Roll call of Fletcher Buildings' massive loss-making construction projects

Wednesday, 14 February 2018

Incoming Fletcher CEO Ross Taylor.

The 16 troubled construction projects that have left Fletcher Building with massive losses are a roll call of some of the highest profile developments in the country.

Fletcher Building said losses from its troubled Building and Interiors (B&I) division had increased by $486 million to a total expected loss of $660m.

It's cost chairman Ralph Norris his job, and resulted in Fletchers cancelling its first half dividend and breaching its banking covenants.

In 2015, Skycity announced Fletcher Construction would be building the new international convention centre in Auckland. Nobody then suspected it would lead to over $400m of losses to Fletcher Building.

The company has also stopped bidding for more of these giant construction projects, with chief executive Ross Taylor telling media: 'The risk reward profile makes little sense.'

**READ MORE:

The Justice Precinct in Christchurch: late and over budget. Another of Fletcher Buildings' troubled construction projects.

* Fletchers' losses increase, chairman Norris to depart

* 'Argy-bargy' with Fletchers possible

Precinct Properties' Commercial Bay development will transform the Auckland skyline. It may end up damaging Fletcher Buildings' bottom line.

* Fletcher Building 'suffered billions in wealth loss'

* Dispute over cause of delays to Christchurch's Justice Precinct

Novotel Hotel at Christchurch Airport. Contractor Fletcher Construction's quality control processes picked up steel quality issues prior to it being used in construction.

* Incorrect steel delays Christchurch airport hotel opening**

Margins were just too low, and the risk just too high, Taylor said.

Fletcher Buildings' failure on big projects ends its proud histoy of proclaiming 'No Job Too Hard'. This corporate history was left for journalists to leaf through at Wednesday's media conference announcing increased losses.

The management of B&I had been overhauled, and was focused on managing the projects to completion, he said.

INTERNATIONAL CONVENTION CENTRE

Auckland's International Convention Centre continues to cause controversy, and is by far the biggest of Fletchers' 16 troubled projects.

SkyCity is the client waiting for the centre, and the associated hotel to be completed.

That is expected to happen in July next year, which will allow SkyCity to seek damages from Fletchers, though legal 'argy-bargy' could happen as Taylor vowed: 'We will actively pursue our full contractual rights.'

That comment came in response to SkyCity's boss Graeme Stephens saying he expected legal 'argy-bargy' when the casino operator bills Fletcher Construction for losses incurred as a result of the late completion of the new international conference centre in Auckland.

The project's 'approximate project value' to Fletchers was supposed to be $400m-$500m, Fletchers said at its media conference on Wednesday.

It is forecasting a $410m loss from the project, indicating SkyCity shareholders have enjoyed a massive transfer of value from Fletchers.

In October last year, Fletchers had forecast losses of $320m across all 16 projects.

More than half of the massive increase in forecast losses was from the convention centre alone.

Taylor said cost rises included a 150 per cent rise in the cost of 'putting a ceiling up from what the basis of the project was estimated on'.

Taylor, who has been in the job for just 10 weeks, blamed incompetence at B&I, and a contract that was not favourable to Fletchers.

The management of B&I had been overhauled, he said.

JUSTICE PRECINCT

Just weeks from completion, Christchurch's law and order centre will cost Fletchers $156m in losses.

The approximate contract value was $200m to $300m, Fletchers said.

Because it is so near to completion, the losses are the most certain.

Fletcher Construction was supposed to hand over the completed project in early February, ready for agencies to move in in June, but the precinct was officially opened in mid-September. Work is still underway to complete it.

COMMERCIAL BAY

A massive new office and retail centre is rising in the heart of Auckland's CBD across the road from the historic ferry building, and the dock to which cruise ships moor to disgorge their wealthy passengers.

The project is to be completed around the same time as the International Convention Centre, and is expected to give a massive economic boost to the city.

Fletchers said the approximate contract value was $400m to $500m.

In its Wednesday update, Fletchers did not reveal whether big losses from the project were expected.

Commercial Bay was included with 13 other projects on Fletchers' watch list of troubled projects.

Together they are expected to result in a loss of $186m for Fletchers.

Taylor said commercial sensitivity and contractual secrecy were the reasons for not revealing the expected losses of each project.

ONE PRISON AND THREE AIRPORTS

A prison and three airports are among the other marquee projects on Fletchers' watch list.

They are Auckland East Prison (contract value $200m to $300m), development of Auckland Airport ($100m to $200m), Christchurch Airport Hotel ($50m to $100m), and Wellington Airport Carpark $50m to $100m).

Their completion dates range from the middle of this year for the prison, and the Christchurch and Wellington airport projects, and January for the Auckland Airport work.

The Christchurch Novotel's construction was disrupted when some of the New Zealand-supplied steel being used in its construction was found not meet 'requirements'.

There are other 'key' projects with contracts worth a combined $500m to $600m, Fletchers said.

These unnamed projects were due to be all completed by the end of the first quarter of next year.