Hospital costs now over $2 billion as delay looms

The hospital site. PHOTO: STEPHEN JAQUIERY
The hospital site. PHOTO: STEPHEN JAQUIERY
The cost of the new Dunedin hospital has spiralled to more than $2 billion amid contractor uncertainty and more delays.

Funding previously sat at $1.8b — including $225 million set aside for a digital upgrade — and the government was last year asked for further funding.

The ODT understands the total budget has now climbed beyond $2b.

Health New Zealand Te Whatu Ora (HNZ) is now facing a delay of about six months in the expected start of above-ground construction of the new inpatient building.

Head of infrastructure Blake Lepper said yesterday the above-ground contractor would be expected to start work by the third quarter of this year.

According to an HNZ document from August last year, above-ground work was forecast to start in the first quarter this year.

The delay was caused by the need for due diligence in contract negotiations, Mr Lepper said.

This included a targeted review of the project and independent assurance.

The inpatient building was still expected to open in 2029 in spite of the delay, he said.

Piling and other below-ground work would continue for some months on the inpatient site.

"We expect to confirm a contract for the above-ground construction of the inpatients building in the coming months."

Australian firm CPB Contractors has carried out earthworks and design on the inpatient building, but a January Treasury briefing released last month said HNZ was "reconsidering whether to continue" with the company.

HNZ told the ODT last month it was negotiating with the company on the above-ground construction project.

Last December the infrastructure commission told HNZ it disagreed with the organisation’s recommended decisions about the contractor, as reported by the ODT yesterday.

The main recommendations were not specified in the document, recently released under the Official Information Act.

But the commission said HNZ needed to delay its decision until "considerably more" work was done to gain confidence about the final cost.

This was justified despite the risk of project delays and reputational damage, the commission said.

It called for a new project estimate, an updated qualitative risk assessment and a revised implementation business case.

The commission was critical of HNZ’s assertion costs would not be known until the project was complete and the final invoice paid.

While obviously true, it was still essential to monitor.

"The board is entitled to receive regular, high-quality reporting on both schedule and cost and needs to proactively manage both to avoid further overruns."

Asked if HNZ had obtained more information about the project cost in line with the commission’s urging, Mr Lepper said all key stakeholders were provided with monthly project updates about progress and costs.

Publicly released documents have so far redacted updated cost information on the new hospital.

Two other recently released HNZ documents about the new hospital said the project was "rated red".

"[This] means we should make ministers aware of the fact there may be one or more risks or issues that require governance decisions and, potentially, ministers," Mr Lepper said yesterday.

"This is an important part of our ‘no surprises’ approach."