Blowouts ‘blindside’ Queenstown council due to weak oversight

Saturday, 25 May 2024

The Queenstown council has been “blindsided” by major cost over-runs on infrastructure projects worth $500 million due to weak oversight, a new report has found.

Queenstown Lakes District Council requested the report on the Whakatipu Transport Programme Alliance - a group convened to run the town’s largest infrastructure projects in decades.

The work included the $60m Queenstown street upgrades, the $128m arterial project building a road to bypass central Queenstown, $70m spent on the Lakeview development, and a $250m road upgrade project.

The bulk of the funding was supplied by central government but the council has been liable for millions in cost over-runs.

The report, described as a “lessons learned review”, identified the key problems as poor design work, under-estimation of costs, and a lack of understanding and oversight of the alliance by the council.

However, author Dave Brash said many of the cost over-runs were unavoidable and it was highly unlikely the council would have got a cheaper model through a more traditional contract.

The alliance included the council and Waka Kotahi New Zealand Transport Agency, with design and construction companies Beca, WSP, Downer New Zealand and Fulton Hogan.

The review found the group was formed “very quickly” in 2020 to ensure construction milestones could be met on government-funded “shovel-ready” projects.

The government had committed $35m to the town centre upgrades and $50m to the arterial project.

There were key risks involved for the council when developing the alliance contract but there appeared to have been little discussion about the nature and scale of risks and how to manage them, the report said.

“There appears to have been an early assumption that procuring via an alliance would be sufficient to manage this risk.”

Risks included the size and complexity of the programmes, a cap on the funding which left council carrying the financial risk for any cost over-runs, unknown underground conditions, and the early stage of the arterial road design plans when costs were estimated.

In practice councillors did not receive regular or comprehensive risk reporting on the programme, much of which was readily available, the report found.

Councillors and senior staff later felt “blindsided” by cost increases, particularly for the arterial project, which the council had cover to the tune of $39m.

Using the alliance model was “totally reasonable” for the council following similar agreements in crisis situations, such as the Kaikōura and Christchurch earthquake rebuilds, and in response to Cyclone Gabrielle, the report found.

“Historically, most alliances in NZ have come within 5% of original cost estimates,” it said.

However, in the Queenstown case, the council’s senior management oversight and resourcing was weaker than it needed to be.

“Specifically, the council did not resource itself up sufficiently to reflect the complexities of the alliance, or the reporting requirements back to council.”

Projects over-run

The Central Queenstown Street upgrade project started with $35m of government funds and the council making up the rest of the $60m budget.

The report found completion was delayed six months and said there were increased costs driven by the discovery of unexpected ground conditions such as tree roots, and unexpected underground utilities, which the alliance discovered on average every 900mm.

The alliance had since spent $100,000 to fix pavers on Duke St and was undertaking about $500,000 worth of “snagging”, or rectifying faults, as the project concluded, such as replacing some pavers and manholes, and installing street signs and a speed hump.

Concerns had also been raised about the new stormwater system after several businesses were flooded during heavy rainfall in March 2023.

The council had commissioned reports on the concerns, but they were not yet publicly available.

At the Lakeview site, where a $2 billion commercial development was planned by an Australian consortium, the council had committed to spending about $70m to prepare the land.

The project was almost completed after seven months of delays and had also involved cost over-rurns, mostly due to asbestos contamination in cabins that were removed.

The arterial road construction work had been ongoing for longer than two-and-a-half years and had faced more acute challenges, the report said.

The council had to commit an extra $39m, mostly due to construction cost escalation and poor design and estimation.

The escalation of construction costs in NZ over the last three years had been extraordinary by recent historical standards and was largely unavoidable, the report said.

The design and estimation for the arterial project was often poor, party due to a remote design team, based in Christchurch.

The alliance’s final project was the $250m Queenstown road upgrade, part of the government’s NZ Upgrade Programme.

It involved upgrades at the “BP roundabout” – one of the South Island’s busiest intersections – a bus hub and about 18 sets of traffic lights.

Work started in April and it was expected to take four years to complete.