Costs cut despite Treasury warning
The government ploughed ahead with cost-cutting at the new Dunedin hospital despite a warning from Treasury that the plan risked backfiring.
Documents released under the Official Information Act show that in August, Treasury — which ultimately recommended the delay — advised "care needs to be taken to understand the full context when committing to a hard budget cap".
"Because of this, we also think that Health [New Zealand Te Whatu Ora] should be attempting to understand the opportunity cost of exploring these other options against continuing with the current build scope.
"It's possible that in an attempt to shave off the $200 million budget overrun now, we end up facing similar costs later on, due to unforeseen risks from the limited information available."
The August documents showed the government's financial watchdog was mostly pleased with HNZ's handling of the new Dunedin hospital project, but noted it was up against "some challenging circumstances with the build".
"We don't see any harm in spending more time to understand the options available, but we urge you to be realistic about the level of information Health NZ will be able to collect by December."
In late September, the government told the public it was pausing the new Dunedin hospital project to decide whether to continue with a scaled-back version of the project, or retro-fit the existing Dunedin hospital.
They set a budget cap of $1.88 billion for the project.
However, the ODT can now reveal HNZ had actually prepared four options for deliberation: the other two were exploring developing the hospital as originally promised, or a "staged development" at the Wakari Hospital site.
In assessing the Wakari option, HNZ advisers said it could "potentially enable a much more flexible approach to development".
"The size of the site enables a different approach to building form and function that could potentially lower construction costs and enable a progressive approach to development that could evolve over time.
"While the site can have challenging access on the coldest days, at other times of the year the additional parking creates good accessibility for those travelling from outside of the region and has space for complementary development."
The greatest challenge for this option would involve how to manage breaking the existing connections between the hospital and the city centre and the University of Otago, HNZ advisers said.
But HNZ eventually nixed the Wakari option because it would require a "start from scratch approach" which would provide "less certainty for bringing new health services to Dunedin, along with transition planning being more difficult".
While Treasury ultimately recommended the government delay the project, it warned about the need for regular reporting.
"This report back should also include the results of the rapid clinical services review being undertaken and its impact on design choices and health service outcomes."
In late January, new Health Minister Simeon Brown announced the government would proceed with a scaled-back version of the inpatients building at $1.88b.
Former head of the emergency department Dr John Chambers said Treasury's warnings were "completely unsurprising".
"We've been saying this all along; you delay things and they end up costing more."
The Wakari option was "daft" and "a distraction".
"I've got no idea why they even pursued this idea, it was never a real option.
"They seem to be ignoring the fact the business cases were signed off; everything was ready to go.
"I think they don't care about Dunedin and the South much."
matthew.littlewood@odt.co.nz
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