Call for Don St review after $4.5m budget blowout

Clare Hadley says escalations in the size and cost of the building had been noted but not...
Clare Hadley says escalations in the size and cost of the building had been noted but not explained to council in three reports in 2015, 2016 and 2017. Photo: ODT files

Invercargill City Council's chief executive has revealed a budget blowout of $4.5 million for the council-owned inner city property development, highlighting ''lapses in management and process''.

The Don St development is 100% council-owned and was initially estimated to cost the council $14 million.

The complex has a cafe, the Auction House, and is home to various businesses including McCulloch and Partners, Cruickshank Pryde, Craigs Investment Partners, Vodafone and Media Works.

Plans for the project were revealed in 2015 with then council chairman of finance Neil Boniface saying the planned business house showed council was prepared to show leadership and invest in a commercial project that would help keep people in the inner city.

Mr Boniface also said it also tied in well with council's CBD redevelopment. The building was officially opened a year ago but was not yet complete.

In a statement released today, ICC chief executive Clare Hadley said investigations have highlighted the building was larger and more costly than what was approved by council.

Work still has to be undertaken to fit-out and tenant vacant spaces which, if approved by council, would take the total cost of the project to $18.2 million.

Of this, land purchase accounted for about $1.8 million, and total construction costs were estimated to be $16.4 million.  This would mean a cost overrun of $4.5 million against the original council-approved construction budget of $11.9 million.

Mrs Hadley said that escalations in the size and cost of the building had been noted but not explained to council in three reports in 2015, 2016 and 2017.

There was no apparent record of the council approving the  increase in the size of the building, or the increase in budget to construct it.

"Furthermore, the lower-than-projected occupancy has meant that the building has not only over-delivered on cost but under-delivered on revenue.''

A detailed report on the situation was considered by the Finance and Policy Committee in public excluded session last week.

The committee recommended to the council to approve funding for the required completion, including the fit-out expenditure required to make unlet space tenantable and installing electricity monitoring software.

The Invercargill City Council would discuss the issue around the business house development at 20 Don St at a full council meeting tomorrow.

The Finance and Policy Committee also recommended to the council that an external review be conducted on the project.

"Over the course of the five years of its development, this project has increased in scale and cost, with a less-than-clear pathway of the approvals for the escalation. The project has raised several learnings for council projects in future,'' she said.

This included the need for:

• More reliable, consistent reporting that references original scope and cost;

• More robust monitoring and a clearer pathway of approval;

• Clearer identification of, and reasons for, scope changes. Additionally, scope changes should reflect the strategic rationale of the project;

• Better identification of post-completion operational requirements;

• Project control to sit within the Council division with the appropriate skill set.

Mrs Hadley said it was important council had the opportunity to reflect on what had gone well with any project, take the opportunity for project learnings, and to put measures in place to stop it from happening again.

Despite lapses in management and process, the business house itself was still a well-constructed development in a desirable location, she said.

Should council tomorrow approve the building's completion, the business house would be a valuable asset for the city, she said. 

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