NZ Report / Proposal Template - State Services Commission

Overview of Cost Increases
4.1 Initial estimates for the cost of constructing Spring Hill and Otago were made as
early as May 2000. However, substantive estimates were not made until late 2003.
These estimates were included as part of the reporting to Ministers in the context of
Budget 04. At that time, the costs associated with Spring Hill and Otago were expected to
be approximately $248 million and $161 million respectively. The estimates indicated as
part of Budget 04 were informed by the tenders submitted for the Northland project.
4.2 The estimates were updated as part of Budget 05 and took account of escalation
since the previous estimates made in 2003. The costs for Spring Hill and Otago reported
as part of Budget 05 were revised upwards to $283 million and $175 million respectively.
4.3 Since Budget 05, costs have risen further. In December 2005, approval was
sought for additional appropriations totalling $140.841 million. This reflected the net effect
of increased construction costs totalling $157.976 million, together with the off-setting
impact of lower than expected expenditure in other areas (e.g. earthworks and
reclassification of some commissioning costs) which totalled $17.135 million (giving a net
increase of $140.841 million).
4.4 The table below summarises the reasons provided to Ministers, as part of the
December 2005 reporting package, behind the significant construction cost increases
between Budget 05 and the numbers reported in December 2005.
Spring Hill
Cost Contributors
($ million)
Market Influences 53.773
Consents and
Regulatory Changes
Escalation 16.640
Labour rates and location 13.123
Margins and overhead 13.570
On-site construction cost increases 10.440
Consents 5.740
Holidays Act, Building Act 1.540
7.280
Design Finalisation 50.650
Changes arising from Northland 13.600
Site works requirements
37.050
• Drainage $11.3
• Ducting $4.6
• Water reticulation $2.9
• Gas reticulation $0.6
• Roading $6.0
• Finishing works & landscaping $10.1
Total Increase 111.703
Key Drivers and Causes of Cost Escalation 14