New fears on cost blowouts

Fears of further budget blowouts prompted a warning to the government to defer decisions on the lead contractor for the new Dunedin hospital’s inpatient building, the Otago Daily Times has learned.

In a document sent to Health New Zealand Te Whatu Ora (HNZ) last December, the New Zealand Infrastructure Commission recommended it delay its decision on a contractor until "considerably more" work was done to gain confidence about the final cost.

The commission acknowledged that if HNZ followed its advice it could cause further delays to the project.

The release of the commission’s advice comes after a government briefing earlier obtained by the Otago Daily Times said HNZ was "reconsidering whether to continue" with Australasian firm CPB Contractors.

Released last week under the Official Information Act, the commission document said the HNZ board faced "difficult choices".

HNZ’s board at the time was set to consider internal recommendations about the contractor decision.

"We acknowledge that the risk of further programme delays is central to the recommendation management have made and that our recommended course of action may cause further interim delays," the commission said.

Perceptions of the government’s ability to deliver infrastructure projects would be significantly impacted if the commission’s advice was followed, as would HNZ’s market reputation.

However, the risks of proceeding as HNZ recommended were sufficient to justify a change of approach.

"We believe that considerably more work is required for the board to gain confidence on the likely out-turn cost of the project."

Funding for the new Dunedin hospital currently sits at $1.8b — which includes $225m set aside for a digital upgrade — and the government was last year asked for further funding.

The commission called for a new project estimate.

It recommended an updated qualitative risk assessment and a revised implementation business case.

"Our recommendation is that all of the necessary scope be included in this updated business case so Cabinet is fully informed about the programme of investments necessary to deliver the vision outlined in the strategic case."

Further recommendations were redacted.

The commission criticised HNZ’s recommendation that costs would not be known until the project was complete and the final invoice paid.

While obviously true, it was essential to monitor this.

"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."

It ended by rebuffing HNZ’s recommendation to withhold the paper from the public in full, calling it "inconsistent with transparency best practice".

Several other documents containing information requested by the ODT were withheld in full, with HNZ describing them as budget-sensitive.

This included one from January 26 titled "Options relating to the continued delivery of new Dunedin hospital".

Labour health infrastructure spokeswoman MP Tracey McLellan said last week the government needed to "come clean" about its approach to the hospital project.

"Our advice really was there wasn’t much you could take out without actually impacting on services, so if they’re looking to save money, I think they need to come clean and say that they are clearly, actively looking at ways to redesign.

"It’s up to us to be bold and say that the hospital is worth it."

Health Minister Shane Reti did not answer questions yesterday about potential redesigns and when he would visit the Dunedin.

HNZ said last month CPB Contractors held an early contractor engagement contract for the inpatient building, and it was negotiating with the company on the above-ground construction project.