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Commercial risk not govt's concern in major projects

Monday 20 March 2017 05:48 PM

Commercial risk not govt's concern in major projects, PM English says

By Paul McBeth

March 20 (BusinessDesk) - Cost overruns that push major building projects into the red aren't the government's concern, and it's instead focused on ensuring those builds are delivered on time and to budget, says Prime Minister Bill English.

Speaking at his weekly post-Cabinet press conference in Wellington, English confirmed he'd heard speculation that government projects had contributed to Fletcher Building's 15 percent earnings downgrade today, but said he hadn't any specific conversations about them. The government has 53 major projects, accounting for some $37 billion of spending that attracts special attention from the Treasury, including the $300 million Fletcher-built Christchurch Justice Emergency Services Precinct. The last major project report for November said the project was on track for the March 31 handover, however this month The Press newspaper reported the precinct handover had been delayed until the end of June.

"We keep an eye and publish the major projects report - any indication of delays will have been published by now," English said. "Commercial risk for the supplier is not our concern, we just want to make sure the project's on time and on budget and it's up to them to deal with whatever commercial issues arise from that."

Fletcher today downgraded annual earnings by $110 million to a range of $610 million to $650 million, half of which was down to losses incurred on a major project and the balance from another major project attracting provisions for losses due to significantly higher costs needed to complete it. A number of smaller jobs also faced lower earnings. The company refused to name the projects, citing client confidentiality.

Chief executive Mark Adamson told analysts he and the board will be preparing to discuss whether there was scope for a claim against other parties, a decision they weren't taking lightly.

One of the projects was expected to be completed within the next few months and the other has a target date for the 2019 financial year. Fletcher said the main problems were in the complexity of design, subcontractor management and building programme delivery, which delayed the projects and led to higher costs.

The company's other projects include Auckland's convention centre and Hobson Street hotel, a $700 million contract, the $425 million Commercial Bay development in Auckland for Precinct Properties, and roading work including the Waterview Connection, and Puhoi to Warkworth.

Earlier this month the Treasury said its ability to monitor the biggest and most complex projects was stretched as it dealt with greater demand for its oversight by other government agencies, and last year when he was still finance minister, English scaled back the number of major project reports published annually by the Treasury to one full report and two high-level updates from what had been three reports, in an effort to cut costs.

(BusinessDesk)

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