$471m spent on prisons without knowing full cost
new-zealand-national-party
Wed Jul 25 2007 12:00:00 GMT+1200 (New Zealand Standard Time)
$471m spent on prisons without knowing full cost
Wednesday, 25 July 2007, 2:57 pm
Press Release: New Zealand National Party
Simon Power MP
National Party Justice & Corrections Spokesman
25 July 2007
$471m spent on prisons without knowing full cost
The Government spent $471 million of taxpayers’ money on four new prisons before it had any idea of target costs for the project, says National’s Justice & Corrections spokesman, Simon Power.
Unlike a traditional contract, the regional prisons have been built without a fixed price from the beginning using the unusual Collaborative Working Arrangement (CWA), although indicative costs (known as target outturn costs) are supposed to be agreed upon before construction commences.
However, Mr Power is releasing a letter from Audit NZ to Corrections CEO Barry Matthews which says: ‘Target outturn costs have not been agreed in a timely manner. Whilst we recognise that the RPDP project is complex, that CWA represented a new way of working and that there were valid reasons why some delay in agreeing target outturn costs was inevitable, nevertheless $471 million (over 60%) of total costs had been paid to contractors before target outturn costs were finally agreed.’
“This is very embarrassing for Corrections and the Labour Government.
"We've already discovered they didn’t have a clue how much these prisons were going to cost until years after construction started – in the case of Otago it was 17 months, Spring Hill 20 months, and for Auckland Women’s an astounding three years after earthworks started.
"But now we actually have a dollar amount for how much was spent blindly by Corrections – they were writing cheques for $471 million of taxpayers’ money on the back of an unproven contracting method before they had any idea of the eventual cost. That’s an appalling risk to take with taxpayers’ money, and proves the CWA process was much riskier than anyone realised.
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“The letter is also critical of the fact that Corrections was not ‘fully aware of the escalating costs’ of the project before they asked Cabinet for an extra $140 million in December 2005.
“Most people get a firm price when they’re planning a new building, but not Corrections. They gambled millions of dollars and look what happened – there was a $490 million budget blowout.
“The State Services Commission pointed out that delays in establishing the indicative costs meant contractors were paid whatever they charged, without any assurance they were reasonable. Basically, Corrections was shooting in the dark.
“Minister Damien O’Connor trumpeted CWAs as the best way to manage the regional prisons project, but this letter reveals just how dangerous that process was.”
Mr Power said it was significant that the planned upgrade of Mt Eden Prison – probably worth hundreds of millions of dollars – will not use CWAs.
“Why not? If the process was as good as Damien O’Connor said it was, wouldn’t he use it again?
“He should admit that millions of taxpayer money could have been saved had they not used it.”
Attached: pages from Audit NZ letter and answer from Estimates questionnaire (PDF)
ENDS
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