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Otago Daily Times
27-05-2025
- Business
- Otago Daily Times
Fear hospital contractor may quit
One of the former leaders of the new Dunedin hospital project is worried the protracted negotiations will convince the lead contractor to "walk away", resulting in the project's costs spiralling out of control. It comes after the Otago Daily Times reported CPB Contractors' lawyer, Tom Horder, had publicly slammed the government's approach to contracting major infrastructure projects. The Australian construction giant is set to build the new Dunedin hospital, but Mr Horder said New Zealand governments over the past decade had gone with the lump-sum model for contracts, which had been inappropriately applied to major projects, with "disastrous" results. Former Labour health minister Pete Hodgson, who led the early stages of the project, said Mr Horder's remarks were "concerning, to say the least". "If Health New Zealand Te Whatu Ora [HNZ] go back to the market, sooner or later CPB are going to say, we will not build this thing at a fixed price at $1.88 billion because we won't get subbies [subcontractors] to come and do their bit." Mr Hodgson said there was always a risk of unknown problems with major infrastructure projects. "It probably just goes with the territory that you walk into problems that will have to be resolved once they've been discovered — and you can't prediscover them." He described HNZ's approach to contracting the new hospital as a "shambles" and a potential reputational risk. "If CPB pull out, then I'm sure [Christchurch-based construction company] Southbase and others would look at it, but they would be adding money, and some of that money would be the risk of the client's behaviour. "They cannot stop changing their minds." This would lead to further delays and ballooning costs beyond the $1.88b set aside by the government, he said. "HNZ have been deciding and undeciding themselves for years now and that means that the Crown, or the health system, will get a reputation across Australasia for being a bad client. That puts the price up." The project was delayed for several months last year after the government deliberated over whether to build a new hospital on the former Cadbury's site or retrofit the existing hospital. Financial commentator Bernard Hickey told the ODT he would not be surprised if CPB decided to walk away from the contract. "It was a mistake [to stop work] because it alienated and shocked so many people who had geared up for significant infrastructure spending for many years; they had invested in people, invested in plant. "When you're in the contracting game, you need certainty." An HNZ spokesman said it was progressing commercial negotiations with CPB and was also finalising designs following decisions announced by the new Minister of Health, Simeon Brown, in January. "While negotiations are continuing, Health NZ is progressing work to get pile capping and foundations work under way by the middle of this year." Mr Horder has been contacted for comment. Mr Brown met CPB on February 3. "Contract negotiations for the completion of the new Dunedin hospital are being led by HNZ," Mr Brown said yesterday. "What matters now is getting the best possible value for taxpayers — and delivering the hospital that the people of Otago and Southland have been waiting far too long for. "New Zealanders elected this government because they wanted action, not excuses. ... This government is focused on delivery — and that's exactly what we are doing."
Otago Daily Times
26-05-2025
- Business
- Otago Daily Times
Fear contractor may quit if HNZ still ‘changing minds'
Pete Hodgson. PHOTO: PETER MCINTOSH One of the former leaders of the new Dunedin hospital project is worried the protracted negotiations will convince the lead contractor to "walk away", resulting in the project's costs spiralling out of control. It comes after the Otago Daily Times reported CPB Contractors' lawyer, Tom Horder, had publicly slammed the government's approach to contracting major infrastructure projects. The Australian construction giant is set to build the new Dunedin hospital, but Mr Horder said New Zealand governments over the past decade had gone with the lump-sum model for contracts, which had been inappropriately applied to major projects, with "disastrous" results. Former Labour health minister Pete Hodgson, who led the early stages of the project, said Mr Horder's remarks were "concerning, to say the least". "If Health New Zealand Te Whatu Ora [HNZ] go back to the market, sooner or later CPB are going to say, we will not build this thing at a fixed price at $1.88 billion because we won't get subbies [subcontractors] to come and do their bit." Mr Hodgson said there was always a risk of unknown problems with major infrastructure projects. "It probably just goes with the territory that you walk into problems that will have to be resolved once they've been discovered — and you can't prediscover them." He described HNZ's approach to contracting the new hospital as a "shambles" and a potential reputational risk. "If CPB pull out, then I'm sure [Christchurch-based construction company] Southbase and others would look at it, but they would be adding money, and some of that money would be the risk of the client's behaviour. "They cannot stop changing their minds." This would lead to further delays and ballooning costs beyond the $1.88b set aside by the government, he said. "HNZ have been deciding and undeciding themselves for years now and that means that the Crown, or the health system, will get a reputation across Australasia for being a bad client. That puts the price up." The project was delayed for several months last year after the government deliberated over whether to build a new hospital on the former Cadbury's site or retrofit the existing hospital. Financial commentator Bernard Hickey told the ODT he would not be surprised if CPB decided to walk away from the contract. "It was a mistake [to stop work] because it alienated and shocked so many people who had geared up for significant infrastructure spending for many years; they had invested in people, invested in plant. "When you're in the contracting game, you need certainty." An HNZ spokesman said it was progressing commercial negotiations with CPB and was also finalising designs following decisions announced by the new Minister of Health, Simeon Brown, in January. "While negotiations are continuing, Health NZ is progressing work to get pile capping and foundations work under way by the middle of this year." Mr Horder has been contacted for comment. Mr Brown met CPB on February 3. "Contract negotiations for the completion of the new Dunedin hospital are being led by HNZ," Mr Brown said yesterday. "What matters now is getting the best possible value for taxpayers — and delivering the hospital that the people of Otago and Southland have been waiting far too long for. "New Zealanders elected this government because they wanted action, not excuses. ... This government is focused on delivery — and that's exactly what we are doing."
Otago Daily Times
23-05-2025
- Business
- Otago Daily Times
Govt's infrastructure contracting criticised
Still waiting for work to begin on the Dunedin Hospital inpatient site. The outpatient building is behind. PHOTO: GERARD O'BRIEN A lawyer at CPB Contractors, the Australian construction giant set to build the new Dunedin hospital, has gone public to slam the government's "disastrous" approach to contracting major infrastructure projects. Meanwhile, any contract between CPB and Health New Zealand Te Whatu Ora (HNZ) to get on with the delayed inpatient build is pending, despite a promise by Health Minister Simeon Brown in January that work would start mid-year. In a social media post liked by a senior HNZ infrastructure boss, CPB legal manager Tom Horder wrote that New Zealand was "very bad at delivering major infrastructure" and pointed the finger at contracts demanding delivery for a fixed price. "There are some practical things we can do to improve. "One of them is picking the right contract model for our big projects ... Over the past decade in NZ, the lump-sum model has been inappropriately applied to major projects, with disastrous results." In the post, Mr Horder links readers to a document listing alternate contractual arrangements including agreeing some costs with the client as a build progresses and challenges emerge. Sources have said HNZ and CPB have considered various contract arrangements, but the government is demanding a fixed price. The decision rests with ministers, but there is an indication that an alternate contract model has been preferred by at least one senior HNZ staffer. Mr Horder's post was liked by HNZ head of infrastructure commercial and procurement Paul Hrstich, who first worked on the project in March 2020, but has "not been involved in the project since January 2023", according to HNZ chief infrastructure and investment officer Jeremy Holman. CPB has also worked on the project for years, under an Early Contractor Engagement (ECE) contract signed in 2021 with HNZ to plan and price the project. However, last year former health minister Dr Shane Reti and Infrastructure Minister Chris Bishop forced a tools-down on the former Cadbury factory site after claiming a budget blowout. After the decision to proceed again, the chance of CPB undertaking the build has been thought to be a certainty for continuity reasons and due to limited big-build competitors. However, HNZ has issued an invitation for construction firms to tender by mid-June to finish the "substructure". The invitation asks for a fixed price. Naylor Love former chief executive Rick Herd said a fixed price for the Dunedin inpatient build, determined by a set-in-stone design, was "unlikely to happen due to the quality, competency, calibre and capacity of the design teams we have got in this country". He also blamed poor government leadership. "The government struggles to get consistency, continuity and agreement within their own teams and clinicians of what a big hospital should look like and in my experience are constantly changing their mind. This makes it impossible to fix a price." Any agreed price would likely require a "huge contingency" and result in the contractor filing for variations throughout the build, causing "stress, antagonism and conflict". A price tag should be attached to "unknowns" and a decision made about who carried that financial risk. CPB declined to comment.
