After multimillion dollar cost blow-outs, Wellington City Council changes its methods
Tuesday, 9 July 2019
Wellington City Council has changed the way it costs projects after a raft of cost blow-outs on major projects, chief executive Kevin Lavery says.
The Town Hall's strengthening costs, including a contingency, increased from $43m to a reported $130m, Omāroro reservoir from $30m to $58.2m, and the St. James Theatre nearly doubled from $17m to $33m - all were based on rough estimates slotted into 10-year plans that hadn't kept up with construction price increases, Lavery said.
He gave the explanation at a Property Council event on Tuesday after an audience member asked him why costs had ballooned on building projects.
'Actually, it's probably because of the forecasting techniques we used a number of years ago,' he said.
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'They're not taking into account the hot growth we've had over the last couple of years and it's really just a budget at a very early stage.'
AUT professor John Tookey previously referred to initial Omāroro reservoir figures as having been 'pulled out of somebody's posterior'.
During a panel discussion on infrastructure firm AECOM's 2019 Construction Sentiment report Lavery said the inaccurate costings made management of the projects difficult with staff having to go back to council multiple times to say 'look we got it wrong'.
He said WCC had now changed its practices and '95th percentile' estimates were used for Let's Get's Wellington Moving where numbers would be valid for the next 3 to 5 years.
Derek Baxter, Chief Engineer at Wellington City Council, said councils also unfairly paid higher prices for construction work despite never going out of business and always paying on time.
'I sit and watch that the best prices are given to the listed companies that don't exist anymore, how does that work?'
Lavery also continued his call for more partnerships with trusted construction firms and less work put out to open tender.
He was backed by Baxter who said open tenders weren't helping councils with many putting in wildly varying bids based on varied assumptions.
Councils would then end up 'trying to unpick three conforming tenders that just were nothing like each other', he said.
Speaking after the talk AECOM managing director Craig Davidson said open tenders might result in more low-cost bids but the 'bulge would appear somewhere else' even if the headline price was cheaper.
Partnerships would involve more work with trusted partners at the beginning and more time and money spent scoping out projects and setting the parameters, he said.
Infrastructure NZ head Stephen Selwood, also a panelist, said New Zealand had to change its culture of focusing only on the cost of infrastructure rather than the benefits.
'Otherwise all the attention always goes on the cost and we'll just be in this perpetual cycle of bidding low to try and get projects through and then being embarrassed when they come through at their actual cost.'