It is understood a type of shared-risk deal was previously being nutted out with global construction giant CPB, meaning any overspend above a threshold would be shouldered by both government and CPB.
Contract signing with Health New Zealand Te Whatu Ora (HNZ) was close but, sources say, negotiations stalled around the time government ministers came to Dunedin in September, announcing there had been a blow-out of the hospital’s $1.88 billion budget.
A fixed-price deal was then sought from CPB. It was the type of deal government had originally hoped to achieve when the project was conceived seven years ago and prices were lower and fluctuated less.
The flip-flopping was condemned by former Labour health minister and hospital campaigner Pete Hodgson.
Mr Hodgson said it risked CPB now walking away from the deal — with the government having no guarantee of a cheaper deal with another contractor — causing further delays.
"The government would have to re-engage the market with the reputation of being a risky client, always changing its mind ... and if CPB can’t pull it together with their array of subcontractors, it seems unlikely anyone else would be able to."
CPB, which has many contracts overseas and consistently declines to comment about the Dunedin hospital negotiations, had agreed in 2021 to an Early Contractor Engagement (ECE) contract to plan the inpatient build.
There was an expectation it would then be contracted , with work starting in 2023 — but two years on, it still has not happened.
CPB has successfully built a hospital in Christchurch, but it has not always had cordial relations with the government — two CPB government-commissioned construction projects have resulted in legal wrangles.
Multiple sources have told the Otago Daily Times that a shared-risk contract for the Dunedin hospital build had been discussed with CPB for years.
Construction experts, engaged by government to help seal the deal, had advised that a shared-risk contract would likely prove the cheapest, and deliver the best build outcomes, through a collaborative client-contractor relationship.
It is understood that the experts included Evan Davies, Todd Corporation boss, who led a new Dunedin hospital governance committee from December 2020 until mid-2023 and who was last week brought back by Health Minister Simeon Brown to lead the build project as Crown Manager.
According to sources, CPB wanted a shared-risk contract and its senior managers have also stated, in public forums, fixed-price contracts can be inappropriate for large, complex builds due to pricing variables.
A shared-risk contract means the contractor does not need to charge a premium to cover its risk exposure and the public purse benefits from any cost savings achieved, possibly countering any over-spend.
After the last election, construction expert Robert Rust was commissioned to review the project.
His report, published in May last year, pointed some blame for the project’s delays at poor governance and explained that a "target total cost" model was being proposed.
The model would provide a "threshold for any potential pain or gain sharing".
In January this year, two months after the project’s latest programme director left, and four months after former health minister Dr Shane Reti and Infrastructure Minister Chris Bishop came to Dunedin with their budget blow-out announcement and pressed pause on the build, Mr Brown said it would go ahead within budget and with cutbacks.
It is unknown if the cutbacks were due to concerns about being saddled with a premium-laden fixed price above budget.
No timescales for the build have been announced by HNZ but Mr Davies’ role as Crown Manager requires him to seal a contract within three months.
