary question to Minister of Health Dr Ayesha Verrall in February, he asked if the detailed business case estimate of an 85% chance contingency costs would be sufficient still stood, or if not, what the new estimate was.

Dr Verrall replied only that she was advised the contingency in place was sufficient.

"[Last year] took us round and round and round and round to make very small changes at significant cost, the realisable savings for which are still uncertain," Mr Woodhouse said.

The RCP document said the cost cutting plan had multiple risks, including medium financial, clinical outcome and reputational risks, and a medium-high clinical capacity risk, but still recommended it be endorsed.