Papers released under the Official Information Act showed the government’s financial advisers were pleased with Health New Zealand Te Whatu Ora’s progress on the business case for the new Dunedin hospital, but the contract signed, which "shares" the risks between the government and the construction company, was new to Treasury.
The contract was signed in September, after months of delays.
"A project of this scale is inherently risky, and the contract engages a delivery model that is untested in New Zealand, which poses an ongoing risk of cost escalations.
"It is a high-trust model that introduces new risk for the Crown, including in the way cost risk is allocated.
"We acknowledge that it is unlikely that an arrangement with less risk for the Crown could be negotiated without significant delays to the project timelines."
Treasury also suggested the then-newly appointed Crown manager for the new Dunedin hospital project would help lead to more "responsive project management".
"We are placing a high level of trust in the Crown manager and Health NZ to manage outstanding risks, with effective assurance arrangements to support this."
Former University of Otago academic and health systems specialist Prof Robin Gauld said in terms of the arrangement, and due to past political mismanagement, CPB had the government "over a barrel".
"The government have been put into a fairly unenviable position really because of the ongoing delays, where they probably had no option but CPB.
"Ideally, you would have multiple tendering parties and be able to lock down all costs at the outset."
Locking down costs was essential in any large-scale project, Prof Gauld said.
"That means actually purchasing everything, including beds and tables, so that ... in three years’ time when you’re actually putting them into the hospital, you’ve purchased them already at today’s prices.
"This takes a lot of advanced planning and then a position where the government is highly organised and able to negotiate exactly what it wants and then go through the process of procurement right from the outset."
Prof Gauld said it was crucial Treasury still viewed the new Dunedin hospital as a "high-profile, high-risk" project that required monthly monitoring.
Meanwhile, the "shared risk" model probably amounted to more cash needed for contingencies by the government, and "some more flexibility on behalf of the contractor".
"I think the public would be wanting to keep an eye on ensuring that the project is adequately funded and that’s inevitably going to be probably at a higher rate than has been budgeted for because of the ongoing inflation around the project and also the unknowns that are going to have to be factored in and funded."
Recently publicised cutbacks of HNZ were a genuine concern, he said.
"What the public needs to have confidence in is that the data and workforce elements of the project are going to be adequately funded at the end of the day."
The new Dunedin hospital’s inpatient building is budgeted at $1.88 billion and expected to be completed by 2031.
