Road to inflation - New Waikato River bridge build jumps $20 million

Wednesday, 29 June 2022

The first girder segment is lifted into place on Hamilton's new Waikato River bridge earlier this month – a big jump in costs is being provided for due to Covid-19 restrictions and increasing costs.

Inflation and covid-related costs will push the bill for a new Waikato River bridge in Hamilton up by $20 million.

The almost 15% hike is yet another sign of the impacts on the economy of inflation and supply chain issues due to a range of local and international factors.

And there’s concern the extra $20.2 million may not be the end of it.

Councillors on Wednesday formally signed off on an increased approved contract sum for the Peacocke Waikato River bridge and related works and services, taking the amount from $140 million to $160.2 million.

They were told some $18.1 million of the increase relates to cost escalations and is included in the draft annual plan 2022-23, due for sign off on Thursday.

The city council’s executive director strategic infrastructure Andrew Parsons (left) at the Peacocke Bridge construction site. He told councillors the success over re-negotiating projects to the Government was “a great outcome over 10 years”. To his right is HEB Construction project manager, Shane Wilton (file).

It’s projected extra costs for the ratepayer relating to this would be $8.8 million, net of Waka Kotahi transport agency subsidy. A formal subsidy request has been lodged.

Another $2.1 million of the overall increase – agreed to by the finance committee in December last year – relates to Covid-19 restrictions introduced in late 2021, the report said. A council spokesperson said those Covid-19 costs included things like ongoing hire charges for equipment that couldn’t be used due to the restrictions.

Concern was also expressed in the report that the $20.2 million in escalations may not be the end of things.

For example, the $18.1 million of cost escalations was based on an estimated 3.4% inflation per quarter and the most recent data from Statistics NZ was 5.2% for the January to March quarter this year. The $18.1 million estimate was dated March this year “and the final costs are not known”.

However, staff did not recommend changing the cost escalation provision in the annual plan.

They would monitor and report on cost escalation through the finance committee as part of the overall capital programme.

“The country remains in a period of very high economic uncertainty which continues to affect supply chains and labour markets, in New Zealand and abroad.

“This is resulting in cost escalations continuing to increase at above expected levels and, although no immediate change to cost escalation forecasts is suggested at this stage, close monitoring and exploration of methods to increase cost certainty is necessary.”

The report added staff will regularly update the finance committee as actual quarterly escalation costs become known.

However, it also said the contract continues to progress well, overcoming various challenges to meet project expectations.

“While some delays resulting from Covid-19 restrictions and ongoing local and wider supply-chain challenges remain unquantified, the project is still currently expected to be substantially complete mid-to- late 2023.”

Staff would continue to manage risks such as Covid effects on staffing, and materials pricing and availability, with steel and fuel being “particularly sensitive”.

But there was some good news on costs. Restructuring of an agreement for Government funding for Peacocke will allow deferral of some repayments, resulting in an interest saving of approximately $3 million.

Executive director strategic infrastructure Andrew Parsons told councillors the success over repayments was “a great outcome over 10 years, it’s a good news story”.