Councillors kept in the dark about Town Hall cost blowout

Friday, 27 October 2023

Officials kept Wellington city councillors in the dark for more than six months that the cost of the town hall rebuild had blown out.

Advisors became aware of the overrun – which now stands at $147 million – in February. Chief executive Barbara McKerrow was first told in June.

It took until September for council officials to inform Mayor Tory Whanau. And it wasn't until the following month that councillors found out – when staff asked for a cash injection.

That's despite officials commissioning three reviews into the project.

On Wednesday, councillors approved a budget increase for the project to $329m. Officials told them delay, pause or demolition would only add to costs.

The original cost of refurbishing the quake-prone building, which was shuttered in 2013, was $43m.

Chief operating officer James Roberts told The Post it became clear mid-last year that costs were rising. Back then, the council agreed to increase the budget from $112m to $182m. That mostly related to Covid-19 delays and inflation on building materials and labour.

But it didn’t include cost escalation related to the building process – earlier in the year the project team realised ground conditions on the reclaimed land were much worse than expected.

“In February/March this year, while there was still confidence from the project team that they were working towards that baseline cost of $182.4 million, it was starting to become clear that there were risks that we might end up going over that budget,” Roberts said.

“We had no idea, at that point in time, it was going to be an extra $147m. All we knew was that the risk we have been carrying from day one was starting to look more like the higher risk outcome scenario, given what we were discovering on the ground.”

A contractual management review was initiated. Then in late June, project management company RCP was brought in to assess outstanding risks, and provide some indicative costs.

RCP’s work would take eight to 10 weeks. Other parallel reports also started to reveal seismic issues with other buildings around Te Ngākau Civic Square, including the Michael Fowler centre and Municipal Office Building, which stands next to the Town Hall building.

Councillors were still in the dark, but by the time RCP’s work started, Roberts had brought McKerrow into the loop.

“We didn’t want to provide inaccurate or non-robust advice to the council and the public because that would be misleading,” Roberts explained. “We were working the rigour through that process to make sure that we had robust numbers at the end of it.”

On October 3, councillors learnt of the overrun: with a total cost of between $254m and $329m. The heritage building can’t be demolished because it is listed, and legislation means it must be strengthened by next year. They were given three weeks to make a decision.

During Wednesday’s meeting, councillors asked about the possibility of consulting with the public about whether to continue. They were told that under local government laws this would be a lengthy process, only adding to costs.

Roberts rejected that consultation could have started earlier and run in parallel with the reviews and new cost assessment. “I don't think that would have changed anything.”

He also said the spiralling costs shouldn’t have come as a surprise as the project team was signalling to councillors through quarterly reports, which follow a traffic light system.

“The reporting was showing quite clearly that there was risk around the forecast,” he said. “In the 2023 reports, the budget was amber from at least February onwards.

“From a finance perspective, it was going red because it was very clear at that point that additional funding would be required. But, the scale and size of that additional funding was unknown.”

But councillor Diane Calvert – who wants a review of the governance of the project – said that reports from December showed the budget in ‘green.’

“We've got to actually think about what went wrong in the first place and how it got to this stage. How did we increase the budget in less than 18 months by $230m?”

Tim Brown said he was told of a likely cost increase during a tour of the site in April, and says five other councillors were present.

“Would anything have been different if we had known anything then? Would we have made a decision that would have been different to the one that we made yesterday? I think the answer is no,” he said.