In this morning's email we dug into the Government's claim of a massive cost blowout with the Christchurch sports complex project.
1. 'More blowouts to come'
The Labour-led Government pulled its first figurative dead rat from under the couch of the newly occupied house yesterday, unveiling what it described as a $75 million blowout in the cost of Christchurch's new sports complex.
Newsroom's David Williams reports from Christchurch that Rebuild Minister Megan Woods also warned yesterday of more blowouts and delays to come.
Newsroom asked if other anchor projects were behind schedule and over budget. Woods responded: “Yes. It’s fair to say that I have concerns about other anchor projects as well and I am doing a full review. I have looked at some other anchor projects and made the assessment that they are too far down the track to make changes. When I looked at this anchor project I saw that we had a chance to do things differently.”
The board of Crown rebuild organisation Otakaro made the decision to tear up the contract with Leighs Cockram Joint Venture Ltd. The contract was suspended in July.
(Otakaro confirmed to David $29 million has already been spent on the project – $22 million in professional fees, design and technical expertise, and $7 million on land remediation.)
2. But is it really a blowout?
But David reported for Newsroom that the $75 million cost “blowout” might not be as simple as it seems.
Leighs Construction managing director Anthony Leighs said: “When you look at the figures that the Crown have indicated that the project’s over budget, only a small percentage of that is actually value attributable to the over-budget construction contract.”
The rest is a risk contingency, he says, adding: “That’s their risk contingency, not ours.”
Leighs said the company was disappointed with Otakaro's decision and it hadn’t decided whether to bid for the build-only contract.
“We put a big effort into the metro sports project over a long period of time, but we respect the Crown’s decision to take a different approach to the procurement of it.”
The National Party’s Christchurch rebuild spokesman and Waimakariri MP, Matt Doocey, accused Woods of pulling a swift one with the $75 million figure, because much of it was contingency money. “With good contracting, that doesn’t necessarily need to be realised.”
Doocey also took issue with the idea of building the metro sports facility and a multipurpose arena on the same site. “There’s real risks that when you put the two together it’s only going to add more complexity and slow everything down.”
It's clear the shadows of Fletcher Building's cost blowouts on the Justice Precinct and its Convention Centre project in Auckland now hang over these big Government-run contracts for these sorts of 'anchor' projects.
In recent years the Government has become much more effective at shifting the risks of blowouts to the contractor with contract novations, but the problems with ground quality and rising construction costs have landed with a thump on Fletcher Building's P&L, making other contractors wary of taking on these big projects, particularly if they are already busy.
This potentially poses some challenges for the Kiwibuild projects if developers and contractors think the Government is too unwilling to share some of the risk.
3. There are issues with the fees-free promise
The new Government is now grappling with the nitty gritty of the early promises in its 100 day plan. One of its gnarliest is the first year of fees-free education for tertiary students from January 1, which is throwing up all sorts of unintended and curly consequences to be dealt with within weeks.
Newsroom's Shane Cowlishaw reported yesterday for Newsroom Pro that the industry is sitting in limbo as it waits to see the finer details of one of the policy
Will retirees be able to study for free? If you dropped out of university in the first year, are you still eligible? Does studying overseas count?
These are just some of the questions tertiary institutions and potential students are waiting for answers on as the Government prepares to implement the first tranche of its fees-free study policy.
Some universities, including Auckland University and Otago University, refused to comment until the full details of the policy had been made public.
But others in the industry were more willing to speak about the potential impacts as they wait to see what final shape the policy will take.
Dr Rod Carr, vice chancellor of Canterbury University, said the institution was already seeing an impact from the policy with enrolments for next year up about 10 percent.
At seven weeks into the enrolment cycle, there had been 3254 enrolments, while last year there had been 3296 during the full 22-week period.
While the university had been predicting a five percent increase, the free fees policy had boosted that with record interest from Wellington and Auckland, as well as from Christchurch high school students.
Carr said he was delighted with the increase, with Canterbury well placed to pick up the extra students as it was still about 2000 below pre-earthquake enrolment levels.
There were still a huge range of details that were still unknown and could change things significantly, he said. These included whether the policy covered just the first calendar year, or could be split over academic years for part-time students and whether programmes such as an MBA that did not require an undergraduate degree were included.
4. Dispersed or focused?
Decisions about where to host the America's Cup and what facilities need building around Auckland's waterfront are coming to a head.
Newsroom Co-Editor Tim Murphy reported this morning officials want the Auckland Council to opt for a 'dispersed' option for the America's Cup village across several downtown wharves - and costing around a quarter of a billion dollars. (Pictured above)
Their favoured option is one based on Wynyard wharves (east and west) and Halsey wharf, which is $40 million cheaper than one big village on a greatly expanded Halsey wharf but which could have higher costs to run during the event as teams spread out by the waterfront.
The costs for the $130 million base, plus $18 million to move current users off the needed wharves and surrounding spaces, and $90 million of downtown capital projects that the council has not budgeted for, mean the city, government and private sector are looking at an investment of around $240 million.
Team NZ is known to favour the costlier village of bases on the bigger Halsey Wharf and would need to agree to the lesser, dispersed option before Auckland Council moves to seek planning consent in a special 'single hearing' process taking until the middle of next year.
Team NZ has reserved the right to hold the event overseas, possibly in Italy, if Auckland arrangements cannot be negotiated satisfactorily.
Officials want Auckland Mayor Phil Goff and the council chief executive Stephen Town to have the right to negotiate with Team NZ, the government and private investors over the next month and report back to the December council meeting for a decision. Town is chairing a joint council-government taskforce preparing the plans.
Meanwhile, an economic impact report prepared for the Ministry of Business, Innovation and Employment (MBIE) and released on Tuesday estimated a positive impact from hosting the event of between $555 million to $977 million in value added to the country's economy between next year and 2021. It estimated between 4700 and 8300 extra jobs would be created.
Elsewhere, Tim reported plans for a $10 million, 85-metre structure out into the Waitemata Harbour to berth super cruise liners were back on the table.
Mayor Phil Goff made a high profile objection to the 'dolphin' structure when he was first elected a year ago, citing its intrusiveness into the downtown harbour and its cost. He instructed the Auckland Council bodies planning the solution for cruise liners too big for the wharves to consider lesser options.
But technical studies which go before councillors tomorrow show that Goff's smaller, cheaper options would be unable to safely berth the big ships, which can be more than 350 metres long.
Instead, the council will be asked to endorse two 'dolphins' or mooring structures, connected by a walkway, and extending up to 85 metres off Queen's Wharf. The walkway concept had previously been criticised by opponents of the cruise ship berthing plans. To have the structure in place by the summer of 2019/20, planning consent applications would need to be lodged early next year.
See Tim's full report here on Newsroom.
5. Briefly in our political economy
Payout downgrade? - Global Dairy Trade reported prices fell overnight for a fourth consecutive auction, taking the fall since September 17 to 9.0 percent. The Global Dairy Trade index of all products fell 3.4 percent, but the all-important wholemilk powder price index (which decide the Fonterra milk payout) fell 2.7 percent.
"It is clear the market is nervous about rising global supply," ANZ's economists reported this morning. "European supply is increasing on the back of higher farmgate prices and favourable seasonal conditions, and local supply is improving too," they said.
"Ultimately, it sets the scene for Fonterra to downgrade its milk price forecast for 2017/18 early next month to close to our current forecast of $6.25-$6.50/kg MS." The forecast is currently $6.75/kg.
Poachers turn gatekeepers (or tour guides) - The Dominion Post's most experienced political and economic reporter and commentator Vernon Small has resigned to become David Parker's Press Secretary. Also, Interest.co.nz's economic and political reporter Alex Tarrant (an excellent young man I enjoyed training at interest.co.nz) has just started as Grant Robertson's Press Secretary.
6. Briefly in the global political economy
Finally - Robert Mugabe, 93, resigned as the President of Zimbabwe overnight, sparking scenes of joy at the end of his 37-years in charge. (Reuters)
Net neutrality neutralised - The U.S. Federal Communications Commission unveiled plans overnight to repeal landmark 2015 rules that prohibited internet service providers from impeding consumer access to web content. The move essentially repeals the long-standing principle for internet traffic of 'net neutrality'. (Reuters)
Internet tsar detained - In another widening of Xi Jingping's purge of senior officials in graft probes, China's former Internet tsar Lu Wei was detained overnight. President Xi has progressively cracked down on internal dissent and widened his own personal powers in recent months. (SCMP)
Lowe for even longer - Reserve Bank of Australia Governor Philip Lowe said yesterday the bank was unlikely to increase interest rates in the near term because employers were failing to ramp up wage inflation despite an increasingly tight market. (SMH)
7. Coming up...
Statistics New Zealand is scheduled to report international travel and migration statistics for October later today and retail trade volumes for the September quarter on Thursday. They are expected to show a slowing of migration and flat retail spending.
Finance Minister Grant Robertson is expected to announce details about the Tax Working Group later this week. A date has not been set.
The Labour caucus is scheduled to hold a half day special meeting on Friday in Wellington to prepare for a four-week legislative and executive sprint to Christmas to achieve the bulk of the new Government's 100 day plan, Jacinda Ardern said yesterday.
8. One fun thing
Sadly, this one from HaveIGotNewsForYou is probably true:
"President Mugabe resigns in order to finally clear the way for a new era of corruption and vicious power struggles."