NZ Report / Proposal Template - State Services Commission

5.23 In the event, the development of the TOC has taken considerably longer than the
initial expectation. In respect of Spring Hill, the Steering Group accepted the TOC as
presented on 21 June 2006 and the CWA Agreement is being finalised for execution. In
the case of Otago, the TOC was approved by the CWA commercial members and the
Department on 25 May 2006. The CWA Agreement is currently with the CWA members
for execution.
5.24 The NFAs for Spring Hill and Otago have been rolled over multiple times (at least
7 times in the case of Spring Hill since October 2004). On several occasions, the roll-over
of the NFA took place after the expiry of the preceding agreement. It is not clear what the
legal position of the parties was on such occasions. At several points during 2005,
revised timetables for completing the TOC were advised to the Steering Group. For
example, in May 2005, it was expected that 30% of the Spring Hill project would be
scoped into a TOC by mid-July 2005 with 80% scoped by mid-August. By implication,
there was clear expectation that elements of the Spring Hill TOC would be progressively
known through the middle of calendar-2005, but we note that the numbers around the
TOC were not being communicated to the Steering Group during this time.
5.25 In the case of Spring Hill, the Department considered in mid-May 2005 whether to
delay construction work until the TOC was in place or to proceed on a fast-track basis.
The latter option was taken on the understanding that the first TOC would be available in
mid-July 2005. In the event, this deadline was not met. It was not until around late-
September that the TOC for Spring Hill was beginning to be disclosed and slightly earlier
in the case of Otago.
5.26 The long period over which the TOC was developed created financial risk for the
Department. During the period prior to completion of the TOC, the commercial CWA
members are effectively reimbursed according to cost. While such costs are transparent
and subject to review by the Department and independent advisers, the fact that critical
TOC information did not emerge sooner meant that the Department (and Government
more generally), was denied opportunities to consider options for reducing cost in light of
the higher than expected cost. Moreover, prior to agreeing the TOC, it was not possible to
agree the gain and pain share arrangements. As a result, the added incentives that these
arrangements bring were missing. In the case of Otago and, to a somewhat lesser extent
Spring Hill, the timing of the TOC meant that the projects were well underway before the
TOC was agreed. This situation is not consistent with best practice CWA methodology.
5.27 The fact of the substantial delay in getting the TOC in place obviously raises the
question as to why the delay occurred. In this respect, we consider that there is a
combination of factors.
• The Department had no experience in CWA methodology. Experience in CWA
was being gained as work on the RPDP projects progressed.
• Pressure on design teams meant detailed designs took longer to finalise than was
expected (detailed designs are a necessary prerequisite for TOC development).
We understand that the issue around design related more to building services than
to the buildings themselves (for example, designs for underfloor heating for Otago
were not complete until August 2005).
• The sheer volume of work involved in reviewing and independently verifying TOC
estimates is considerable. We consider this was under-scoped by the Department
and its advisers.
Methodology and Processes: Design, Costing, Procurement and Scheduling 30