Why so high? What's pushing up Christchurch's rebuild bill?

Friday, 23 March 2018

It's a pleasant 2-hectare spread of grass and paving, with plants and seating, a basketball hoop and ping pong tables, built for $30 million.

It's the new Rauora Park in Christchurch's east frame and has cost taxpayers $1400 a square metre, excluding land cost.

A few blocks away, planning for the city's metro sports facility is paused after the $246m budget blew out by $75m. Building the new justice and emergency precinct cost construction firm Fletcher Building an estimated $100m more than expected. 

The city's Victoria Square has just re-opened after a $7.6m revamp. A new Christchurch Hospital helipad will cost $1m. In the city's south frame, small paved squares and smart lanes have so far cost taxpayers at least $13m, again excluding land costs.

**READ MORE:

* [Cost saving measures considered for Christchurch's metro sports facility

*](https://www.stuff.co.nz/the-press/business/the-rebuild/102278066/cost-saving-measures-considered-for-christchurchs-metro-sports-facility) Contractor axed after $75 million budget blowout on Christchurch metro sports facility

* Budget for delayed Christchurch Town Hall project rises by $7.5 million​

* Fences to come down on public park in central Christchurch east frame**

Why do central Christchurch's public rebuild projects seem to cost so much? And why does the bill so often come in higher than expected?

Even before the earthquake, construction was expensive and new laws on health and safety and resource management had piled on more bills.

Since the quakes, construction inflation nationally peaked at almost 6 per cent and is now closer to 4 per cent. Banks wary of exposure to the risky property sector are charging more to cover themselves, and construction insurance is costly.

ANZ's chief economist, Sharon Zollner says timing is partly behind the big bills. So much residential, commercial and public construction nationwide is straining resources in a strong economy, she says.

This makes it tricky when governments and councils must push ahead with work, such as the Christchurch rebuild, she says. 'They would get a better deal if they waited for a recession.'

With so much work and few large-scale construction firms in New Zealand, big projects draw few tenders and this lessens competition, Zollner says. Local governments around the country are not getting the numbers of tenders they expect, and quotes are considerably higher. 

'We are dealing with a small number of firms that are juggling different things and at the moment they are juggling a lot.'

'Essentially it's a little like building a house, you have one buyer and one seller and it can be all about who tenders. For big projects, you are talking about a small pool of companies who can tender, depending on what else they have on and their resourcing and their perception of the risk.' 

'It's clear to everybody now that low tenders on projects can be very risky indeed, especially when your ability to make changes to contracts is very limited.  Seeing a big big construction company come a cropper is not an inspiring precedent.' 

Peter Silcock, chief executive of Civil Contractors New Zealand, says contractors have become wary of councils and governments leaving them with too much risk, and will price accordingly.

Previously competition had pushed contractors to price low and risk costs out their control rising, Silcock says, but many are now 'looking again at what they are signing and how much risk they are taking on'.

'Things can go awry quickly because the margins are not very large. Contractors can lose money pretty quickly'.

Silcock says some rebuild projects have been priced too hastily before detailed design and land scopes are finished, leading to cost blowouts.

Construction budget threats include a shortage of some skills, and rising costs for transporting aggregate as residents object to quarries near cities, he says.

With 40 years experience in the commercial construction industry, one expert says that as expensive as private construction is, public always means pricey.

'There's a big difference  – public projects generally are a lot more complex,' says Steven van der Pol, business development general manager for Arrow Construction.

'For a public project, there is a much higher level of complexity and specifications. There's a whole lot of people going through it or across it,' says van der Pol.

'Everything is a lot more robust and strong. All these things add extra layers of cost.'

Public construction projects must meet public building standards, not domestic ones. They require safe spaces for crowds, disability access, and high fire and seismic standards. Materials, fixtures, and surfaces must withstand heavy use and abuse and be economically maintained. 

There are hidden aspects, too, such as underground services. Rauora Park has 2.3km of drains and water pipes, Victoria Square has 3km.

Ground preparation has become hugely costly, especially on damaged and riverfront land. Even before land is remediated, underground construction remnants may need to be dealt with, noxious materials handled.

'We're often working on sites where you have to do a lot of preparation and remediation, especially in civil works,' van der Pol says. 'Christchurch has some unique issues.'

'For big sites like the convention centre for example, it costs millions. Earlier you might have just piled sites like that. But we now know about these things, we know about the geology and there's an expectation that in the next earthquake, everything will come through better.'

While the bulk of construction costs go on labour and materials, deskwork for public developments can account for over a quarter of the total bill. They need layers of planning, often from private consultants at the top of their profession and commanding sturdy daily fees.

Crown-council planning organisation Regenerate Christchurch spent $5.4m on all types of consultants in its first year – almost half its income. Planning for the city's metro sports and convention centre projects have also involved millions, with convention centre bills of $8.9m for commercial project management advisers, $4.9m for legal advice, and $3.8m for engineering consultants.

Red tape is not cheap. Council fees must be paid, even for public projects. Meetings with a senior council planner are charged at $205 an hour. The fee for a publicly notified consent application is $12,500.

At Rauora Park, about $5 million was spent on planning, communications, engagement, and professional fees. This was in addition to costs for project definition, land remediation, and $20m worth of construction and materials.

As well, any tax or rate-funded project involves extra scrutiny and public engagement. Consultation with other agencies, councils, government departments, rebuild authorities and iwi means meetings and time, and feedback to be evaluated.

Seeking public input incurs the biggest cost of all, with specialist firms hired to sample public opinion and write reports, or run have-a-say type programmes.

Getting the message out is another large cost, requiring well-paid public relations folk, marketing experts, artist's impressions, fly-though videos, and attractive logos. Even naming projects takes time and money. 

Private developers who have battled for years in Christchurch's new retail precinct are proof that the post-earthquake environment is tough to build in. But their projects have come in on budget. Public ones, largely, do not.

Independent property consultant Tony Sewell, former president of the New Zealand Property Council and former chief executive of Ngai Tahu Property, said jobs going well over budget was 'way too common' in the public sector.

It is the initial costings that are wrong, he believes.

'The problem of blown-out building costs is not caused by builders, they are just pricing what has been designed. Tendering is very competitive and there are a lot of companies chasing this work. I'm tired of seeing the poor old builders blamed,' Sewell says.

'Ministers are being badly advised. These consultants are being well paid for this and they have an absolute responsibility to get it right.'

Sewell says that professionals costing projects know about inflation, and that earthquake recovery work is complex, and should allow for both.

'If you are a professional consultant and you are unrealistic why are you being hired? People need to question the advice they are getting.'

Sewell says that while widespread in central and local government projects, the problem rarely occurred with private developments.

'In the private sector, the client clearly defines what they want. He leads the project and is very firm about what he wants.' 

Van der Pol says the public rebuild projects are always more complex because extra steps are required and everything is scaled up.

'You've got a lot more front end costs. Just to get the project off the ground,' he says. 'There can be two or three years planning.'

He outlines the steps this way: 'It starts with an idea, then there are the different options dreamed up.'

These must be whittled down to two or three preferred options. Then detailed plans and drawings and costings. Feasibility studies. A business case. Public and stakeholder consultation.

A final option is chosen. There are works drawings, costings, and the project goes out to tender. There is contracting and sub-contracting. Resource consent applications may require specialist environmental, traffic, archaeological or heritage consultants. Building consents, observation and supervision are needed at each stage. Public use certificates may be required.

Zollner believes with the costs of public construction already high, the new Government pausing or slowing projects in Christchurch could worsen things further.

Those construction companies able to take on big projects need 'a steady pipeline of work ahead' to be confident about their resourcing, she says, and the South Island already has 'a thin pipeline' of projects.

'Pausing projects could create a hiatus in the pipeline. It would make it difficult for companies because they have to plan so far ahead and they don't know what else is coming.

'If the workflow is lumpy, if there is too much time between jobs, that makes it difficult to manage to keep staff and keep them busy and remain efficient.'

The experts all seem to agree that there are plenty of questions, but no easy answers on how best to rebuild a city. 

Getting the details right takes time, but with construction costs still rising and Christchurch citizens impatient after seven years, there may be little public appetite for pushing the pause button.