NZ Report / Proposal Template - State Services Commission

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1.7 The increases have impacted on planning, consents, design, construction and cost. 1.8 A second key factor influencing the RPDP has been the process of obtaining consents under the Resource Management Act. The outcome of this process (which is not part of this review) has resulted in changes to the approach to design and construction. These changes have, in turn, contributed to the Department using a form of procurement – referred to as a Collaborative Working Arrangement or CWA – that is fundamentally different to the more traditional fixed price form of contracting. The change in procurement method has assisted the Department to deliver the regional prisons in time to meet growth in the prison population. However, the CWA methodology has also raised a number of issues and lessons. 1.9 The third contextual consideration is the fact that the new prisons have been built during a heated construction market. As a result, substantial cost increases have been experienced in relation to labour and materials. Moreover, the sheer size of the RPDP project in relation to New Zealand’s construction, design and quantity surveyor capacity has stretched available resources. Key Findings 1.10 Growth in the prison population has been a key driver for the RPDP. The Department has successfully responded to this, and the changes in forecasts, by delivering the Northland and Auckland Women’s prisons on time, within budget and to the standard required. It is on track to complete the Spring Hill and Otago facilities in time to meet requirements. 1.11 The costs of the Spring Hill and Otago facilities have increased by $140.8 million compared to estimates presented as part of Budget 05. Several factors have contributed to the increase including: • market factors, including inflation in relation to input costs (e.g. steel) and labour, as well as the need to pay increased allowances to attract scarce labour resources. The remote location of the construction sites added to these pressures; • the outcome of consent processes and regulatory changes; and • design changes following the completion of Northland and additional work on a range of infrastructure services. 1.12 It is important to note that the estimates provided as part of Budget 05 should have been clearly communicated as indicative only. In particular, the level of cost escalation incorporated into the Budget 05 numbers was based on external forecasts that are known to have limitations. Further, the estimates were based on traditional quantity surveyor data that did not sufficiently recognise the specific circumstances of the Spring Hill and Otago projects. 1.13 It is also important to note that the CWA methodology used for the RPDP projects differs from traditional procurement methods in that the principal contractors do not submit fixed price quotes. Instead, the overall cost of the projects is a function of direct costs (labour and materials) plus agreed allowances for margins and overheads. There is a process – referred to as the development of the Target Outturn Cost (TOC) – that is fundamental to agreeing the level of overall costs. Various factors including, in particular, constraints around the availability of design and cost estimation resources, have delayed Executive Summary 2
the development of the TOC until much later in the construction phase than is desirable. This has exposed the Crown to cost risk, which the Department has managed through independent scrutiny of cost data presented by contractors. 1.14 The CWA methodology has a number of inherent advantages compared to traditional forms of procurement and the Department has captured many of these: • there has been close integration of design, construction and commissioning teams which assists in achieving an optimal balance between design, construction and operational requirements; • several value management reviews have been undertaken to further optimise designs and take out unnecessary costs; • at a site level, resources have been mobilised to deal with day-to-day issues thereby increasing the efficiency of on-site resource utilisation; • the collaborative approach to dealing with issues has helped to maintain momentum with the projects, thereby enabling the timing of projects to be completed on, or near to, expectations; • high levels of transparency in relation to costs have been achieved at the project level consistent with the “open-book” philosophy that underpins CWA (with some opportunity for more transparency over margins – see Section 5); and • costs submitted by the commercial CWA partners have been exposed to extensive third party scrutiny and review. 1.15 Overlaying all of these benefits, the methodology chosen by the Department means that it is on track to deliver Spring Hill and Otago in time to meet the expected growth in the prison population. There were sufficient indications to suggest that had the Department elected to follow a traditional procurement method, timeframes for completing the projects would probably not have been met. 1.16 Projects of the size and complexity of Spring Hill and Otago need tight management. RPDP project governance and management arrangements have delivered (or will soon deliver) four regional prisons to accommodate the growth in prison population. 1.17 Current arrangements for project governance, following a review during 2005, have resulted in improved governance and project management of RPDP. In particular, we consider desirable changes have included: • establishment of the Programme Management Office (PMO) and a specialist construction sub-committee; • separating responsibilities for direction of construction from commissioning; and • the inclusion of a Department employee on the CWA Principals Groups in Spring Hill and Otago. 1.18 Under arrangements prior to late-2005, the Steering Group established for the RPDP was often constrained in its decision-making effectiveness through a lack of sufficient information to support decisions (notwithstanding the transparency of cost Executive Summary 3
Page 1: Report of the State Services Commis
Page 5 and 6: Disclaimer In preparing this report
Page 7: 1 Executive Summary 1.1 Constructio
Page 11 and 12: cost should be seen as indicative o
Page 13 and 14: 2.8 As indicated above, the scope o
Page 15 and 16: 3 Background 3.1 Before discussing
Page 17 and 18: 3.12 While the merits of the new de
Page 19 and 20: 4 Key Drivers and Causes of Cost Es
Page 21 and 22: Otago Cost Contributors ($ million)
Page 23 and 24: • The types of building included
Page 25 and 26: • sub-contractors’ margins have
Page 27 and 28: • the impact of the projects on l
Page 29 and 30: Lessons Learned: • Notwithstandin
Page 31 and 32: Costing CWA methodology provided a
Page 33 and 34: • Auckland Women’s was a full C
Page 35 and 36: 5.20 Several points should be noted
Page 37 and 38: • The CWA methodology has been pu
Page 39 and 40: • • Department engaged CMS in r
Page 41 and 42: • Outsourcing arrangements - thes
Page 43 and 44: the hyb rid CWA subject to the cond
Page 45 and 46: • • where complexity gives rise
Page 47 and 48: 5.65 A probity audit of the selecti
Page 49 and 50: determination of TOC/QRA and the in
Page 51 and 52: 6 Governance and Project Management
Page 53 and 54: Public Sector Project Governance an
Page 55 and 56: 6.12 It is noted that these arrange
Page 57 and 58: Previous Arrangements 6.20 While th
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Department ‘Client’ Representat
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• While it is outside of the scop
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7 Reporting to Ministers Key Findin
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• it is a core expectation that p
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• The report prepared by the Depa
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elationships and, as part of this,
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• the gain and pain is linked to
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Decision-making Effective decision-
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The decision-making for each projec
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NZ Report / Proposal Template - State Services Commission

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